Understanding Credit Card Penalties
By CreditorWeb.com
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http://www.creditorweb.com/
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Because most of us have one or two credit cards and we use them
every day, understanding credit card penalties and fees is a significant
issue since one time or another we have paid a penalty for some
reason. Every user of a credit card must first understand that every
charge on the credit card represent a loan which must be repaid.
It’s like the loan for buying a house or a car; the same way these
loans should be repaid, the credit card debt should also be repaid
and even more it should be paid in time and at least the minimum
amount or else you’ll end up paying more interest fees and penalties
than the actual borrowed amount. So, we can say it is important
that reading and understanding credit card penalties and fees to
be done before you apply for a credit card and start using it. A
credit card user should read, before signing, the agreement and
especially what is written with small letters because those small
written lines sometimes are the most important. The agreement of
the credit card usually contains rules on how and when the credit
card issuer can apply penalties and fees, but you should also look
for the lines where it is clearly stated how and when the payments
should be done. You, as the future user of the credit card need
to have complete and accurate information in order to be able to
take a correct decision.
In the past few years, credit card companies and banks are set
to make as much profit as they can, in any way they can. They have
introduced all sorts of penalties and fees, and have come up with
various strategies on how to get more people to pay more money.
So, understanding credit card penalties and fees policy is a must
for every credit card user, as he must always know how and when
to pay his debts in order not to be charged penalties of higher
interest rates. Nowadays, you can pay penalties for a lot of situations.
If you miss a payment deadline, you’ll pay a penalty that very much
depends on the balance you have: for a small balance a small penalty
and for a big balance another penalty. Other banks or credit card
companies charge you the same penalty regardless of the balance
you have, but this penalty tends to increase as the time passes.
There is also another system: for late payment you’ll have to pay
a penalty and a penalty interest rate. And you should know that
card issuers don’t have a limit on how high the interest rate can
go, it all depends on your cardholder agreement. In fact, credit
card issuers don’t look at the late penalty payment as a punishment.
For them penalties are a way of training you to keep your commitments,
in other words to train you paying in time. A credit card is a line
of credit, and when you accepted to take this credit both of you
and the credit card company made commitments: the company to lend
you the money and you to pay the money back. The company has already
shown her good faith and gave you the money, but you you’re late
with the payments the credit card company starts wondering whether
you’re still committed to pay the money back. So, the penalty is
the way to remind you that you have to make the payments in time.
We can ask ourselves why credit card companies are more and more
interested in penalties and fees. The answer is: because of the
increased competition on the credit cards market the companies are
making less and less money from finance charges compared to the
past years, So, the credit card companies are finding other ways
to make more people pay more money. That is why is important that
reading and understanding credit card penalties and fees policy
to be done before applying for a card and not after when you are
already piled under a lot of debts accumulated for paying various
penalties and higher interest rates. For not getting into such a
situation, the most important advice is to know from the beginning
the real cost of the money you’re borrowing, not only the interest
rate but also the penalties and other fees. Also, it is essential
not to be fooled about the great offers of the big credit card that
you receive in your mail box. Shop around for other credit cards
and decide only after seeing more than one offer.
This article has been provided courtesy of Creditor Web. Creditor
Web offers great credit
card articles available for reprint and other tools to help
you search and compare credit
card offers.
Published - November 2005
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