The Other Credit Card Fraud (The One The Companies Don't Want You To Know About)

After months of hibernation, I'm back for a not-so-brief public service announcement. A lot has changed since my last post. I'm hired. But a lot has stayed the same. I'm still a cynical bastard.

I was watching Frontline on PBS last night on how credit card companies scam people. Most of it is (or at least should be) common knowledge. How credit card companies hate people like me, who pay their bills in full every month. How the real money lies in the "revolvers" who make only the minimum payment and let their balances pile up at interest rates that can be as much as 10-12 times the current interest rate. Now that would make an individual lender a loan shark but is perfectly legal for a multi-billion dollar scamster company. How they add on a slew of fees (late fees, overlimit fees and the like) to render it practically impossible for the customer to pay off their debt. And the average American household has about $8,000 in credit card debt!

Companies attract customers with low introductory interest rates and offers like airline miles and low monthly payments etc, but use the micro-print of the contract to conceal how easily and arbitrarily the "introductory" rate can be raised. For example, credit card companies only need to give you fifteen days notice before raising interest rates even on outstanding balances from previous months and years. This would be similar to a bank raising your loan or mortgage rates after the contract has been signed. The credit card industry is the only industry that can legally do this.

One thing I didn't know is that credit card companies have what is called a "universal default" clause, which allows them to raise your interest rates based on what they call and "increased perceived risk" if you are late on payments to other creditors! So if you were to miss a car payment, your credit card company has the right to charge you a higher interest rate! What sense does that make?

This cross-checking with other creditors is possible because your entire financial history is tracked by the three major credit-reporting agencies. Bad credit stays on your history for seven years, and errors are notoriously difficult to repair. A friend of mine couldn't get a personal credit card for years because of a poor credit decision made during his freshman year of college in 1996!

Which is why it is essential to keep track of one's own credit history, even if it means paying some money every couple of years or so to the credit-reporting agencies for a copy of your credit report. Better yet, under the FACT Act of 2003 you can now obtain a free credit report every twelve months (or will be able to very soon, depending on where you live in the US), at www.annualcreditreport.com. For "security reasons" you can't access the website via a hyperlink in this post's text, but you can manually type it in the address box or access it from the websites of the FTC or any of the three major credit reporting agencies - TransUnion, Experian and Equifax. Expectedly, they make the actual link hard to find, so I've tried to take you as close to the actual free credit report website as possible.

Much more information on the secret history of the credit card, including the full video of the Frontline program, can be found here (including Eight Things A Credit Card User Should Know).