Rewards Program Not Always Best Measurement of a Credit Card

by : John Janney

When shopping around and comparing potential credit card accounts, rewards should not be the only criteria you use to select a credit card. You need to read the credit card contract (cardholder agreement) before applying for a credit card to discover traps that often negate any potential benefits from rewards programs. These traps are usually hidden in the small print, but their impact on your finances can be huge.

Universal Default

Over 40% of credit card banks use "Universal Default" to increase the interest rate of their cardholders. Basically, if you are late paying any credit account, the credit card issuer uses this ding on your credit report to justify raising your interest rate - even if you were never late paying the credit card bill. A typical Universal Default APR is 27.9% or higher. You should not apply for a credit card that includes a Universal Default clause - no matter how nice of a rewards program they offer.

Two-Cycle Billing

Credit card companies are starting to charge interest on balances in groups of two-months. So, if you have a $500 balance one month and pay it off the next month, the credit card issuer will still charge you interest during the month you had no balance because you had a balance the previous month. You should avoid any credit card with two-cycle billing.

Musical Due Dates

You should look into or ask the credit card issuer about their due date policies. Sometimes, credit card issuers will shave a few days off a due date after you are a customer for a while. They send a "terms update notification" (which most cardholders do not read because it comes in the mail and may look like another credit card solicitation). What this does is lure cardholders into paying by a certain date, and then change the terms so the payment is due a few days earlier - which usually results in the cardholder unwittingly paying late. The reason for this is once a payment is late, the card company raises the cardholder's interest rate to the "default" APR and charges a late fee. A typical default APR is 29.9% or higher and a typical late fee can be as high as $39. Other due-date tricks include setting due dates on weekends or requiring payment before noon on the due date, which essentially pushed the due date back one day.

Vanishing Grace Periods

Traditionally, a balance will only incur a finance charge if the cardholder carries a balance past the due date of their billing period. However, some card issuers are completely erasing their grace periods. This means that interest charges start the second a purchase is made on the card. Avoid cards with no grace period.

Holding Payment and Musical Payment Addresses

Some credit card companies will hold your payment for up-to 5 days if you pay by check and fail to use their envelope or write any requested information in the memo section of your check. They do this to make payments late, and then change APRs to their default APR (29.9% or higher). Some card issuers will even change the address they want you to send your payment in an effort to delay your payment (and causing a "late payment" default and APR increase).

So, when you apply for a credit card, please keep all these factors in mind and be sure to read the credit card contract before applying. Be sure to shop around and compare credit card offers before applying. Several websites, such as,, and offer comparison charts from which you can compare different credit card offers. If you are set on getting an awards card, has a credit card section that list different types of rewards cards for you to compare.