Credit Card Traps!

What’s your “Credit Card IQ” when it comes to knowing the traps of using credit cards?

Take this simple quiz to find out!  If you answer all 5 questions correctly, you’re a super-savvy consumer.  Three or four right answers are average.  (There may be more than 1 answer to each question.)

  1. You are breathing a sigh of relief because your credit card company’s interest rate is fixed at 12.9%.  Is this a good deal or what?
    1. Definitely – because you know that the “Average” card rate is 14.9%.  Plus, the fixed rate can never change.
    2. Yes, but the company can switch it to a variable at any time.
    3. Wake up.  The outfit can still raise the rate any time it wants.
  1. If you carry an outstanding balance of $5,000 on a 24% credit card and make the minimum payment of 2.5% per month, how long will it take you to wipe the account clean?  What would the total interest costs be?
    1. 10 years and $8,790 in interest
    2. 26 years and $11,096
    3. 40 years and $16,230
  1. Among the bunch of credit card offers you received in the mail, one is for 3.9% – if you transfer your old balance to their new card by July 1.  What is the gimmick here?
    1. It will hurt your credit score because credit bureaus will frown at your piling more debt on one card.
    2. The 3.9% will only apply to the transferred balances – not any new purchase made with the new card.
    3. After July, your rate on the transferred amount might shoot up to 17.5% or higher.
  1. Card outfits use different formulas to calculate the interest you pay.  Which method is best for you?
    1. “Adjusted Balances” because it’s determined by subtracting payment or credit received during the current period from the balance at the end of the previous billing period.
    2. “Average Daily Balance” because it totals the beginning balances for each day in the billing period and subtracts any credit to your account that day.
    3. “Two-Cycle Balances” that use your last two months of account activity to compute interest.
  1. Let’s say you’re about to max out your 3 credit cards.  If that happens, how will it affect your credit score?
    1. It will definitely lower your credit score.
    2. In sizing up your activity, credit bureaus get concerned when they see you’ve used 60 to 70 percent of your credit limit.
    3. It doesn’t make any difference – just as long as you pay on time.

Answers: 

1) C is correct.  All the credit card issuer has to do is notify you 15 days in advance. 

2) The right answer is C – Amazing, isn’t it? 

3) B & C are the most correct answers and A is a good possibility. 

4) All 3 ways describe the way interest is calculated.  The most common method is B but the most desirable method for you is A.  It gives you until the end of the billing cycle to pay a portion of your balance to avoid the interest charges on that amount.  The fine print on your contract tells you the calculation method your card issuer is using. 

5) A and B are correct.

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