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Dissecting the fine print in your credit card agreement

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When applying for a credit card, you’re likely already familiar with the standard information: the annual fee, rewards rate, annual percentage rate (APR) and welcome offers.

While these details are major factors when choosing a credit card, there are more questions to consider before finalizing your decision. Do you know what constitutes a penalty? Are there foreign transaction fees? How high will the variable APR get?

The good news is you can find answers to these questions in your credit card agreement. The Schumer Box is a standardized feature across all issuers and includes bullet points of a card’s most important charges and fees. It makes comparing card terms a lot easier.

Here’s a breakdown of what to look for in an issuer agreement and how to interpret the lines of text in order to avoid any curve balls.

Interest rates and interest charges

Here you’ll find information on your card’s different interest rates and how to avoid them.

  • APR: This rate will be applied to your outstanding balance at the end of each pay period if you’re not able to pay in full. Since most credit card APRs are variable and change with the prime rate, you’ll also see how the issuer sets the rate (for example, your purchase APR is the prime rate plus 11.99 percent). If you have a card with a 0 percent intro APR period, this is where you’ll get details on how long it will last.
  • Balance transfer APR: The interest you’ll pay when you decide to move a credit card balance. Similar to purchases, you’ll see whether your card has an introductory offer on your balance transfer APR, the rate thereafter and the eligibility requirements (for example, transferring within the first 90 days).
  • Cash advance APR: If you take out a short-term cash loan with your credit card, this is the interest rate you’ll face. These rates are typically higher than those for transfers and purchases and tend to kick in immediately (that is, with no grace period).
  • Penalty APR: This is one of the most noteworthy figures on any credit card agreement. Issuers often apply this as a penalty for missing payments and it can exceed the high end of your card’s regular variable APR.
  • How to avoid paying interest on purchases: This line gives you your grace period—the number of days between the date your billing cycle closes and the date your payment is due. Pay off your balance within this time period, and you won’t incur any interest.
  • Minimum interest charge: Some cards set minimums on interest charges. If a card does, they’ll disclose that here, usually in the form of “If you are charged interest, it will be no less than $0.50.”

Payments: The fine print

The payment allocation clause found in the fine print of your agreement sheds light on how your minimum payments are dealt out across different types of debt. By law, payments that exceed the minimum have to be applied to the highest APR debt before any others. As you pay off each debt category, this payment hierarchy holds true. Your agreement will also contain information on accepted forms of payment, how your payment is processed, the application of your payments and more.

Fees

You’ll also see the various fees associated with the card. These will include:

  • Annual membership fee: This tells you how much it costs just to carry the card for a year and under what circumstances the company waives that fee (for example, for the first year).
  • Transaction fees: There are various transaction fees associated with your card, including balance transfer fees, cash advance fees and foreign transaction fees. These are often expressed as “the greater of either $10 or 3 percent.”
  • Penalty fees: You’ll incur fees for late payments, exceeding your credit card’s limit (although usually such transactions are denied) and returned payments (for example, your check bounces or electronic transfer is rejected).
  • Miscellaneous fees: Check this section for other fees that may apply. Will the issuer charge you fees for things like checking your balance, activating your account, insuring your account or receiving a bill? If so, you can likely find less costly options.

The bottom line

If you pay your credit card balance in full each billing cycle, you can avoid interest charges and most credit card fees. But even if you use your credit card responsibly, it’s a good idea to review the Schumer Box and all other terms and conditions so you’ll be fully aware of its potential costs.

Your credit card agreement will also cover other necessary material: rewards structures, credit limits, authorized user info, disputed transactions and more. While these are all critical, the real added value of reading through your agreement will be found in knowing what to avoid. With the right preparation and attention to detail, you’ll be ready for any curve balls that come your way.

Written by
Dana Dratch
Personal Finance Writer
Dana Dratch is a personal finance and lifestyle writer who enjoys talking all things money and credit. With a degree in English and writing, she likes asking the questions everyone would ask if they could and sharing the answers — along with smart money management tips from the experts.
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