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Read that tiny type in your credit card agreement

Folks who casually toss away those apparently extraneous papers that come with their credit card bill are probably throwing away money, too.

Buried deep among the colorful fliers advertising executive planners and calculators is information that may be more important to your bottom line than the Amount Due box.

The clue to finding it?

Look for the small print.

It's the stuff in tiny type that is likely to escape notice but needs to be eyed most carefully, experts say, because therein lie the terms that determine the real cost of a card.

A trap that trips consumers
"This is where most consumers get tripped up," says Gerri Detweiler, author of The Ultimate Credit Handbook. "Any time you get a notification from a credit card company, you have to pay attention to it."

Card contracts require constant monitoring because they can be amended quickly and frequently. A card issuer is required to give only 15 days' notice of a change in terms.

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"You can't rely on the original agreement being accurate down the road," says Gary Klein, consumer credit specialist with the National Consumer Law Center and author of Surviving Debt: A Guide for Consumers.

"There is almost no limit at all on how often terms can change in states where most of the credit card companies are doing business."

Know what card companies can do
Consumers who stay on top of card terms are more likely to save money. You can't avoid traps or take advantage of loopholes if you don't know what they are.

"You can definitely save money because if you find the terms are not favorable you can shop around for a better deal," says Detweiler. Check the Bankrate credit card rate tables to find the best credit card for your financial situation.

When you review an agreement, focus on overall cost. Here are some features that should be scrutinized.

  • Interest rates -- A super-low rate for six months will be advertised in bold, colorful print. But you have to put your glasses on to find out this "teaser" rate takes a hard vertical turn when the introductory period is over, or that the low rate applies only to balances you have transferred from other cards.

Even a rate advertised as "fixed" can be increased.

"Almost all credit card lenders reserve the right to change your interest rate for any reason whatsoever," says Klein. "This can be a nasty surprise for a consumer that accepted a card because it is advertised at a low rate."

  •  Interest calculation -- The small print will tell you how your interest is figured. The "average daily balance" approach is the most common. The method to watch out for is the "two-cycle" system, in which interest on a balance is retroactive to when the purchases were posted to the account.

"This is very hard to figure out," warns Klein, "because it won't say 'two-cycle billing period.' "

Carefully read the description of the billing method the card company is using. Look for references that say you are being charged interest on a purchase made during a previous billing cycle. That interest has been accruing since the item was posted to your account.

  • Fees -- Card companies are raising fees, imposing them more aggressively and inventing new ones. It's not unusual to be charged $29 for being one day late with a payment.

Consumers need to comb the fine print for late payment and overlimit terms, and look for other surprises such as "inactivity" fees for not using a card much, annual fees and penalties for paying off a balance.

Customers who carry their cards overseas need to watch out for add-ons of up to 3 percent on foreign purchases.

The price of changing limits
You might even incur a fee for a jump in your credit limit.

The fine print for Providian National Bank's Aria Visa Persona card reveals: "If you choose to accept a (credit) line increase, a fee may be charged."

  • Grace periods -- This is the amount of time you have to pay off balances without incurring interest charges. Savvy card users take advantage of it and save money.

But even veterans can be caught off-guard, as many issuers have cut grace periods from 25 days to 20 with little advance notice.

  • Payment guidelines -- Some card companies require payments to be in by a certain hour on the due date, usually in the morning, or they will charge a late fee. This is especially important to know, as late payments can result in higher interest rates.
  • Credit "purity" -- If you keep digging, you may find a clause that says your cardholder reserves the right to up your interest rate if it finds you have been late paying other bills.

The AT&T Universal Card, bought by Citibank, is doing this now. Card customers were informed earlier this year that interest may shoot to 23.9 percent "if a payment is not received by us or any other creditor within 30 days of the due date."

Expensive advances

  • Cash advances -- Most people think of a cash advance as being a withdrawal against a card from the ATM. But these things don a couple of disguises. The checks that sometimes come attached to your monthly statement are cash advances, as are some balance transfers.

Cash advances carry weighty costs. Card companies typically charge a fee of 2 to 4 percent of the amount advanced and impose a higher interest rate than they do on regular charges.

Interest starts mounting the second you make the transaction and you will be required to pay off lower-interest balances first.

  • Merger madness -- In the last couple of years, more than 20 million Americans held credit cards that were taken over by new issuers. Customers have to be on guard for changes in terms, usually less favorable to them, if their card company is bought.

Each company prices accounts differently. Most issuers take six months to a year to evaluate their new customer base after a merger, but watch out: With federal regulations requiring only 15 days' notice on term changes, you may get the rug pulled out from under you in a hurry.

-- Updated: July 29, 2004

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See Also
Take charge of your cards
5 steps to improve your credit
Credit card company 'gifts' often cost you more in fees
More credit card stories

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