In-Store Lines of Credit: How to Avoid Late Payment Scams

It's difficult to understand how in-house store credit works unless you have been involved with the credit approving process in a retail business before. Otherwise, the slick language of salespeople and the pressure to quickly sign a contract for even a small purchase can impact your household budget for quite a long stretch. Late fees are one of the most common tools for scamming customers that the retail industry utilizes. While we might believe that simply making payments on time, or even getting ahead, would help avoid any late payments scams that stores might implement, there are loopholes in most contracts that ensure otherwise. Unfortunately, these shady practices are often perfectly legal. It's up to you to protect yourself from late payment scams with in-store credit lines.

First, understand that interest on most in-store credit lines is not added to your account up-front. While most bank loans will add your total interest to your balance so that you can see how much you are paying in all before signing the contract, a retail store will usually only print out the total purchase price with tax on its contract. Every month thereafter, interest is added to your balance, sometimes even after your statement has been sent out for that month. This means that your actual balance today is likely higher than the balance printed on your last statement, even if that statement came in the mail this morning. While you can still expect to have the account paid in full at the end of the contract term, which should have been revealed to you at the time of signing, there is a problem that could occur after the last payment has been made. As interest is often added after statements are sent out for the month, final payment amounts almost always vary in reality from what is on your billing statement. In other words, if your final statement tells you to pay $100.00 to close your account, you may very well find another statement the next month letting you know that you are late on a minimal finance charge that was not paid. By this point, you will also have what is likely to be a large late fee tagged on to that small unpaid amount. Yes, retail stores can legally choose to utilize this scamming practice, and yes, you will be responsible for late fees incurred. Always visit the store in person to pay off your final credit line balance so that the clerk can look up your current unpaid amount with any additional interest that has been added.

Next, always ask for the company's cycle dates before signing a contract, or at least before making your next payment if you already have an in-store line of credit that you fear may be subjecting you to scams. Most stores do not begin their billing cycle at the beginning of the month, and this can impact when your payments should be made more than the actual due date. For example, if your store's cycle ends on the 15^th of the month, only after the 15^th can a payment be made toward the next month. Payments before this date are added to the last month's balance, and reduce the amount of interest incurred the next month. While this is good to know, a drawback is that most stores will not honor your efforts to pay ahead, especially not before the cycle starts for the next month. In other words, if your payment on your store credit line is $100.00 per month and your store's cycle ends on the 15^th of the month, paying $200.00 on or before the 15^th will not mean that you have paid your bill for two months. The computers that these stores use will read this as an extra payment on the principle balance, but once the cycle starts over again, the computer system will note that no payment has been made for that particular billing cycle and another one will be due at the usual due date. If another payment is not made, you will be responsible for both that payment and a late fee. This can be quite inconvenient, especially if you had not intended to overpay in order to work on your principle balance. On that note, do not confuse due dates with cycle dates. Cycle dates, put simply, are when your store's computers store away payments made toward that month and prepare to record the next month's data. You are almost always responsible for making a payment each cycle no matter how many months ahead you think you are. Otherwise, you can expect to pay hundreds of dollars in late fees before your contract runs out.

Finally, always make payments on in-store lines of credit before the grace period begins. Allowing a grace period of several days is not necessarily a late fee scam, but it can cause customers to have an unrealistic sense of relieved pressure. What they do not know is that grace periods are not mandatory by law, and as such they can be changed without notice. Not only that, but late fee amounts can be changed without notice, meaning that if you do happen to forget your payment for a day or two, and you will if you depend on grace periods, you can incur higher fees without realizing it. Not only that, but interest can be added on during a grace period, meaning that you will end up having paid more at the end of your contract than someone else who made the exact same purchase but always paid on the true due date. The due date you agreed to at contract signing time is the one you must abide by. Grace periods should be used for emergencies only.

Remember, an in-store line of credit is not the same as a credit card. When a store approves you for their own credit system, you might be subjected to a set of rules that you have never seen before. Read the contract carefully, do your own math when deterring interest payments responsibilities that will be placed upon you, know your cycle dates, and always pay on the real due date as opposed to the date that the grace period ends upon. Doing so will not only save you from hours of humiliating and frustrating conversations with your store's billing department, but it will also save your family's bank account from unnecessary and preventable charges.