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Look Closely at Your Credit Card Finance Charges

Some credit card companies offer lower interest rates if you transfer balances from another credit card to a new account. And if you write a check to borrow cash against your credit card, that amount can often be borrowed at a rate different from the interest assessed on your regular charge activity.

Trying to figure out the calculation of your finance charge on your monthly statement can turn into a regular nightmare when two or three interest rates are in use.

Each credit card company has different terms, so get out the magnifying glass and read the fine print. Here are some details you might see:

  • Penalties for late payments: Don’t miss the due date or your credit card company might assess another finance charge in addition to the regular interest you pay on unpaid balances. If you make a late payment on your mortgage, your car loan, or any other debt that appears on your credit report, that can trigger an increase in your finance charge rate by your credit card company.

  • Minimum charge: Some credit cards assess a minimum finance charge even if you pay your balance on time every month.

  • Extra fees for exceeding credit limit: The credit limit is your ceiling. Go up on the roof with your charges and you might get hit with additional finance charges.

  • How your payment is applied: If you have different interest rates in force for different amounts owing on your credit card, the credit card company will probably apply your payments to the amounts with the lowest interest rate first, keeping the higher rate compounding longer on the other charges.

    One way to avoid this lack of control over how your payments are applied is to use different credit cards for different types of credit.

  • Increasing rates: Credit card companies can raise your rate if you make a late payment, exceed the credit limit, don’t pay the minimum amount, or get caught serving red wine with fish.

  • Your credit report comes into play: Credit card companies can periodically check your credit report. Events that can lower your overall credit score, such as liens and garnishments, bankruptcy, excess or unpaid debt, can also trigger an increase in your credit card finance charge rate.

  • Bad check: Sending a bad check in payment for your credit card bill can result in a higher interest rate for you.

  • Acquiring a new credit card or loan: That’s right — the simple act of acquiring a new credit card, mortgage, or car loan can give your credit card company a reason to raise your finance charge rate. Even inquiring about new debt can raise your finance charges on your existing credit cards.

  • Annual fees: Don’t forget the annual fee. Some credit cards charge you a fee just for the right to carry their card.

Don't hesitate to satisfy any doubts you may have that the correct finance charge has been assessed. You have the right to contact the credit card company and ask for the details of how the charge is assessed.

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