We live in a world where bad deeds often go unpunished. However, in the MasterCard Universe (Visa, Discover and American Express, too), cardholders deemed guilty of irresponsible repayment behavior by their card issuer are penalized – usually heavily – by a spike in their APR. “The best way to not get hurt by a penalty rate is to not trigger the penalty in the first place. Stay on top of your budgeting, always pay on time, and make sure you don’t get yourself into a situation with your credit cards where you can’t meet that minimum payment,” claims Stacey Tisdale, author of The True Cost of Happiness: The Real Story Behind Managing Your Money. While the Credit CARD Act of 2009 was signed into law by President Obama in order to protect consumers from having sky-high penalty APRs applied to their existing card balances (in addition to other things), credit card companies can still levy astronomical penalty APRs on a new balance, should the cardholder do something to warrant penalization. Some things that provoke lenders to issue penalty rates are:
While many credit card companies grant their customers a three to five day grace period beyond the printed due date on their statement, it’s a good idea to submit your monthly payment well in advance of when it’s due to avoid the possibility of incurring any penalties. Sometimes repeated late payment are required before triggering a penalty APR to go into effect, but, in this case, it is much better – and cheaper – to be safe than sorry.
Going over your allotted credit limit
Some credit cards automatically implement a penalty APR if your charges exceed your credit limit. Paying off your balance at the end of every billing cycle is the best way to ensure you don’t charge beyond your maximum.
Attempting to pay with insufficient funds
If you submit a payment to your credit card company that ends up being returned unpaid due to insufficient funds, some card issuers will go ahead and apply a penalty rate to your account. The CARD Act mandates that cardholders must receive a notice from their credit card companies 45 days in advance of any rate hikes.If you do something to trigger the penalty APR on your favorite card, such as your Providian credit card, don’t panic. Instead, pick up the phone and call your credit card company.“Card issuers will usually with work people, so you should always try that first,” Tisdale advises.“If you call and you have a legitimate issue, the bank will often try to work something out with you, particularly if you’ve been a good customer in the past. Call them and tell them what’s going on and find out what your options are. Don’t just ignore the problem.”If need be, seek the aid of a credit counselor.