Originally published Monday, December 19, 2005
Extra credit-card assignment: Always read the fine print
By Steve Bucci
BANKRATE.COM
Question:I have a credit card with a large outstanding balance. Part of the balance is at a high interest rate, and the rest is at a promotional rate. The credit card company is applying the entire payment against the promotional balance, which means my high-rate balance isn't going down. Is this legal?
-- MORLEY
Answer: I'm sorry to tell you that the answer to your question is almost certainly yes, it is legal. What you describe is the normal, everyday practice of the credit card industry: Payments are usually applied first to the balance with the lowest interest rate. What's more, you agreed to it.
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The terms for the promotional and other rates contained in your credit card agreement may not be attractively displayed with eye-catching graphics, but they are there in all that dull and sometimes tiny print. These terms will state exactly how payments will be applied and to which rate, if applicable. The terms also will spell out how long promotional rates will last and any restrictions.
Make your payments on time, every time. One late payment can and probably will cancel any promotional rates and may even raise your regular rate to the penalty rate. The large credit card companies, such as Bank of America and Citibank, charge a 31 percent penalty rate, and on top of that, you will be charged a late fee. The large credit card companies today charge a late fee of $35 to $39.
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Be aware of what moving balances from one card to a new card can do to your credit if you don't do it right. Taking advantage of a new low rate by opening a new card account will lower your credit score. Also, if the balance moved is more than 50 percent of the card's limit, you will be dinged by the credit scorers a second time. And lastly, if you close your old account and it is an account with a long track record, you'll take a third hit, because old credit is the best credit to the credit-scoring models. You can use Bankrate's FICO Score Estimator for a free look at how these changes would affect your score.
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