The Truth About Credit Cards.com

With all the talk about credit card reform lately, I thought it was interesting that fundamental, yet problematic aspects of credit have seemingly been ignored.

Sure two-cycle billing and arbitrary interest-rate increases are on the agenda, but are these issues letting more substantial flaws slip through the cracks?

Take for instance a credit card’s introductory rate, which is often 0% APR for 6-12 months, and now up to 16 months in some cases.

While these introductory rates drive credit card sales and provide responsible card holders with some much needed leeway (and sometimes arbitrage), they likely do more harm than good for the typical, uninformed borrower.

If you really think about it, an introductory rate that allows you to make a small minimum payment for the first several months is basically inviting you to carry a balance.

It’s saying hey, you can spend as much as you want (up to your credit limit) for “x” amount of time, at which point your APR will skyrocket and you’ll need to pay off that entire balance or face hefty finance charges.

In a way, it’s almost a form of payment shock because your interest rate jumps from 0% to as high as 30% overnight, forcing you to pay off the balance in full or get saddled with month after month of finance charges.

And let’s be honest, if credit cards didn’t have an introductory rate where you could get away with carrying a balance without incurring interest, most would probably charge less and pay their balance in full each month.

To that end, you’d be less likely to get in over your head and spend more than your means.

Of course this is all too obvious and fundamental, and thus will be ignored by the Fed and everyone else looking into the alleged malpractices of the big credit card issuers.

And there’s probably no incentive for the card issuers to quash the practice, unlike no fee balance transfers, which weren’t making sense for most banks any longer.

One final caveat: like any other incentive, an introductory period can make sense in certain situations, but on a large scale, should probably be addressed and tweaked to better protect consumers.

(photo: carbonnyc)