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Tricky loopholes for low rate credit cards

October 06, 2010

By Barbara Marquand | Money Rates Columnist

New federal regulations on the credit card industry are designed to protect you from arbitrary interest rate hikes, but beware of loopholes.

Under the Credit CARD Act signed into law last year, your credit card company can't raise the interest rate on your existing balance unless you're more than 60 days late on payments. However, here are some ways you still might get hit with an unexpected rate hike:

No-interest store credit cards

No-interest credit cards from big retailers are tempting when making a big purchase, but be careful, or you could wind up paying a lot more than you expected. The catch: Many of the 0 apr credit card offers require you to pay off the entire purchase by the time the promotional period ends to take advantage of the zero-interest rate. If you don't, the card issuer charges you interest from the date you bought the item, warns the FDIC.

That could really add up because annual percentage rates on retailers' cards tend to be higher than for other credit cards. If you have to carry a balance past the promotional period, you might be better off charging the purchase on a lower-rate card than getting stuck paying a much higher interest rate on a store card.

"Professional" credit cards

The Wall Street Journal recently reported that banks are increasingly marketing "professional" i.e. business credit card offers to households. These cards have the same terms as consumer cards but technically qualify as small-business credit cards, which are exempt from the Credit CARD Act. Make sure you know which type of credit card you're applying for.

Rebate credit cards

These credit cards offer rebates on interest rates as long as you pay on time. Sound like a good deal? They can be, unless you're even a day late.

Normally, under the new federal regulations, the issuer can't jack up your interest rate on existing balances unless you're 60 days or more late. But the new law doesn't apply to special discounts like this, so issuers can yank rebate offers suddenly, leaving you stuck with a higher interest rate then you planned on paying.

The bottom line? Read all the fine print of credit card offers, especially those with special promotional periods or rebate offers on finance charges, and understand all the rules before you fill out a credit card application. In addition, read notices from credit card companies carefully. You might think something looks like junk, but it could be an advanced notice of an upcoming rate or fee hike.

Weigh carefully whether you should use your credit card for carrying balances on future purchases. If interest rates on your current credit cards are high, you might consider looking for a better deal and canceling your current cards. Under the new federal rules, the credit card companies must give you a reasonable amount of time to pay off the remaining balances if you cancel.

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