These days, it seems like there is a fine print for everything we do: cell phone contracts, utilities, cable, and the list goes on. We've all been guilty at one time or another of skipping right over the fine print and getting the deal done. The one contract that should always be carefully reviewed is a credit card agreement.There should be no surprises when you receive your first credit card bill. When shopping for a credit card, it is import to always, always read the fine print on credit card agreements.
What's in the Fine Print of a Credit Card Agreement
Your credit card's terms and conditions explain the interest rates, fees, repayment terms, promotional offers, and any other charges associated with your credit card. Interest charges, also known as Annual Percentage Rate (APR) is not the only charge that may be associated with a credit card. Other charges can include:
- Introductory Offers
- Annual Fee
- Over the Limit Fee
- Balance Transfer Fee
- Cash Advance Fee
- Replacement Card Fee
- Late Payment Fee
These fees can add up quickly if you're not paying attention, and some can even snowball, especially if you get behind on payments or complete a lot of cash advances. Here is the information to be looking for on your credit card agreements before signing on the dotted line.
Introductory offers, like 0% APR for "X" months usually have an "after cost", so pay close attention to introductory rates, and make sure to remember when those promotional periods expire. Interest rates can increase exponentially when you least expect it. This is common with store credit cards, where they may say "12 months same as cash," but what you don't know is that if the balance isn't paid off in full during the 12 month period, the interest rate increases. Yikes!
There are a number of credit cards that have annual fees, usually for rewards cards. If you're really not into rewards programs, it wouldn't make sense for you to pay an annual fee. Some fees can go as high as $100 or more. There are some rewards credit cards without an annual fee. Make sure to do your research before jumping on the first offer you get in the mail. Generally speaking, if a credit card requires an annual fee it's best to skip it and find a card without one. You will save a lot of money this way.
Over the Limit Fees
It's never a good idea to spend more than your limit on your card; it's bad for your credit score and your budget. Credit card companies can actually no longer charge you an over the limit fee unless you have "opted-in". This is why it's important to read the fine print of your credit card agreements, make sure you haven't unknowingly opted in for this charge. If you have maxed out your card, it's probably in your best interest to let your card be declined rather than incur even more charges.
Balance Transfer Fees
This fee only comes into effect when you are transferring a credit card balance from one card to another card. This fee usually ranges from 3% to 5% of your total balance being transferred. For example, if you are planning to transfer a $5,000 balance, you would be paying an additional $150 to $250 in fees. Some cards come with caps on this fee, but most do not. On the flip side, there are some credit cards that do not charge a balance transfer fee at all. Again this is all in the fine print of your credit card's contract. Read it carefully.
Cash Advance Fees
Be wary of cash advances. We've all been through cash crunches, but a credit card cash advance really should be the very last thing that you use. Issuers will not automatically apply your payments to high-interest cash advances first. This is where you really need to check your agreement, it should explain how your payments will be applied to your charges. Cash advances often carry a higher interest rate than regular credit card purchases, it's important to pay attention to this difference in rates.
Replacement Card Fees
Most credit card companies are not going to charge you to replace a lost, stolen, or damaged card, but some do especially if you want the new card rushed to you. Additionally, some card companies may charge you a replacement fee if they replace your card repeatedly. While the charge is usually small, like $5, it's still money you can avoid paying simply by reading your credit card's fine print first.
Late Payment Fees
Late payment fees can get you into deep trouble if you are not paying attention. The purpose of this fee is to encourage on-time payments. By law credit card issuers can only charge you a maximum of $25 for your first late payment, but if you have been late more than once within a 6 month period, they can charge you up to $35. Additionally, a late repayment fee on your card can not exceed your minimum payment. For example, if you owe $15, they can only charge you up to $15 for a fee. It is important for you to understand when your late payments will be assessed, if there is a grace period for payment, and how much you will be charged for each late payment. If you are finding yourself struggling to pay on time, you may want to contact your credit card issuer to determine a better repayment plan.
Additional Tips For Reviewing a Credit Card Agreement
Along with reviewing all the various fees and charges that can go into a credit card agreement, it's also important to pay attention to these few things as well.
Rewards Credit Cards
Rewards cards can be great for things like vacations and can save a lot of money. Before you sign up for a rewards card, pay close attention to black-out dates and airline restrictions.
Also pay attention to whether or not there is a minimum amount required to be spent to earn maximum points. For example, if you only use a credit card for emergencies you may not be able to charge the $5,000 (or more) required during an introductory promotional window in order to earn the best reward bonus. In which case, a non-rewards card may be a better option for your needs.
You'll also need to understand what qualifies as a purchase and timing. Some cards you can earn points for all purchases, others are more restricted. In some offers we reviewed, it can take up to eight weeks for bonus points to post to your account, so make sure you're reviewing exactly how the points system for the credit card works.
Double Check Your APR's
Credit card companies can change the interest rates on your card at any time. Sure, they are required to notify you 15 days before an interest rate change, but how many times have you recycled letters from your card issuers without even opening them? Also, some credit card agreements explicitly state your APR will vary based on the Prime Rate.
Adding an Authorized User
Think long and hard before adding an authorized user to your credit card. Always remember, that if you add an authorized user, you are still 100% responsible for all charges and fees for the credit card account. If the person you allow to use the card, racks up $30,000 in debt without your knowledge, you're on the hook for that $30,000 balance.
What If I Threw Out My Credit Card Agreement?
It's okay if you don't have your credit card agreement. You can reach out to your credit card issuer and they have an obligation to send it to you. Also, when shopping for credit cards, make sure to click on all the small print and little symbols that are in the text. These are links to the fine print.