credit cards

Read the fine print

Credit card holders often are surprised when they get socked with some unexpected fees, or discover when that first statement comes that their interest rate isn't what they anticipated.

Late fees. Overdraft charges. Rate increases that come unannounced and seemingly without cause. Old debts mysteriously appearing on new credit cards.

Like it or not, these credit card surprises are usually completely legal because the card issuer warned in advance that they had the right to do so.

So the question for card holders is, how do you avoid all this and protect yourself from unexpected charges, rate increases and the like?

The answer is one you've undoubtedly heard before -- read the fine print!

Credit card companies often suck you in by sending offers with big promises in big letters. Chris Bender from the National Foundation for Credit Counseling reminds us that it's never as simple as it seems.

"If it says free checking, zero percent APR, zero finance charges for 25 months, there's some catch," says Bender. "They put all the cool stuff in large fonts or snazzy logos, and people get hooked, but it's never that good."

Trouble reading the fine print
  • 33% of consumers can't read or understand disclosure, or "fine print."
  • 20% couldn't find critical terms.
  • 44% did not know the APR on their cards.
  • 20% didn't know their credit limit.
  • 70% were unaware of "universal default" policies.
Source: Braun Research, 2006

The answer, say the credit card experts Bankrate spoke with, is to always read the fine print. Before you sign that application and drop it in the mail, make very sure that you know exactly what you're getting into.

Guess who's in charge?

Perhaps the most important thing for you to remember when you sign up for a credit card is that the companies retain the right to change the terms at any time. They can raise rates, shorten grace periods and basically, change the relationship in ways that work to their advantage.

That's why you need to study the filler material that comes with your statement each month as we explain in this story.

But frequently the things you wish you had known were right there from the start, and you would have known if you'd done your homework before you accepted the agreement.

Here are some things you may see on your credit card offers, including some common and some less-common charges, and what they could mean to you.

APR, Variable-rate information: The initial interest rate is often one of the large print items stated on the front of the offer, but how the rate will eventually change is listed on the back, and is just as -- if not more -- important.

According to John Waskin, executive director of the national nonprofit debt counseling service Bill Free - American Credit Counselors, 53 percent of Americans continue to carry the majority of their balances at the end of the promotional rate period. But even if you're paying off your bill, a slip or two can change your rate.

"If you miss two payments or are late twice, they could automatically raise your rate," warns Ray Hooper, Education Manager for the Consumer Credit Counseling Service of Dallas.

The fine print will warn you which slip-ups could cause a rate increase.

Payment allocation: If you use your card for both purchases and cash advances, or use your card both during and after a promotional period, then chances are you'll carry charges with two different rates. But if you assume that your payments will pay off your highest rate first, you're probably in for a disappointment.

Payment allocation tells how they allocate your payment in the event of differing rates, including how they may be allocating all payments to the lower rate before paying off the high one. Make sure you're aware of how payments are allocated, and whether you have the right to request how they should be allocated.

Read the fine print to make sure you know this before you accept the card.

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