By Melissa Lambarena
Only half of credit card holders knew they could charge a lower interest rate. Are you smarter than the 1,500 respondents?
This article is reprinted with permission from NerdWallet.
A look at a typical cardholder agreement clearly shows that credit cards come with a lot of fine print. Even then, much information is not readily available to cardholders, including what they can request from their card issuers and how they can manage their accounts more profitably.
A recent NerdWallet survey revealed significant gaps in consumer understanding of credit cards – gaps that can be costly.
“Using a credit card is so simple, but it can be complicated stuff,” says NerdWallet credit card expert Sara Rathner. “Knowing what your card offers and what you can request can make it much more valuable to you.”
Test your knowledge by taking the same quiz given to survey respondents.
1. True or false:
Moving credit card debt to a card with a lower interest rate or 0% rate will always save you money in the long run.
A balance transfer can help you pay off your debts faster, but it’s not always the best option. Transferring debts from one card to another usually incurs a fee of 3% to 5% of the transferred amount. These charges could be more than what you would have paid in interest if you had left the balance where it was and paid it off. So you have to compare the costs. A balance transfer is only effective if it saves you money overall – and you use the money you save to pay off your debt even faster.
Answer: False. Survey respondents who answered correctly: 22%.
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2. True or false:
Credit card issuers allow you to request an increase in your credit limit.
You can always ask your card issuer for a higher limit, although there’s no guarantee you’ll get it. The issuer will consider various factors beyond your account record, including your income, debts, and credit history.
Answer: True. Survey respondents who answered correctly: 76%.
3. True or false:
Credit card issuers allow you to charge a lower interest rate.
Similar to finding a higher limit, you can definitely ask your card issuer if you qualify for a lower rate. You might not get it, but it’s worth picking up the phone to ask, especially with an account in good standing. A lower interest rate means immediate savings if you typically have a monthly balance.
“If your current card isn’t working for you, it might be worth calling and asking for the change you want,” Rathner says. “If you’re a long-time customer in good standing, the answer might be yes. But if it’s no, then you can vote with your wallet and shop around for a card that better suits your current needs.”
Answer: True. Survey respondents who answered correctly: 50%.
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4. True or false:
Credit card issuers offer hardship plans for anyone who is having trouble making payments.
Some credit card issuers will temporarily reduce interest charges or waive fees through a financial hardship plan for cardholders who are unable to make payments due to circumstances beyond their control. For example, you might qualify if you lost your job or had a family emergency.
But while some issuers offer hardship maps, they don’t make them available to everyone who asks for them. You will need to qualify based on your situation. No one is guaranteed to be accepted.
Answer: False. Survey respondents who answered correctly: 18%.
5. True or false:
If you want to switch to another card from the same company – for example, to get a lower annual fee or better rewards – you need to ask the company to close your original account and open a new one.
Switching cards from the same issuer is called a product switch. Since issuers don’t advertise product changes widely, it’s no surprise that many people don’t understand how they work.
If you are unhappy with your current credit card because of its fees, rewards, or other features, you can ask the issuer to transfer the account to another card that better suits your needs. You keep the same account; there’s just a new credit card attached to it. Keeping the account open can benefit your credit since the scoring models take into account the length of your credit history, including the age of your accounts.
Answer: False. Survey respondents who answered correctly: 23%.
6. True or false:
Credit card issuers waive late fees.
Issuers aren’t broadcasting that they’ll consider waiving late fees, so it’s no surprise that many people don’t know that’s an option. Not all issuers will waive fees. Those who waive it will do so at their discretion, and they will only consider it if you ask. It is not uncommon for an issuer to waive the first late fee for an account in good standing. If granted, that’s a potential savings of up to $30.
Answer: True. Survey respondents who answered correctly: 37%.
7. True or false:
You can use a credit card without ever having to pay interest.
You will not be charged interest on your purchases if you pay your credit card on time and in full monthly. If you carry a balance from month to month, however, you will incur a finance charge unless you have a promotional 0% APR period in effect.
Putting purchases on your card and paying the bill in full each month avoids interest while enjoying the benefits of a credit card, such as fraud protection, rewards and more.
Answer: True. Survey respondents who answered correctly: 54%.
Related: Stuck in a Credit Card Debt Cycle? Try These Tactics to Break Free
8. True or False:
Making the minimum payment each month on a credit card allows you to pay off your debts quickly.
Paying only the minimum on a credit card each month can take years to get out of debt. The minimum is usually enough to cover the interest accrued over the previous month, plus only a small fraction of the actual debt. Look at your credit card statement to see how long it would take at that rate. You will see a table that shows how long it would take to pay off the balance if you only made the minimum payment.
Answer: False. Survey respondents who answered correctly: 64%.
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Melissa Lambarena writes for NerdWallet. Email: [email protected] Twitter: @LissaLambarena.
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