Dissecting the Fine Print of Your Credit Card Agreement
When applying for a credit card, you’ve probably already familiarized yourself with the standard information: annual fee, reward rate, annual percentage rate (APR), and maybe a welcome offer.
While these details are major factors when choosing a credit card, there are other issues to consider before finalizing your decision. Such as: What constitutes a penalty? Are there any foreign transaction fees? What will be the value of the variable APR?
The good news is that you can find answers to these questions in your credit card agreement. However, to fully understand all the details, you need to take a close look at the fine print. Ignoring crucial information could leave you in the dark as to why you might suddenly find yourself paying more interest each month or paying extra fees.
Here’s a breakdown of what to look for in a transmitter chord and how to interpret lines of text to avoid any bends.
Annual rates as a percentage
Your credit card contract should begin with an easily identifiable table (called a Schumer box) with important information about your card. This is the only standardized section in all issuer agreements, so it will take more than just a glance to fully understand your card terms.
The Schumer box will provide information about your card’s APR, which is the annual interest rate you are charged for borrowing money with the card. It may sound simple, but under certain circumstances the rates can get convoluted. Several different APRs will be listed, so we’ll help you determine what to look for.
APR for purchases
That’s more or less your standard APR. The rate will be applied to your outstanding balance at the end of each pay period if you are unable to pay in full.
This is where you can also see if there is a welcome offer. If you know you’d like to make a large purchase that could leave you with an unpaid balance, you’ll want to take advantage of your low initial rate to avoid paying additional interest when the time comes.
The issuer contract will specify whether your card is at a fixed or variable rate, as well as the range it can vary if necessary. You’ll want to know this information in advance, as some cards may have a higher maximum rate than you might think.
APR for transfers
Your APR for transfers (commonly known as a balance transfer APR) is the interest you will pay when you decide to move a credit card balance. As with purchases, you will see if your card has an introductory offer on your balance transfer APR and the rate after that.
Additionally, if your card has a variable transfer APR, the range will be identified in the Schumer box.
APR for cash advances
If you take a short term cash loan with your credit card, this is the interest rate you will be facing. These rates are usually higher than those for transfers and purchases, so you’ll want to know how drastic the difference to your card is.
This is one of the most remarkable numbers in any credit card deal. Managing money well to avoid this rate is a must. Issuers will increase your purchase APR as a penalty for missing payments.
The APR penalty can even exceed the top of the variable rate, which surprises many cardholders.
AVR: the fine print
Finding the interest rates for the different segments of your card is important, but the fine print is just as important. Most importantly, you will want to know your issuer’s standard for distributing a penalty APR.
You may also find details on any of the following:
- Calculating your variable rate
- What to do to avoid paying interest
- How interest charges are calculated and applied
- What circumstances will cause your rate to change
Depending on your card, there may be additional details regarding the APRs that you will want to know.
As you go through your agreement, you’ll find that the Schumer box has details about the timing and payments associated with your card.
Card issuers will identify when your payments are due relative to the billing cycle and when interest will be charged. This rate makes it possible to differentiate between purchases, transfers and cash advances. So it is better to know the details and pay the balances on time to avoid penalties.
Minimum interest charges
Although this should be a very small amount (often around $ 0.50), your issuer will determine your minimum interest payment in the Schumer box of your agreement.
Payments: the fine print
The split payment clause in the fine print of your agreement highlights how your minimum payments are split across different types of debt. Since your debts have different interest rates, it’s good to know how those payments are distributed.
By law, payments that exceed the minimum must be applied to the highest APR debt before others. As you pay off each category of debt, this hierarchy of payment holds true.
Your agreement will also contain information about the payment methods accepted, how your payment is processed, the application of your payments and more.
Some charges will be in the foreground, but it might take a deeper dive to keep them all on your radar.
You probably know this number before you look at the deal, but check to see if the fees increase after the first year.
These will depend on the capabilities of your card, but in most Schumer boxes you will find the fees associated with cash advances and purchases abroad.
Card providers often use clauses such as “the greater of $ 10 or 3% of the amount of each cash advance” to explain the charges.
Late payment, over credit limit, and returned payment fees are usually found in the Schumer box. Hope you can avoid any situation that requires you to pay them, but it helps to be aware of this.
Fresh: the fine print
Most often, your credit card contract will show several other charges. There can surely be fees beyond this list, but be on the lookout for the following:
- Membership Fee
- Chargeback fees
- Transfer fee
At the end of the line
Your credit card contract will cover other necessary items; reward structures, credit limits, authorized user information, disputed transactions and more.
While all of these are essential, the real added value of reading your agreement will be knowing what to avoid. With the right preparation and attention to detail, you’ll be ready for any curved ball that comes your way.