10 things credit card issuers don't say

1. "We're just waiting for you to screw up."

Many
things can bump your credit card interest rate into the red zone, but
nothing faster than what's called universal default. You can make all
your credit card payments religiously and for a long time, but fall
behind on your electric bill and, suddenly, you're a deadbeat -- and
will be charged accordingly. Rates can change on short notice, from low
and reasonable to up to 35%.

Card companies say what they're
doing is managing risk. Consumer groups disagree, because many people
in universal default aren't deadbeats by any reasonable definition.
Say, for example, you're disputing a charge on a medical bill or
waiting for an insurance snafu to be resolved. If a billing clerk kicks
it to collections, you're in universal default. Or suppose your credit
score drops -- a common event that may be entirely unrelated to your
bill-paying behavior. That's also likely to push your interest rate
higher.

The best way to avoid the problem is the most obvious: Pay your bills on time. Bankrate.com, a personal-finance Web site, further advises that if you have a disputed bill, resolve it before it reaches collection status.

2."When it comes to identity theft, we're part of the problem."

Identity
theft victim Tony Sciulli of Santa Barbara, Calif., says it started
with a forged credit application -- a $3,000 balance was mysteriously
transferred to a new card in his name, followed by a ready-made check
billed to one of his other cards. What can you do to avoid this sort of
low-tech thievery? Buy a shredder, and minimize the credit applications
coming to your house by registering at OptOutPrescreen.com.

But
paper solicitations are only the tip of the iceberg. As Internet
security expert and author Bruce Schneier warns, "Data about you is not
under your control." He points to examples such as a May 2005 case
involving Bank of America and Wachovia, in which a man posing as a
collection agent paid bank employees for customer data in New Jersey.
The banks notified customers their data may have been compromised and
offered to help watch their accounts for suspicious activity. (The man,
Orazio Lembo, pleaded guilty in March 2007 and was sentenced to five
years in prison and fined $20,000.)

But John Hall, a spokesman
for the American Bankers Association, insists that banks have
"Pentagon-level security." His advice: "Monitor your accounts. Protect
your passwords and your computer."

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3. "Your children are our future."

It
wouldn't surprise most parents to know that their college-age kid can
get a credit card. After all, university students, however financially
dependent, are adults whose earning years are just beginning, making
them "good risks" for creditors. What parents might not know is the
fact that card issuers are now taking that reasoning a step further:
"The big trend is marketing to high school students," says Robert D.
Manning, the author of "Credit Card Nation" and a professor at the Rochester Institute of Technology.

Manning
says most parents don't realize how early a child's name, address and
other information can turn up in the databases used by credit card
companies to market their products -- or that kids as young as 16 can
get cards without parental permission.

"(Credit card issuers) know that if a kid gets in trouble, usually the parent will pay," he says.

What
can parents do? Protect your child's information, and assume that all
requests, however legitimate, will land it in a database somewhere.
Gift cards, for instance, may offer protection if lost or destroyed,
but they require personal data. Manning and other experts advise
teaching teens about credit well before they get their first cards and
monitoring their spending as they learn to use them.

4. "Our 'freebie' rewards are anything but."

In
the hypercompetitive credit card marketplace, rewards are a way for
banks to target big-spending niche audiences -- frequent fliers, for
instance. But these programs often come with catches, such as
exorbitant interest rates and high annual fees, so it's important to do
your homework. "(A rewards card) doesn't make financial sense for just
anyone," Manning says.

Before signing on, figure out how much
you'd have to spend to earn the incentives from a given card. If the
math works out to anything less than one penny earned per dollar spent
(or a mile per dollar, in the case of mileage cards), then you could do
better.

Also, be sure to look for the rewards that best suit your
needs. For example, if you want an abundance of options, from retail
goods and services to charitable donations, American Express' Membership Rewards cards
let you accumulate points at the rate of a penny per dollar spent --
and double that at gas stations and drugstores. Or if it's air miles
you're after, the United Mileage Plus Signature Visa is one card that stands out from the pack, with its one-mile-per-dollar ratio and host of travel benefits, including upgrades.

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Dump your credit card debt
MSN Money's Liz Pulliam Weston suggests investors continue saving for retirement and pay off their credit cards in 2009.

5. "Debit cards should come with a warning: 'Use at your own risk.'"

A
few summers ago, Vicki Jacobson's college-student son, Craig, was
coming home from a European vacation. Arriving at an airport, unable to
speak Italian and his available cash growing short, he attempted to pay
for his taxi ride with a debit card. The driver ran the card three
times and a credit card once, but it was unclear after each pass
whether the transaction had gone through. Finally, anxious about
catching his flight, Craig paid with his dwindling euros and left Italy
behind.

You can probably guess what happened: He was charged
for that taxi ride three times on the debit card and once on the credit
card. And that's when the fun really started: Months after the
incident, the credit card charge was nearly resolved, but they were
still unable to make any headway on the three erroneous debit charges.

"It can just be very difficult to penetrate the system," Vicki Jacobson says.

Why
so much trouble with the debit card transactions? Debit cards resemble
credit cards in all visible ways but have fewer protections for the
consumer. Some debit cards offer purchase protection -- meaning you can
replace a damaged item within 90 days -- but many do not.

And
although unauthorized transactions, such as the three charged to
Jacobson's son, are supposed to be refunded by the issuer, banks are
less motivated to speedily resolve cases involving debit cards than
credit cards. Why? Debit cards draw on a checking account, meaning
they're essentially checks in plastic form. Credit cards, by contrast,
constitute a loan -- meaning it's the bank's money, giving it more
reason to protect it.