4 scary new ways creditors gouge you Check out your options. Record low rates could save you a bundle. If you snooze, you can lose -- by getting hit with fees, fees and more fees. With delinquencies up about 30%, credit-card issuers are trying to take more money out of your wallet. Here's how to protect yourself. By Liz Pulliam Weston â??Can they really do that?â? Such is the anguished cry that ends many a readerâ??s e-mail about some new trick his credit-card issuer has pulled. The answer most of the time is, unfortunately, â??yes.â? But not always. Knowing what creditors can and canâ??t do -- and what new maneuvers theyâ??ve invented to drain your wallet -- can help you stay ahead in the credit-card game. Among the trends at credit-card companies: more and bigger fees, the proliferation of penalty interest rates and new hidden costs.Check out your options. Record low rates could save you a bundle. Recently, Iâ??ve heard from readers and industry experts about even more fastballs that creditors are whizzing at their customers. You may be at particular risk if you have spotty credit. Creditors are really penalizing people who might default now that credit-card delinquency rates are up 30% in the past two years and bankruptcy filings are at an all-time high. But you could also be penalized for simply not paying attention. So hereâ??s what you need to know about whatâ??s going on now. Old debts come back to life John Watters of Davie, Fla., was delighted to get a low-rate offer from Capital One. After all, his credit wasnâ??t the greatest, thanks in part to about $1,500 of credit-card bills he failed to pay to his previous credit-card company, Chase Manhattan Bank. Imagine his surprise, then, when that $1,500 debt showed up on his new credit card. Watters insists he didnâ??t know he was â??reaffirming,â? or agreeing to pay the old debt, when he signed up for the new card. Capital One is equally insistent that the deal was spelled out in the solicitation Watters was sent. â??Iâ??ve seen the solicitation, and itâ??s pretty clear,â? Capital One spokeswoman Diana Don said. Watters and Capital One are still wrangling over whether heâ??ll have to pay. But buying old debts from another creditor and trying to entice borrowers to repay the debt with new terms has become increasingly common in the industry, Don and other credit experts said. Itâ??s perfectly legal as long as the credit-card company is upfront that with the new card comes an old debt, said lawyer Deanne Loonin, credit expert for self-help publisher Nolo Press. â??Simply slapping it on to a new debt without authorization and presumably without warning,â? Loonin said, â??could potentially violate a number of federal and state laws.â? Old debts reported as new Unscrupulous collection agencies sometimes do this as a way of pressuring delinquent borrowers to repay, but it's illegal. They usually pick debts that are about to be dropped from the borrowersâ?? credit reports under the Fair Credit Reporting Actâ??s seven-year statute of limitations. By reporting it with a new date, the debt could remain on the report for another seven years. Thatâ??s what happened to Beth, a reader who asked that her last name not be used. Six years and 10 months after an unresolved dispute with her cable company first appeared on her credit report, a collection agency bought the debt and reposted it on her credit report with a new date, telling her it would continue to be reported unless she paid the $200 balance. The Federal Trade Commission, which regulates credit bureaus, has made it clear this tactic isnâ??t allowed, Loonin said. Consumers facing this situation should demand the credit bureaus investigate and correct the erroneous entry. If the creditor refuses to back down and continues to report the old debt as new, the borrower can sue. Attorneys who represent such cases can be found through the National Association of Consumer Advocates (see link at left under "Related Sites"). Abrupt changes on longtime accounts Another reader got slapped with a late fee recently after sending in her monthly payment. After re-examining her statement, she noticed her grace period -- the time she had to pay her bill before interest charges and late fees applied -- had suddenly narrowed from 25 days to 20. Thatâ??s just one of the ways credit-card companies are changing the rules. Many borrowers have discovered, for example, that there is no such thing as a â??fixedâ? rate. Just as with grace periods and other features, the rate on credit cards legally can be changed with just a few daysâ?? notice. Even the type of card you have is subject to change. Seeking to cut better deals for themselves, some banks are switching their customers wholesale from MasterCard-branded plastic to Visa, or vice versa -- altering many of the terms along the way. One reader whose Visa was replaced with a MasterCard discovered he was no longer allowed to view or pay his bill online. Now instead of paying as soon as the statement closed, he has to wait for the statement to arrive in the mail and pay by check -- a process that takes days longer and increases the interest he ultimately pays. The somewhat good news: Your credit-card issuer is required to notify you of changes in advance, and youâ??re usually not obligated to accept the alterations if youâ??re willing to give up the card. In the fine-print brochure you get announcing the changes, youâ??re typically allowed to decline the new terms and pay off your account under the old terms -- but youâ??re not allowed to keep using the card. Really, really bad deals to people with spotty credit For a few years in the mid- to late-1990s, people with credit troubles found themselves among the most sought-after customers in the credit-card industry. This topsy-turvy situation happened because the creditors decided they could make lots of money charging high interest rates to these risky customers. Credit became relatively easy to get for what are known as â??subprimeâ? borrowers -- those with credit scores under 560 or so. The inevitable happened, of course, as the economy soured. Lenders took on too much risk, delinquency rates spiked, regulators stepped in and the easy-credit offers dried up. Now subprime borrowers who want credit are having a much tougher time getting it. Some lenders are taking advantage of the situation to promote some cards with truly terrible terms. Before regulators shut down the credit-card issuer in March, about 500,000 people signed up for the Net 1st MasterCard, a credit card that came with a $500 limit -- and $500 in fees. The only way it could be used to charge anything was if users paid down the original balance at a rate of at least $15 a month -- $8 of which was applied to an additional monthly fee. Other card issuers are rushing out equally bad cards, said credit expert Robert McKinley. One of them, AmeriOneCard MasterCard, requires users to slowly build up a balance to be used in the future by sending in at least $15 a month -- while paying an $89.95 â??membership feeâ? and a $9.95 monthly fee. Ultimately, it costs $428 in fees to build a $500 balance, McKinley said. Although subprime borrowers have fewer choices these days, they donâ??t have to settle for such awful deals, McKinley said. Lenders still offer secured cards with reasonable rates and fees (a secured card requires you to deposit money with the lender, and usually matches that deposit with an amount of available credit). For a list of good secured cards, visit Bankrate.com (see link at left under "Related sites" ). Here are some more ways you can reduce your chances of getting tricked: Read everything. Examine everything you receive in the mail from your credit-card company. Those brochures or slips of paper could tip you off to significant changes. Improve your credit standing. People with good credit tend to get the best deals -- and have the most leverage in getting their credit-card issuers to waive fees, change terms and otherwise alter deals in their favor. For tips on boosting your credit standing, see â??6 steps to building great credit." Pay off your debts. Not only will paying off your credit cards improve your credit score, but it will give your credit-card issuers fewer ways to sting you since you wonâ??t be paying interest or overlimit fees.
