Credit Card Tutorials

How Credit Card Companies Trap Their Customers

It is one of the most profitable businesses for banking industry: credit cards. The nearly magical convenience of these plastic cards encourages our compulsive behaviors. With more than a billion of credit cards in circulation which account for trillions of dollars of consumer spending, the world economy has obviously gone plastic.

Many families use their general-purpose, personal credit cards such as American Express, Discover, Visa and Mastercard to make ends meet; these cards have become discreet lifelines for people in financial straits. But more prudent consumers use plastic strictly for convenience. While it would seem that they — who charge a small fortune each month on their credit cards — are the ideal customers, actually, they are what some in the banking industry call a “deadbeat.” That is because they pay their balance in full each month. The best customers are those who make a minimum payment each month, as a large percentage of the payment goes toward the interest.

Some analysts say that the credit cards profitability really began when the industry in some countries effectively eliminated an important restriction: the interest limit a lender is allowed to charge a borrower. Deregulation and the revolution in technology allow an almost real-time tracking of debtor financial information.

Sometimes, credit card companies are making up their own rules and misleading consumers. They know that a good way to compete is to hire a team of financial experts to lay traps in the small print and put an attractive introductory rate.

Penalty rates and fees are sometimes set off by a lapse (a monthly payment that arrives a few days or even an hour late), a charge that goes past the credit line by a couple of dollars, or loans from other creditors which render the cardholder “overextended”. Credit card companies are also adding raising interest rates and making the due date close to weekends or holidays in the hopes that maybe you will trip up and get a monthly payment in late. This flurry of unexpected rates and fees hikes come just when people can least afford them.