Do you have a love-hate relationship with your credit card? After all, it brings you both pleasurable purchases and painful bills.
Credit cards are valuable financial assets – but cards and the companies that issue them aren't necessarily your friends. Consider these seven things you may not know about your credit card as you reassess your credit card relationship.
1. Our Cards Aren't Set Up For Maximum Security – Your credit card is likely an EMV card containing an embedded chip for enhanced security.Unfortunately, America doesn't use their full security potential.
EMV cards were designed for "chip and PIN" use, requiring a PIN to be entered at each transaction. Many foreign markets use this approach, but most U.S. transactions don't require PINs. This makes American cards more valuable to thieves, since it's easier to make fraudulent transactions. If you would like to monitor your credit to prevent identity theft and see your credit reports and scores, join MoneyTips.
2. Credit Card Debt Is at a Record High – According to the Federal Reserve, America's revolving debt – primarily credit card debt – reached $1.042 trillion in November 2018. That's the most in history, and it continues the general trend of increasing debt.
3. Interest Rates are At Record Highs, Too – As of the beginning of 2019, the annual percentage rate (APR) of all credit cards reached a record 17.41%. Three years ago, the average APR was 15.07%.
If that doesn't sound bad, use an online interest calculator to calculate interest expenses on $1,000 of debt with those two rates. Multiply that over many transactions. Painful, isn't it?
4. You Don't Always Get a Grace Period – The grace period is the amount of time a card issuer gives you to pay the charges on a billing cycle without interest. Credit card companies don't have to offer a grace period at all – but most do, with a typical grace period being around 25 days.
Generally, when you carry a balance, the grace period is voided, and you are charged interest accruing from purchase dates. It's a subtle but significant difference that racks up extra interest charges.
5. Arbitration Rules Supreme – Deep in your credit card's terms and conditions page, you'll find a clause that binds you to settle disputes via arbitration. Arbitration is a valid way to settle disputes, but you've essentially signed away your right to sue the credit card company.
6. Card Issuers Make The Most of State Laws – Since states govern usury laws (the laws governing maximum interest rates that lenders can charge on a loan), state law governs credit card interest rates. Card issuers typically incorporate in states where usury limits are high or where there are no usury laws at all. Why wouldn't they? It's perfectly legal.
7. Minimum Payments Are Low for A Reason – If you owe a significant amount, your credit card company usually sets the minimum payment at a percentage of your balance (somewhere around 2%).
How can you have a $10,000 outstanding credit balance and only owe a minimum payment of $200? It's not just to help you through a cash crunch. Credit card companies set minimum payments low so you will be tempted to build up interest on your debt.
Remember that while credit cards are a useful part of your finances, credit card issuers are in business to make money. They assume risk in loaning you money, and they cover their risk through the interest and fees that they charge.
Use your credit cards responsibly and see them for what they are – a convenience that lets you pay for things that you can't afford with your current cash supply.
If you want more credit, check out our list of credit card offers.