Read that tiny
type in your
credit card agreement
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
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.
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.
"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."
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
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
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.
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
- 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
- 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
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."
- 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
- 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