Stealth-Mode Credit Cards

Love to shop online but hate to trust Web merchants with your credit card number? Bankers have a solution: virtual account numbers.

Think of a virtual account number as stealth mode for your credit card.

It's a disposable number, usually good for one use or one merchant, that links to your credit card and works for Internet purchases.

The merchant never sees the real account number, which protects customers if the retailer's database gets hacked.

Bank of America, Discover Bank and Citigroup are among the companies offering the service, which varies by provider and typically doesn't involve any additional costs.

A desktop version of the Discover program, for example, pops up automatically when cardholders get to a Web site's checkout.

Other programs require customers to launch the application or go to the bank's site.

Some numbers are single use, while others are one merchant numbers that can be reused. A reusable number can be helpful if shoppers plan to return to a site and want to keep an account on file.

Note that a virtual number isn't a smart idea if you need to show a credit card to pick up the purchase,like with movie tickets. That's because the number for the purchase and the number on the card won't match.

Federal law makes it fairly safe to use a credit card on the Web, since liability is limited to $50 for unauthorized credit card use, and to zero if the charge involves a stolen number but not a lost card.

The extra step is mostly for people who want to limit the personal information circulating on the Web or who want to avoid the hassle of reporting fraud in the first place.

Avoid Extra Credit Card Interest

That billing approach can saddle you with higher interest charges: In any month you didn't pay the prior balance In full, your charges are based on your average balance over the two months, rather than just the latest period.

In effect, you lose the benefit of the first month's interest free grace period.

Say you started August with a (*)zero dollar ($0) balance and charged a family vacation, so your average daily balance for the month was $4,000. You make a partial payment, and September's average daily balance comes to $2,000.

With "single cycle billing", you pay interest only on that $2,000. But &quuot;with two cycle billirig", you would pay interest on the average $3,000 balance for the two months.

The extra cost would come to about $12 at a common credit card rate of 14.75%.

Linda Sherry, a spokeswoman for advocacy group Consumer Action, says it's a "nickels and dimes" way for banks to make money.

"Never­the- less, nickels and dimes add up" for consumers, she says.

Cardholders who, maintain a steady balance probably won't notice a difference, because they don't benefit from a grace period anyway.

Check the disclosure box on credit card offers to see if interest is figured on a "two cycle average daily balance," but for existing cards, it's probably easiest to call the bank and ask.

The two cycle practice is used by some regional banks and on certain cards from some big card issuers, including Washington Mutual, Morgan) Stanley's Discover Financial Services and J.P. Morgan Chase.

Steps to Avoid Onerous Credit-Card Fees

By TERRI CULLEN...Wall Street Journal insert in Daily Herald...March 18, 2007

With U.S. lawmakers taking aim at onerous credit card fees and penalties, one major card issuer has already dropped the common but often criticized practice of "universal default."

With universal default, you could be hit with sharply higher rates on your credit card -- some as high as 35% -- if you've been late paying another creditor, such as an auto lender or mortgage lender.

Some issuers also raise your credit card rate if you make late payments on medical or cellphone bills.

Earlier this month, Citigroup's Citi Cards unit said it was ending its universal default policy, effective immediately. The news came just before a U.S. Senate panel took card issuers to task for rate policies that lawmakers say are keeping millions of Americans deeply in debt.

Card issuers monitor credit reports for notices of late payments, and at any sign of delinquency they boost cardholder rates to the highest penalty rates.

Others track credit scores and boost rates when credit scores drop for reasons other than late payments, such as maxing out a credit line or opening too many charge accounts. When your rates will rise depends on how often the card issuer checks your credit report or score.

Credit card companies are required by law to disclose if they practice universal default, but many cardholders don't read their cards' terms and conditions before opening accounts.

Compounding matters, many card issuers who practice universal default also charge rates based on the "first in, last out" method, meaning cardholders must pay their outstanding balances in full before card issuers will drop rates back to normal levels.

How can you avoid universal default?  Pay your bills on time, obviously. Whenever possible, sign up for automatic bill payment services and get into the habit of checking your card's due date each month. Many lenders offer free email alert services to warn you when a payment is due, and verify when a payment is received.

If your card's due date falls at an inconvenient time of the month for you financially, ask to have the date changed.

If you receive a statement in the mail indicating a change in your card issuer's policies, check your statement online. Some cardholders wind up hit by late penalties when card companies suddenly change due dates.

If you've been late on lender payments recently, check your card statement or call your card issuer and find out whether you may be vulnerable to universal default.

If you're being charged more, call your card issuer and ask for a better deal. Competition is fierce, and studies show most consumers who ask for a lower rate get one.

If your card issuer won't budge, shop for better deals at card comparison Web sites such as Bankrate.com and CardWeb.com.
Write to Terri Cullen at terri.cullen@wsj.com.


Highlights &(*)  added by page author.

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