Understanding Credit Card Fine Print

While credit card fine print is notoriously dense and difficult to read, it is legally binding, and it is important that you read and understand this fine print before you accept a credit card which may have extremely onerous terms.

The first part of the credit card offer you should read is known as a Schumer box. This is a table with easily read and understood information about rates, fees and penalties. This box includes annual fee, annual percentage rate (APR) for purchases, APR for other purposes, such as balance transfer and cash advances, grace period for purchases, finance calculation method, and transaction fees. All credit cards must provide a Schumer box, all following the same format.

There are several other things you should watch for in fine print. One of the most onerous is that if you are reported as delinquent on any other account, with any creditor, this creditor can raise your APR, in what as known as "universal default."

You should also note whether "disputes on the account are subject to binding arbitration," which would mean that you have no legal recourse against the card issuer, who selects and pays the arbitrator.

Other onerous clauses include lumping balance transfer fees in with purchases, and charging interest on them as if they were purchases, and splitting APR between purchases and cash advances—and applying your payments only to the transactions with lower interest rates, thus charging you more over time.

You should also beware "fixed rate" credit cards on which the APR rises automatically on your entire balance if you go over the limit.

Double-billing cycles, or two-billing cycles, are another common way card issuers overcharge cardholders; this practice means that the interest is calculated on the balance over the two prior months, instead of your average daily balance over the previous one month.

Understanding the fine print, and the fees, on your credit card can save you not only a lot of grief, but a considerable amount of money, as well.

Card issuers use the fine print of their card agreements very well, in their own interest. They spell out conditions that most people would not agree to if they were aware of them; the issuers count on people not reading these agreements. The fact is, however, if you agree to them by accepting and using the card, you are bound by the agreements, whether you read them or not.

The most important thing to understand, of course, is that card issuers are in business to make a profit, and it is the cardholder's responsibility to thoroughly investigate all offers.


Copyright (c) 2009 Bruce J Kavich