Credit card companies' evil tricks

Foul play: jacking up your rate if you're a few days late.

Late payments can happen to virtually anyone. Payments get delayed in the mail; online bill-payment systems experience glitches; issuers change addresses and payments go awry. Or people just goof.

Goofing to the point of forgetting a payment altogether, though, is rarer. A skipped payment is thus a better indication that someone is having money trouble.

The credit card companies know there's a big difference between late and skipped payments. That's among the reasons payments that are less than 30 days overdue typically aren't reported to the credit bureaus. But many issuers will still take advantage of your mistake by sending your rate skyward, even if your payment arrived only hours (not even days) late.

Your best moves: Don't carry credit card balances. Card issuers have far fewer ways to mess with you when you pay your balance in full every month.

Otherwise, reduce the likelihood of late payments by setting up recurring payments in your online bill-payment system or by agreeing to an automatic debit so at least the minimum payment is withdrawn from your checking account each month. If you use any method other than automatic debit, you'll need to check the credit card issuer's mailing address each month to make sure it hasn't changed.

If you do get dinged with a late fee, or a fee plus a higher rate, talk to your credit card company. Many issuers will waive late fees for good customers. Fewer will rescind the interest rate hike, but you can always try. Some will restore your original rate after 6 months of on-time payments.

Big fees

Fair play: charging late, over-limit and balance transfer fees.

Foul play: charging outrageous late, over-limit and balance transfer fees.

Until the mid-1990s, the typical penalty fee was about $10. Last year, the average late fee was $35, according to IndexCreditCards.com, and many companies charged $39. The average over-limit fee was a hair more than $32.

Some issuers also removed limits on the balance transfer fees they charge. In the past, the typical balance-transfer fee was 3% with a cap of around $75. Today some cards issued by Chase, Bank of America and others have no cap, which means a $5,000 transfer could cost you $150.

It makes sense to charge borrowers something for handling a balance transfer, just as it's justifiable to subject them to some kind of penalty for paying late or going over the limit. It's the amount that's being charged that makes no sense. These fees bear little relation to the costs or risks involved.

• Video on MSN Money: How's your credit?

Your best moves: Clearly, you want to avoid late and over-limit fees whenever possible. Set up automatic payments so at least your minimum balance gets paid every month. Track your balances -- which you can do online, via phone, by using personal-finance software like Microsoft Money or Quicken, or simply by writing down your purchases and keeping a running tally. (Microsoft is the publisher of MSN Money.) You'll do your credit scores a favor by keeping balances to no more than 30% of your limits.

If you do get dinged, ask your issuer to waive the fee.

Before you transfer a balance, read the fine print and calculate all of the fees you're likely to face. Compare offers using sites such as CardRatings.com, Bankrate.com or IndexCards.com. With a little research, you can often get a better deal. Then use your low rate to help you pay off your balance; don't keep shifting it around.

A whole deck of cards

Fair play: issuing cards with low credit limits to riskier borrowers.

Foul play: issuing multiple cards with low limits to risky borrowers.

Credit card companies wisely limit their risks with certain customers by issuing cards with low limits, say $200 to $500. You're most likely to get one of these cards if your credit history is short or troubled.

As you show you can responsibly use the credit -- by paying your bills on time and not maxing out your card -- a typical issuer will reward you by raising your limit. If you miss payments or go over your limit, though, you don't typically get more credit.

An exception is Capital One. BusinessWeek recently revealed the card company's practice of simply issuing additional low-limit cards to the same customers. The big downside for borrowers is that they have more due dates and limits to track. The practice increases the chances a cardholder will mess up and incur late or over-limit fees.

Capital One has helped a lot of folks rebuild their credit after bankruptcy and other financial missteps. But it needs to drop the practice of issuing multiple low-limit cards.

Your best move: Don't max out your credit cards or charge more than you can pay off in full every month. Instead of accepting a new card, ask for a higher credit limit on the one you have.

Paying twice

Fair play: charging interest on balance transfers.

Foul play: charging interest before the check clears.

This one may be a little tricky to understand, so bear with me.

When you're approved to transfer a credit card balance, the company that's receiving your balance sends a payment to the company that currently has your debt. This payment may be electronic or may be a check.

The issue revolves around when your new credit card company begins charging interest on the balance transfer. Some start doing so long before the balance is actually switched, which means you could wind up paying interest to two companies on the same debt for a week or even longer.

Curtis Arnold of CardRatings.com polled six major issuers -- American Express, Bank of America, Capital One, Chase, Citibank and Wells Fargo -- and found that all begin charging interest as soon as they initiate an electronic transfer to the card issuer holding your balance. That's OK in my book because electronic transfers tend to happen quickly, and the overlap period where you're paying interest twice is usually a day or two, at most.

If the issuer sends a check, though, policies vary. Bank of America, Citibank and Wells Fargo wait for the check to clear before starting to charge interest, Arnold said. American Express, Capital One and Chase begin to levy finance charges as soon as they cut the check. If it takes a while for the receiving bank to get and deposit the payment, you're the one who pays.

Your best moves: Is this a huge deal for a consumer? Probably not. Even with big transfers -- say, $10,000 or more -- we're still talking about only a few bucks a day and a total cost that's less than most late fees. But it's annoying nonetheless. Clearly, you want to try to press for an electronic transfer whenever possible.

Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.

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