It's the biggest gift-buying season of the year, and you may feel jolly as you hand over your credit card.
But when the bill comes due in January, you'd better be ready: The credit card companies want your payment on time. The first pointed reminder: Late-payment fees can be as high as $39.
But that may be just the beginning of the pain: Your card's annual percentage rate may soar to 30 percent or more, even if you are late just one time.
And your card issuer may report the late payment to the credit bureaus. That will alert issuers of other cards you may have, possibly prompting them to raise their rates, too, even if you've made payments to them on time.
If your rate jumped to 30 percent from 12 percent because of a late payment, you would pay $45 a month more in finance charges on a balance of $3,000, or $540 over a year.
Some credit card issuers will reset your rate to its original level if you re-establish a track record of on-time payments over a six- to 12-month period. Some make it tougher, requiring that you sign up for automatic payment plans that debit payments from your checking account.
Of course, you can just move on to another card, but blemishes on your credit report that caused problems in the first place may make it harder to get a low rate. And some experts predict that credit card issuers are going to get pickier as they tighten standards.
"The late payment fee is really small potatoes," said Curtis Arnold, founder of U.S. Citizens for Fair Credit Card Terms Inc., a consumer advocacy group in North Little Rock, Ark. "No one likes shelling out $39, but there are much bigger repercussions."
Arnold said he expects more holiday shoppers to turn to plastic because other financing options, such as home equity lines of credit, have become more scarce as banks and mortgage companies tightened lending standards.
The credit card industry defends the practice of raising rates. It says late payments are a sign that a consumer is becoming a bigger risk. As with any lending, riskier borrowers are charged higher rates.
"It's an indication that they may not be able to pay you back," said Ken Clayton, a spokesman for the American Bankers Association in Washington, D.C.
Clayton also stressed that a charge on a credit card is--plain and simple--a loan. And the loan isn't secured by collateral like a mortgage or car loan, just on the agreement that the consumer will repay under terms of the credit card, Clayton said.
But consumer advocates say those terms, which can change at any time, are stacked against the cardholder.
Although the subprime mortgage meltdown and the resets of adjustable-rate mortgages have grabbed headlines, consumer advocates say credit card practices can also be crippling to households, especially the far-reaching "universal default" clause.
"All you have to do is make one misstep," said Chris Viale, president and chief executive of Cambridge Credit Counseling Corp., a non-profit credit counseling agency in Agawam, Mass.
Universal default lives up to its name, giving the issuer the option of raising rates if you make late payments or exceed credit limits on other credit cards.
"It's the ultimate gotcha," said Ellen Cannon, managing editor at Bankrate.com.
Other issuers find out about late payments by trolling your credit report. What triggers a report to a credit bureau varies, from the frequency of late payments to how tardy the payment was. Late payments or other transgressions can erode your credit score.
Earlier this year, Congress put pressure on the industry to halt the late-payment penalty in hearings in Washington.
Last month, Chase Card Services, which has more than 154 million credit cards issued, announced it would stop the practice as of March 1.
The best defense against strict credit card rules is that, no matter how daunting, you take the time to read the cardholder agreement, consumer advocates said. Not adhering to any of the requirements for timely payments means the issuer can have up to five days to credit the payment, raising the possibility of a late fee.
For instance, many issuers require that payments be sent in the same prepaid envelope sent with the bill. Often, payments must be received by a certain time of day to be posted for that day.
The Federal Reserve is considering requiring that credit card issuers revamp those agreements, making them easier to read and more understandable to the consumer, Arnold said.
If you're considering fleeing a card whose interest rate has jumped, you can seek out a lower-rate card. But Arnold said the cost to transfer balances has risen substantially this year. For instance, the fine print may say there is a 3 percent fee for transferring balances to other cards. At first glance, that may not seem onerous, and there are caps on those fees. In the past, they have typically ranged from $50 to $75 a transfer.
But this year, Arnold said, the caps have in some cases quadrupled to between $200 and $250. Some cards have eliminated the caps altogether.
"You have to be really cognizant of what you are doing and how much it is really costing you," Arnold said.
Kenneth R. Gosselin is a staff reporter for the Hartford Courant, a Tribune Co. newspaper.