7 Things To Look For In Credit Card Contracts

Read the Fine Print or Pay Later

7 Things To Look For In Credit Card Contracts
March 11, 2024

Do you know the terms and conditions in your credit card statements? Few consumers take the time to go through the mind-numbing details – but if you don't, how do you know that your credit cards provide the best deal for your situation?

Why not check your terms and conditions to see how they compare to competing cards? As you review the fine print, pay particular attention to these seven categories.

1. APR Terms – Many cards have an annual percentage rate (APR) that varies with the prime rate plus a fixed margin. The rate that you pay will fall within a stated range, based on your creditworthiness (how much risk you present to the creditor). The same card may have a different APR rate for balance transfers and cash advances than it does for purchases.

Check the expiration date for any promotional APRs (a popular tactic for balance transfer cards) because the post-promotional rate can be startling.

2. Grace Periods – Credit cards typically have a grace period, the difference between the end of the billing cycle and the due date for the purchases on that billing cycle. You have that much time to pay your bill without incurring interest charges on those purchases. Any grace period must last at least 21 days to comply with the 2009 Credit CARD Act.

Grace periods usually only apply to purchases and not to other transactions like balance transfers or cash advances.

3. Missed Payments – Missed payments usually incur late fees and often include a high penalty APR that apply until you meet the criteria to have it removed. Note the penalties involved, the criteria for removing a penalty APR, and what defines a late payment (cutoff times for payment receipt and credits to your account).

Make sure you pay at least the minimum each month because a late or missed payment can cause major damage to your credit score. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.

4. Associated Fees – Most cards don't charge annual fees, but many other transaction fees may apply. Examples include balance transfer fees, foreign transaction fees, overdraft protection charges, cash advance fees, and wire transfer fees. Review the list in full and understand what action triggers each fee, and whether the fees can change over time.

5. Payment Allocations – When you have balances with different APRs, the bank has discretion on how your payments are allocated toward the debts – either toward the lowest or highest APR debt. It's in your best interest (pun intended) that payments count against the highest APR debt.

6. Interest Calculations – There are a surprising number of ways that credit card companies calculate interest charges. The simplest and most common method is the average daily balance – the sum of every day's balance in the billing cycle divided by the days in the cycle. Some cards choose to assess the finance charges daily and sum those up. Others use either the ending balance or the previous balance as the reference.

Of course, the interest calculation method is irrelevant if you always pay your bill in full and on time.

7. Billing Rights – This section will cover your rights as a cardholder and the responsibilities of the card issuer, including how to address billing disputes, time limits on claims, and the conditions under which the credit card company may report you as delinquent.

Reading the fine print can be challenging. Legal text is not known for its clarity. However, it's worth your time to review your terms and conditions in detail – and pay special attention to updates in your terms and conditions that arrive in the mail. You may find that your credit card isn't as good of a deal as you thought.

If you want more credit, check out our list of credit card offers.

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