Three Credit-Card Traps To Avoid!

Watch out for this trio of sneaky card tricks, especially at this time of year&

In order to become a smarter card player, it's worth knowing how credit-card issuers make their money. First, credit-card issuers make tidy profits by lending money to their customers, normally at sky-high rates of interest. Around three-quarters of our £56 billion of credit-card debt is interest-bearing and, with the typical interest rate being around 16% a year, we're paying close to £7 billion a year for the privilege of spending on plastic.Second, card companies make around £1 billion a year from selling over-priced payment protection insurance, card protection plans (cover against loss or theft of your cards) and other insurance policies of questionable value.Third, these firms earn big bucks by charging a host of different fees, including annual fees (once a dying breed, but now making a comeback), cash-withdrawal fees, balance-transfer fees, assorted penalty charges, plus retailer fees and so on.As you can imagine, thanks to all these sources of income, being a credit-card provider is practically a licence to print money. However, in their pursuit of ever-larger profits, card firms sometimes take advantage of their customers. Here are three ruses that really niggle me:1. Expensive credit-card chequesDecember and January are golden months for unsolicited credit-card cheques. For example, in the run up to Christmas, one leading credit-card issuer sent me a sheet of credit-card cheques to help me to make ends meet during the festive season. However, I tore these cheques into tiny pieces after reading that they attract interest at the standard rate for cash withdrawals (around 22% a year!), plus a handling fee of up to £50.So, before you're tempted to use that book of credit-card cheques, check the small print to see which interest rates and charges apply. Otherwise, you could end up paying an arm and a leg!2. Unsolicited credit-limit increasesOne sign that your relationship with credit is all wrong is if you rejoice when your card issuer hikes your credit limit without your permission. After all, it's a credit limit, not a debt target, and the higher your credit limit, the more that is available to overspend. Hence, I've asked my credit-card issuers not to increase my credit limits without asking me first.The banks' practice of raising credit limits without prior approval attracted criticism last year from the Treasury Select Committee, an influential group of MPs. Indeed, according to last weekend's Money Box programme on BBC Radio 4, the Irish Financial Services Regulatory Authority has decided to ban this practice with effect from July, partly in response to consumer debt in Ireland growing at a whopping 30% a year. Remember: the greater your access to credit, the greater your risk, especially when it comes to fraud.3. Fines for paying lateIf you miss a monthly repayment, exceed your credit limit or bounce a credit-card cheque, you can expect to pay a hefty fine of anything up to £35. Although it's entirely reasonable for card issuers to fine naughty customers, especially persistent offenders, these penalties are completely out of line with the underlying costs of tackling these misdemeanours. A fine of, say, no more than £10 would be more realistic -- indeed, the Office of Fair Trading has warned banks that it views these penalties as punitive and unfair.To avoid late-payment fines, pay part (or all) of your bill by Direct Debit, and stay well within your credit limit. Also, if your bank hits you with an excessive penalty, complain forcefully, because card issuers fully comprehend how unreasonable these fines are. As the saying goes, the squeakiest hinge gets the grease, so don't give up without a fight!More: Need a Best Buy credit card for spending, borrowing or cashback? Then visit our Credit Card centre today!