Is your credit card quietly ripping you off?

There are a lot of hidden costs behind that credit card you own and if you aren't watchful enough, your monthly statement may shock you. Here is a checklist on where your credit card expenses may spill over, and you may have to pay the extra buck quite unnecessarily.

You don't pay the minimum amount due

Whether you do it knowingly or unknowingly, you would end up paying a late payment fee. This fee varies from bank to bank.

What happens if you don't pay your minimum amount due for two consecutive months? Head of Credit Cards and Retail Assets, HSBC, Puneet Chaddha says, "He becomes a defaulter. The course of action after that, depends on the amount that is outstanding, past track record and the person's profile or profession."

The customer is then assigned a risk score, depending on which, the collection strategy changes. Further, Head, Corporate Affairs, Standard Chartered Bank, Neel Chatterjee warns, "He will be considered a defaulter and further transactions will be blocked."

You revolve your balance

Banks give you this option to pay a minimum prescribed amount and carry forward the rest to the next billing period. In this case, you will pay an interest on the outstanding amount. But the catch lies here: when you carry a balance from month to month, there is no grace period on new purchases with most cards.

Your payment cheque bounces

You would have to bear a fee for dishonoured cheques. Consider yourself lucky if you are within the due date, for things might not be too good if you are very close to the due date. Says Chaddha, "If he goes beyond the due date, he becomes a delinquent case and it increases his risk profile. Beyond the due date, all the concerned charges will be applicable." That means, you would pay a fee for a bounced cheque plus a late payment fee and also a monthly interest on the outstanding amount.

You cross your credit limit

Credit limit is the maximum amount that you are allowed to spend using your credit card, as dictated by your income profile. But that does not mean that the credit card company will not let you spend more than your limit. You may think that if you have exceeded your limit, your card would be blocked for further transaction automatically.

However, banks are too clever to do that. They let you spend over the limit and then charge you. The price that you pay for it could be as high as 5 per cent on the exceeded amount.

You transfer your balance from other cards

Some banks make an offer where you pay absolutely no interest or a very low interest, but the dream run doesn't continue for long. For instance, most banks allow a timeframe of three months, where you don't pay interest or pay a low interest on the transferred amount. But beyond the stipulated time, you start paying the normal interest even on the transferred amount. So, if you have transferred your balance, pay off the dues within the stipulated time.

You withdraw cash with your credit card

Apart from paying the regular interest of 2.95 per cent, you will also have to pay a one-time fee of about 2-2.5 per cent for making a cash advance. Moreover, the cash advance fee is higher if you withdraw from an ATM that doesn't belong to the bank, whose credit card you hold. Also, remember, when you withdraw cash, you start paying interest from there on, as against getting a free credit period.

You forget to pay your annual charges

In case you decide not to use your credit card further and you don't pay the annual charges, you are in for trouble. Remember, you need to get in touch with the bank and intimate them that you don't want the card any further. Otherwise, you will unnecessarily have to pay the annual fee and a penalty, in case you cross the due date.

The bottomline is to understand all details properly before you decide to take a card and to eliminate most problems, read the fineprint carefully.

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