Five Nasty Credit Card Surprises

Did you know that when you're shifted to a higher interest rate, it can apply to past charges, too?

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That plastic in your wallet could be burning a hole in your pocket, especially if you get snared by some of the credit card industry's sneakier practices. Congress is weighing whether to make some of these charges and interest rate methods illegal, but in the meantime, here are five pitfalls to watch out for:

Universal pain. You may realize that if you make late payments or exceed your credit limit, you could be shifted to a default penalty interest rate on your credit card, sometimes exceeding 30 percent. But you could also get socked if you are late paying your electric bill or mortgage, or take out an auto loan, or do anything that hikes your credit score. Just before a summer Senate hearing, Citigroup said it would no longer engage in "universal default," but it's still a common practice.

Future shock. If your credit card company does decide to shift you to a higher interest rate, expect the penalty price to apply not only to future charges but to your past charges. "I can't think of another business in America that is allowed to raise the price on a good or service retroactively," says Travis Plunkett, legislative director for the Consumer Federation of America.

Double jeopardy. In double-cycle billing, also known as two-cycle billing, you are charged interest on the average daily balance of two months of charges instead of just one. So if at the end of 30 days you pay off most—but not all—of your balance, the next month you will still pay interest on the sum that you already paid. JP Morgan Chase, also inspired by upcoming congressional hearings, recently quit this practice.

Fall from grace. Grace periods just aren't what they used to be. Today, even if you've been told there's a 30-day grace period for paying your credit card without interest, that is true only if the bill is paid in full. If you pay 95 percent of the bill on time, you will still be charged interest on 100 percent.

Pay to pay. Close to your credit card due date, you decide to use pay-by-phone or an online payment at the bank's website instead of the mail to get the payment in on time. Expect to pay a fee of $5 to $15 for the convenience.