Whether you're looking to build a credit history, collect rewards, access low interest rates or simply keep track of all your spending, credit cards can be the best tool out there when it comes to money. Seriously.
However, you do have to be careful.
Credit card companies like to stack the deck in their favor. With terms and conditions written by lawyers paid $1,000 an hour, credit card companies have laid down a series of land mines that can leave you reeling if you're not careful.
Here are a few things to watch out for to help you stay on the right side of the ledger:
1. Retroactive Interest Charges
We all understand that if we miss a credit card payment, our rates may go up and we'll be assessed a late fee. However, if you miss a payment on a 0 percent sales finance loan (Get a TV for 0 percent for 12 months!) or if you forget to pay it off in full at the end of the term, you may have to pay interest from day one.
That's right, if you miss your very last payment, you don't simply get charged the go-to rate of 28 percent for the last statement period. You could get retroactively charged 28 percent from day one. So instead of paying 0 percent on that $2,000 TV, you'll end up paying more than $560 in interest charges alone.
2. Points Expiry
Imagine you spend years loyally accumulating enough points to finally redeem that free trip you've been dreaming of. The only problem is, when you go to redeem, your points are gone. Nightmare.
Many loyalty programs have point or mile expiry policies. Some do it if your account is inactive for a period of time, like United's MileagePlus 18 month policy, while others expire your miles five years from the time you earned them. Other programs, like Delta SkyMiles, never expire your miles.
One trick to avoid expiry are credit cards. Often times, if you have a credit card attached to a loyalty program, one of the benefits is that your points will never expire so long as your credit card is active, such as with Aeroplan credit cards.
Whichever the policy, it pays to know.
3. Forfeiting Points
If you miss a credit card payment, a lot more can happen than a simple late fee. Some credit card companies will actually forfeit your rewards points automatically. That's right, miss a payment, and your rewards can disappear in an instant.
Many credit card issuers will reinstate your points once you pay your bill, so make sure to ask, otherwise you may find yourself a few points short.
4. Point Devaluation
Keeping your points for too long is a big, big risk. Why? Because credit card companies and loyalty programs have a tendency to devalue their rewards over time.
They're pretty sneaky at it, too. Instead of reducing the number of points you earn for each dollar you spend (making it easy to calculate how much value you're losing), they increase the cost of redeeming your points.
Since you don't redeem every day, they're hoping you won't notice the increase.
The lesson is, as soon as you've earned enough points to book that flight you've always wanted, do it. Wait too long, and you may need 30,000 points instead of the 25,000 points you originally needed.
5. No-Fault Interest Hikes
So you have some credit card debt, but you've been making your payments diligently to avoid a penalty. But that doesn't matter.
Your credit card company may still have the right to raise your interest rates for any reason. It could be because your credit score declined, you missed a payment with another creditor or the issuer is simply trying to increase its own profitability.
Make sure to always review your active interest rate. If you see it's increased, call your issuer and demand an explanation. See if you can have them lower it.
If they refuse, look for a low-interest balance transfer alternative.
6. Account Monitoring
As if we didn't have enough concerns with privacy, did you know many credit card issuers review your transactions, including where you buy, what you buy, when you buy, how much you buy, etc.?
We get that credit card companies need to monitor transactions for fraud, but did you know they're now monitoring your transactions to assess your risk?
That's right, your payment history isn't the only factor used to assess your likelihood of paying on time. What you purchase and where you shop with your credit card is also used to assess your credit worthiness. Transactions at the casino, Lotto and used clothing store may be an early indication of financial distress.
If you want to get the most from your credit card and avoid the worst, be a smart consumer. Staying a step ahead of your credit card company will leave you with smiles for miles.