Winning the Credit Card Game

It seems the better consumers get at paying off their credit card balances each month, the nastier the companies get. Why? Pure dollars and cents. The better you are at paying off your balance every month, the less profit for the company. Companies are responding by becoming more creative in finding ways to make money off of you. Although some of the shadier practices are being challenged in court, most are legal. It is more important than ever to master the rules of the game.

Although I would prefer a world without credit cards, there are some reasons you should have one -- and I mean just one. (Unfortunately, for most people, "just one" becomes "just two," or ...) Holding one card and paying off the balance on time helps establish your credit history. And you may need a card for travel expenses or emergencies. Aside from those cases, however, you should keep your credit card spending to the absolute minimum.

Rules of the Game

Rule 1: Don't be a revolver
The first rule of credit cards is avoiding the nefarious "balance." Carrying a balance means paying far more than you should for everything your charge to your card. And it is one of the fastest ways to fall deep in debt.

Are you what the credit card companies call a revolver -- someone who carries a balance -- or are you a freeloader, someone who pays off her balance every month? With any luck, you are a freeloader. If you pay off everything you charge within the grace period, the time between when the purchase is paid and when your bill comes due, you will not get stuck in the trap of paying interest.

It is another story entirely for the revolvers who carry a balance from month to month. Revolvers get no grace period. They just get stuck paying more and more interest -- paying far more than the amount the item originally cost.

Rule 2: Read Everything
Read every form for any potential credit card account with a magnifying glass. You may, for example, be asked to print your initials somewhere on the application. But read the small print and you find you have signed up for insurance -- credit card insurance, life insurance or disability insurance.

Also make sure you read your bill...

and anything else that arrives in the envelope. Issuers are free to change the terms of your card agreement with as little as 15 days' notice. Typically, the notice gets slipped in with your monthly statement. Typically, it goes unread.

Rule 3: Avoid Late Fees
Stay free of the triple whammy known in the business as "tiering." One late payment and you are immediately socked with a late fee -- generally $29 (up from $12.50 just five years ago). Then you have a larger balance (after the $29's been added in) and your minimum monthly payment has gone up too. What is more, one late fee and your card issuer may hike up your interest rate.

Rule 4: Fight Back
If your credit card issuer is squeezing you, complain. Competition among credit card companies is fierce. Use that leverage to get what you want. Often you can get a late fee waived or your interest rate lowered just by asking. Most companies will make adjustments at least once.

Rule 5: Shop Around
There are a lot of fish in the sea. There is no reason to hold a card that has a high interest rate or a short grace period. Go "rate surfing." Get the interest rate you want. Get a card with no annual fee. Compare the rates and terms of several cards. Start your search at,, ABCguides and CreditChoice.

Rule 6: Check Your Credit Report
An especially dirty trick played by the companies is not reporting a good customer's on-time payment history to a credit bureau, lest competitors steal their customers. So if you are planning on getting a mortgage or other loan, it is a good idea to ask whether the company is reporting your good payment record to the credit-rating bureaus when you check your credit report. But check a few months before applying for a mortgage, which gives you time to correct any mistakes.

Rule 7: Stop Spending
Ultimately, this rule will make the most difference in your financial life. Make it hard to use your card. Don't leave home with it. Financially healthy people do not use credit cards for borrowing money and paying it back over long periods of time at high interest rates. They do not buy things they can't afford. Many people mistakenly believe they're on top of things as long as they make their minimum payments religiously and on time. But they're not. Keep a card on hand for emergencies. The rest of the time, keep it frozen in the middle of a carton of milk.

Check out: Conquering Credit Cards.

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