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Sneaky credit card tricks Key points Charges include interest rates and annual fees A transfer rate is an introductory rate

Also in this section Credit cards: where's the limit? Little relief for credit card holders Who's stinging customers with unfair fees? Shopper's delight? David Jones' new credit card reviewed How someone stole my identity Nasty card fees revealed

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By Effie Zahos, Money Magazine, April 2007

Most cards charge more than one interest rate. And a card charging 10 percent can end up costing more than one that charges 18 percent. Besides the interest rate and annual fee, credit cards come with at least another 13 possible fees and charges. Surprised? Don't be.

Here are five of the industry's top card tricks to watch out for:

1. Low repayments The way credit cards work is that each month you're billed for the credit you've used and you have to pay back at least the minimum amount set out on your statement.

How much depends on the card issuer. Calculated as a percentage on the outstanding balance, some credit card providers set minimum repayments as low as 1.5 percent or $25, whichever is the greater.

Minimum repayments give cardholders a false sense of security. Sure your debt looks manageable, but low repayments do you no favours. The fact that a $3000 debt can take over 40 years to clear and cost over $21,000 in interest is reason enough to pay off more than just the minimum. "It's a credit card trap," says Denis Orrock of Infochoice, who believes a regulated minimum should be imposed. "At one stage minimum monthly repayments were set at five

percent of the outstanding balance, but over the past several years banks have whittled them down to as low as 1.5 percent or $25, whichever is the greater."

The key to taming your plastic is discipline — stick to a plan that sees you repaying more than the minimum. If you can't make more than minimum monthly repayments, then seriously consider refinancing to a cheaper loan.

2. Balance transfer cards Always be cautious of cards that dangle a carrot. The ones that offer an unbelievable interest rate, sometimes as good as zero percent for up to six months just for transferring your credit card debts to them, are the ones to check with care. While it can certainly pay to switch to these low-rate "honeymoon" cards or "balance transfer" cards as they are sometimes called, there's plenty of fine print.

First, the transfer rate is just an introductory rate and the "revert" rate can be expensive. More important with this type of card is how repayments are handled.

The deal with these cards is that in most instances payments made to your credit card account are first applied to any amounts transferred from other credit cards before they are applied to any new purchases or cash advances.

Let's say, for example, you transfer $3000 worth of debt to Westpac's 55-day free MasterCard. With a balance transfer rate of just 3.99 percent per annum for six months, it's not a bad deal.

Read the fine print though and you'll understand why it's important not to use this card until you first pay off that $3000. Let's say you purchase a suit for $600, only to repay it back within a week. Westpac would take that $600 payment to reduce the $3000 debt at 3.99 percent per annum first, while charging you a hefty 17.4 percent per annum (the revert rate) on the $600 suit.

The tip here is not to use your balance transfer card until you've paid off the balance. If you're not able to pay it off in the introductory period, make sure the revert rate is still competitive.

In theory, you could swap to a balance transfer card each time the special period ends. In reality though, every application for a card goes on your personal credit file. Having too many applications on your record could cause a problem with your credit rating.

3. Mean credit cards If you've got a card with an interest-free period, it's well worth reading the fine print on how interest is calculated and how repayments are handled.

Consumer group Choice did just that and found cards that use the meanest calculation method can end up charging 90 percent more interest when compared to fairer cards on the same interest rate. The report discovered that in some cases a cardholder with an interest rate of 10 percent could pay more interest than on an 18-percent card on exactly the same transaction.

"A substantial amount of money is made from credit cards," says Choice's financial services policy officer Nick Coates. "The way interest is calculated plays an important role in the card issuer's bottom line."

While Coates urges better disclosure, consumers may still have trouble with all the fine print. "Everything should be explained in the terms and conditions but it's not easy to follow," he says. "Even staff members have trouble understanding how interest is calculated on cards."

Most cardholders with interest-free cards realise that if you don't repay your full balance on time you lose any interest-free period. But what happens next is not so well known. Depending on the card issuer, some calculate interest all the way back to the original date you made the purchase or the post date (the date it hits your credit card).

So even if you're only one day late with your repayment, you could be charged 56 days worth of interest (if you have a 55-day interest-free card) on your total outstanding balance. This may occur even if you make a partial repayment.

Worse still, some cards don't offer an interest-free period for new purchases if debt has been carried forward from the previous month — nasty! Then there are those cards that even charge interest on the interest you owe.

According to Choice's report (October 2006), American Express, ANZ, National Australia Bank and St George fell into the "mean" category, as did Aussie and BankWest. Commonwealth, Virgin and Westpac were given an "okay to fair" status and the fairest of them all were Bank of Queensland and NSW Teachers Credit Union.

4. More than one rate Credit card issuers may promote one rate but that doesn't stop them charging up to three different ones. The best rate, the headline rate, is reserved solely for purchases. A significantly higher rate, as high as 27.99 percent, is charged for cash advances. And if you're lucky enough there's an even higher rate and possibly a fee for payments in arrears.

As a rule of thumb, the cheaper the advertised rate, the higher the cash advance rate. American Express recently informed its customers that payment history would dictate their interest rate. One missed minimum payment unpaid for two (or more) consecutive statement periods or four

(or more) separate missed payments means AMEX cardholders could be paying as much as 25.99 percent per annum.

But the big trap here is how card issuers handle cash advances. In most cases, you will pay interest on that cash right from the time you withdraw it — there is no interest-free period. In addition to a higher interest rate, some card issuers also charge a fee of up to 2.7 percent (or a flat amount) of the withdrawal. That's $27 straight off on a $1000 credit card cash advance.

5. Fees, glorious fees! According to the Reserve Bank there are 13.3 million card accounts in Australia with an average interest rate of around 16 percent on a total balance of $38.9 billion.

While interest rates are still high, there's more — annual credit card fees up by more than 100 percent, increases in charges for cash advances, foreign currency conversion fees, overdrawn accounts and late payments that are fast becoming the cash cow for card issuers.

So while it's important to get a good rate, it's even more important that you understand what other fees and charges apply to your card.

Big jumps in credit card penalties included exceeding your card's credit limit (increasing from nil to $29 in the period 2000-05), and late repayments. RBA data shows average late payment fees have increased by nearly 50 percent — jumping from $20 in 2000 to $29 by 2005.

Of course these are just averages and a penalty interest rate on the arrears could also apply. Some card issuers are charging as much as $40 a pop every time you exceed your limit or as much as $35 if you're late with repayments.

Things can get worse if your card issuer continues to charge you a late payment fee until arrears have been cleared. For example, some credit unions charge $15 every seven days until a late payment is received.

Credit cards: where's the limit? Article contents View all pages as single page Page 1: How you can afford it Page 2: Why me? Page 3: Stressbusting secret

Also in this section Little relief for credit card holders Who's stinging customers with unfair fees? Shopper's delight? David Jones' new credit card reviewed How someone stole my identity Nasty card fees revealed

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By Allison Tait, ninemsn Money, March 2009 You could almost believe in Santa Claus, couldn’t you? There you are, fretting over the fact that it’s the run-up to Christmas and you’ve got no cash and a credit card that’s almost maxed out (if not dead in the water), when, voila! A letter appears from your financial institution, telling you you’re pre-approved for a credit-limit increase. All you have to do is tick, sign and send it off, and you’re ready to spend again. Magic? Actually, no; it’s called marketing, cleverly disguised as a favour. And insidiously effective, according to a recent report by the Consumer Action Law Centre. Their report, titled ‘Congratulations, you’re pre-approved!: An analysis of credit limit upselling letters’ (August 2008), found that banks and other credit providers use a range of psychological manipulations to persuade, encourage and convince their current customers to take up a credit card limit increase. Dr Paul Harrison, senior lecturer in consumer behaviour and marketing at Deakin University and principal researcher of the report, began by looking at the language used in the offer letters we receive. He soon realised that our reactions to such letters went well beyond the wording — they went right to the heart of our relationship with our finances. ‘People have a very low involvement in their relationship with their finances’, he says. ‘We view banks almost like utilities and we don’t think that much about what the bank is doing. We form a trust relationship with the bank and assume they’ll be looking after our money. When we form a trust relationship, our willingness to take a risk increases. In simple terms, we let down our guard.’ We assume the bank will act in our best interests, just because they’re the bank. We forget that banks are not a community service; they’re mostly highly profitable businesses. ‘Marketing always exploits vulnerabilities’, says Dr Harrison. ‘Banks are making money out of your credit card, and it’s not by accident they’re making big profits.’ Of course, in light of recent world events our lack of interest in what the bank is doing with our money might change, but most of us will continue not to think about it.

We’ll just deposit our salaries, use our ATM cards and assume that money will come out of the wall. We’ll trust that the bank is doing the right thing by us. And, according to Dr Harrison, when the chips are down and we’re feeling a bit vulnerable (due to possible lack of cash), we’re more likely to look upon a credit-limit increase offer as a favour, rather than seeing it as an invitation to pay the bank more money in interest.

Nasty card fees revealed Also in this section

Credit cards: where's the limit? Little relief for credit card holders Who's stinging customers with unfair fees? Shopper's delight? David Jones' new credit card reviewed How someone stole my identity

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By Effie Zahos, Money Magazine, September 2008 I’ll bet you wouldn’t like being charged a fee each time you make a payment off your credit card. You’d think the card issuer would be happy you’re repaying the debt — not slap you with a fee and justify the cost by saying it’s a payment handling fee. This is exactly what happens to Money reader Peita Savage each time she makes a repayment into her GE GO MasterCard. A payment handling fee of $1.50 applies if she pays through Australia Post and 50 cents if she pays her account by BPAY via the internet or phone. We’re not talking hundreds or dollars here, but this irritating fee is bugging Peita. “I think that this type of charging is taking advantage of customers,” she says. “I have complained, to no avail.” Money agrees with Peita on this one but, given only a small handful of cards charge the cardholder for making a payment (Adelaide Bank and BankWest’s low-cost cards both charge a fee of around 20 to 50 cents for paying via BPAY), it’s not really making headlines. But watch out! Reserve Bank data shows that credit card fees have risen 170% over the past five years. It seems as though credit card issuers are looking for new and exciting revenue-raising outlets and this may be one of them. The good news for Peita is that after a quick call from Money to GE the BPAY fee of 50 cents will no longer apply after September 3. The $1.50 fee through Australia Post will still apply. So why do some card issuers charge a payment handling fee while others don’t? Put simply, BPAY charges the credit card provider (Visa/MasterCard/Amex etc) a fee for supplying their service. The provider naturally enough passes this fee onto the merchant, who may in turn pass this fee onto the cardholder. Generally the consumer doesn’t pay this fee because the credit card issuer (your bank, credit union, building society or finance company) absorbs the cost in the credit card fee. For some cards however, the cost of using BPAY is not absorbed by the credit card issuer, and is passed onto the card user.

With an interest rate of up to 28.99 percent pa on outstanding balances and an account service fee of $2.95 a month, you’d think the GE GO MasterCard could at least absorb some of these fees, given a small proportion of the $1.50 fee is actually kept by GE. Financial research house Cannex notes another nasty fee attached to BPAY. “Depending on your merchant, if you pay a bill by credit card using BPAY it can be treated as a cash advance rather than a purchase,” says financial analyst Frank Lopez. “This in turn means that you’re generally paying interest on that payment from day one. As cash advances usually offer no interest-free days, this can also affect your balance if you’re on an introductory offer. On many cards the cash advance rate is higher than the purchase rate, so be aware of the potential difference in these rates.” The reason behind this is that the merchant chooses not to absorb the BPAY fee charged by your credit card issuer. The issuer instead gives them the cash, so that your BPAY credit card payment ends up being treated as a cash advance. Renters who pay their landlord with a credit card often get slugged with this fee. For more on banking check out this month’s Money.

Buy now pay later explained Key points Store credit cards adn interest free offers Beware of hidden fees or charges

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Current user rating by 87 users: From Money Magazine, November 2006

You've probably seen the TV and newspaper ads for "buy now, pay later" purchases in stores such as Harvey Norman, Freedom Furniture and Forty Winks, to name just a few. The "interestfree" period generally ranges from six to 24 months, so it can be a good way to buy big-ticket items, provided you're disciplined. Although you apply for an interest-free loan through retailers such as Domayne, Harvey Norman or Freedom, it will be linked to a finance company — more than likely GE Money, which runs both the Buyer's Edge and CreditLine programs in Australia. HSBC introduced a similar offering earlier this year. These interest-free offers may also be linked to store credit cards such as the Coles Myer Source card, the GE Money GO MasterCard or the David Jones card. The David Jones card is a traditional store card in that it can only be used at David Jones. The Coles Myer Source card and GO MasterCard is what GE Money calls a "dual card", explains Skander Malcolm, managing director of card solutions at GE Money. It has the features of a store card in that cardholders get access to special promotions within certain stores, but the card can be used anywhere.

There are generally two types of offers you'll come across. The first is interest-free with instalments, which requires you to make monthly payments over the specified period. The second is a buy now, pay later arrangement where you don't have to pay the full amount until the promotion period ends. But you are required to make minimum monthly repayments and pay an ongoing fee of about $3 a month. You can make higher repayments if you want to. Principal solicitor with the Consumer Credit Legal Centre NSW, Katherine Lane, labels this as misleading because although it says buy now, pay later, you do have to make payments in the form of the account-keeping fee and minimum monthly payments over the promotional period. More than the minimum HSBC's product is different in that you get 12 months interest free and after that it becomes a personal loan, and the rate is 17.9 percent to 24 percent. With most unsecured loans offering a rate of 13 percent, you may be better off taking out a personal loan at a lower rate from the start. It's important to understand that minimum monthly repayments will not be enough to clear your debt at the end of the promotional period. "You have to do your own maths," says the coordinator of the Consumer Credit Legal Centre NSW, Karen Cox. You should also find out what other fees apply. With the GE Money Creditline offer for example, there's a one-off establishment fee of $25 and a monthly fee of $2.95. The monthly fee only applies if there is an outstanding balance on the card. If you've kept the card just in case you want to take advantage of an interest-free promotion at a later date, you don't have to pay the fee. Make sure you read all the relevant paperwork before signing up. "All the terms and conditions, fees and charges are clearly outlined in the documentation provided," says GE Money's general manager of retail finance, Greg White. Once you take out a loan, you will be sent a card, which you can use again for interest-free promotions. Things can get confusing if you buy more than one item on the card. That's because when you're making payments you can't choose which loan the money goes towards, says Lane. "It's virtually impossible to repay the loan you want to repay." It's still a debt "Remember, even if it's interest-free, it is still a debt, it's still money that you owe and you should treat it like any other debt," says Cox. It's probably a good idea to make regular monthly repayments so the loan is paid off in time, rather than hoping you'll have, say, $5000 at the end of the promotional period. These loans are only interest-free if they are paid on time. If not, you'll have to start paying interest and at 27.99 percent; it's not cheap. White says it's a common misconception that if you don't pay the loan off that interest is backdated. This is not the case. "The really important thing is to make sure you can pay it off on time or, if not, have a lowinterest account you can transfer the balance to," suggests Cox. Depending on the amount outstanding, this could either be a credit card or a personal loan. If you're not disciplined, a personal loan may be a better option because you're forced to make repayments and clear the debt in a specified time, unlike a credit card where the debt simply revolves. For the complete story see Money Magazine's November

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By Allison Tait, ninemsn Money How old were you when you got your first credit card? Store card? Heck, mobile phone? Chances are you were young and that you’ve been merrily adding to your collection of credit accessories ever since. Have you ever considered that it could all come to a screaming halt one day? That you might be, gasp, refused credit. Well, if you don’t keep a close eye on your credit file, your days of flying high on someone else’s dollar could be over. What’s a credit file? It’s basically a dossier on every person or business who’s been ‘credit-active’ during the past seven years. It records details of the type, purpose of, and amount of credit you’ve applied for during that time, as well as outlining overdue accounts, bankruptcy details and other personal information. Your file can be accessed by credit providers when you make an application for credit, or providers of goods and services when the payment is deferred by a minimum of seven days. No-one can access your file unless you give them permission. Baycorp Advantage is Australia’s leading provider of credit reporting information. “We are custodians of the credit history files of over 14 million Australians,” says Erica Hughes, general manager Information Services and Solutions. Okay, why do I care about this? The information in your file impacts on your ‘credit-worthiness’ – so banks, retailers and credit providers check it before they decide whether to lend you money or give you credit. But surely a credit rating is only ruined if you miss a big payment or something? Baycorp Advantage doesn’t actually apply a credit rating or score to your file. Credit providers each have their own system for rating you, depending on the information in your file. They’ll give different scores to each item in your file, so one credit provider might decline your application where another will approve it. So you need to stay on top of each and every section of your file. An overdue account or default, for instance, is shown on your file for five years (even if you’ve since repaid it) – and might mean the difference between getting a loan and missing out! “A default is generally lodged on a persons credit history file when they have not made three consecutive loan repayments and have not entered into an arrangement with the lender to make these repayments,” says Erica. “About 14 per cent of individual credit files have a default listed. Increasingly younger people are having defaults listed on their files through non-payment of mobile phone accounts.” Uh-oh, I may have a problem — what can I do if I get knocked back? The first thing is to obtain a copy of your credit file, to help you understand why you’ve been declined. You might find that the phone bill your flatmate forgot to pay in 2003 is blighting your credit record. Or you might find that the information in the file is incorrect, or that someone has been using your name to obtain credit illegally (in both cases, Baycorp Advantage has advice on

the steps you need to take to redress the situation). Of course, you may have paid that phone bill in 2005, but the credit provider in question is still not happy to take the risk — each provider has its own lending criteria. Is there any way to fix a blotted credit file? If you have overdue accounts you can contact the lender in question and pay them. Your credit file will be updated within five days of the lender notifying Baycorp Advantage that the account has been paid. If you feel that there is erroneous information in the file regarding bankruptcy, defaults or other financial information, you need to fill in a File Update Form (provided with a copy of your credit file) and return it with proof of your situation. The information you give will be investigated and, if you are proven to be correct, the file will be updated within 30 days. Despite all this, however, lenders may still refuse you credit if your application does not meet their lending criteria. Should I be keeping an eye on my credit file? Yes, yes and yes. It’s all about you and your reputation — don’t you think you need that information? If only to help guard against credit fraud. If you check your file annually you’ll notice any irregularities much faster. It’s free to obtain a copy of your file if you don’t mind waiting a couple of weeks, or it costs $27 if you want Baycorp to turn it around for you in one day. All details at www.mycreditfile.com.au