Ah, the "fine print." Overly complicated and wrapped in eye-straining, microscopic font. Where else can you find phrases like "in accordance with law" and "terms shall remain in force"?
Yet the fine print should never be ignored, especially in certain areas of life such as medicine, contracts and, especially, credit card agreements.
"What's at stake with my credit card agreement and why should I care?" you may be asking. Well, for starters, fine print on your credit card agreement will address many topics that directly affect your wallet, including:
- APR or Annual Percentage Rate. This is the interest you will pay if you carry a balance.
- Annual fees. (Which themselves can accrue interest if you don't pay them off right away.)
- How long the grace period is for purchases or other transactions like a cash advance. This is the time you have between the time you buy something and when you begin to be charged interest.
- Calculation methods. This is important because different cards or issuers may do this differently.
- Fees. These can be assessed in several scenarios, such as fees on transactions made while abroad (foreign transaction fees) or fees for going over your limit or coming in late with a monthly payment - typically called "penalty fees."
Credit card companies are required to make this information available to you and there are rules governing how that information is presented; even so, it can quickly blur into legalese. Still, it is in your best interest to take the time to understand it.
Find and Compare: The Consumer Financial Protection Bureau maintains a database of 300 different credit card agreements - credit unions included. You can also find the agreements on your issuer's site thanks to the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009.
What can go wrong if you don't read the fine print
Take consumer "A" - let's call her Angela.
Angela opens a store credit card to take advantage of an attractive 0 percent annual percentage rate offer. Maybe she's buying something expensive, like furniture, and would prefer (or needs the opportunity) to pay the balance down over several months. She ignores the fine print and doesn't realize that if she doesn't pay the balance in full within the next six months, she has to now pay interest on the entire balance - from the very first day she opened the card. If Angela can only pay the minimum monthly payment, that great deal is now a major drain on her finances.
Making matters worse, the interest that comes after these offers is usually very high - up to 25 percent.
The takeaway here is that deals like "12 months same as cash!" are often not very good deals at all unless you pay off your purchase in full in that time frame. The bottom line: You must read the fine print. You are almost always better off using a 0 percent balance transfer card for large purchases or, of course, saving up and paying cash.
Here are some more good reasons why you need to pay attention to the fine print, along with several tips and tricks to make it easier to understand. No law degree needed, promise:
Reason One: 0 percent APR offers and cash advances come at a price
Learn from "Angela's" mistake. If you must use a store card's intro offer, understand exactly how the issuer is going to assess interest and when the 0 percent window ends.
This same approach applies to situations where you might be tempted to use your credit card for a cash advance. We've all been through cash crunches, but a credit card cash advance should be your method of last resort. Issuers will not automatically apply your payments to high-interest cash advances first. Check your agreement: Cash advances usually carry a higher interest rate than regular credit card purchases.
Here's how it typically works:
- Pay above the minimum, the excess payment goes to the highest rate.
- Pay only the minimum: the issuer can apply that payment to the lowest rate first, allowing the highest rates - that cash advance amount - to balloon.
Pro-tip: Sometimes you can request reallocation of a payment, usually by contacting customer service at the number on the back of your card.
See the fine print up close: "We will impose interest charges on the deferred interest balance at the APR for regular purchases from the date of purchase if you do not pay the balance in full by the end of the promotional period." And "We will begin charging interest on cash advances and balance transfers on the transaction date. [our emphasis]."
That last line above means that even if you enjoy a grace period on your purchases, you won't enjoy that same period on your cash advances.
Reason Two: You could be carrying a balance - even if you've paid in full
You proudly pay off your balance each month; excellent job! But what if you discovered that despite all this fiscal responsibility a balance was still reported to the three credit reporting bureaus? It's usually not a big deal if your utilization rate is low - this is how much of your available credit you are using at any one time - but if you are in the process of getting a loan or trying to improve your credit score, this is essential information to know.
- Ask your credit card company when they report balances - get the exact date.
- The key language to look out for is "credit card closing date vs. due date."
- Your credit utilization rate makes up about 30 percent of your FICO score, so it's a major factor.
See the fine print up close: Chase is one that does a solid job of explaining this in a consumer friendly way with dates and explanations. Here's a quick snapshot of their useful example:
10/25 - 11/24
Your payment is due. Lender (typically) reports balances to credit bureaus
11/24 - 12/21
Grace period. This means no interest is assessed if you pay by 12/21 (at least minimum)
Reason Three: It could save the family vacation (or sink it)
Rewards cards can be fantastic for vacations and save you a lot of cash. But before you sign up for a new offer with visions of that Bali yoga retreat, dig deep into things like black-out dates, airline restrictions and exactly how much you have to put on the card and during which period in order to earn the promotion.
For example, if you generally only use a credit card for emergencies or larger purchases you may not be able to charge the $4,000 (or more) required during an introductory promotional window in order to earn that pot-of-gold reward bonus. You'll also need to understand what qualifies as a purchase and timing. In some offers we reviewed, it can take up to eight weeks for bonus points to post to your account, so say goodbye to any dreams of opening a card today and jetting off tomorrow.
Also, if you are one of those early adopters who love to use wallet-less and card-less payments instead of your physical card, some fine print reminds us that "third-party payment accounts, mobile or wireless card readers, online or mobile digital wallets, or similar technology will not qualify in a rewards category if the technology is not set up to process the purchase in that rewards category."
See the fine print up close: "After qualifying, please allow 6 to 8 weeks for bonus points to post to your account. To be eligible for this bonus offer, account must be open and not in default at the time of fulfillment."
Reason Four: You thought your APR was fixed
Credit card companies can change the interest rates on your card at any time. Same goes for perks like car rental insurance, price protection, travel assistance - these, too, can change 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.
See the fine print up close: "Variable APRs for each billing period are based on the Prime Rate published in The Wall Street Journal 2 days before the Closing Date of the billing period. The Wall Street Journal may not publish the Prime Rate on that day. If it does not, we will use the Prime Rate from the previous day it was published. If the Prime Rate increases, variable APRs will increase. In that case, you may pay more interest and have a higher Minimum Payment Due."
Reason Five: Your authorized user is a deadbeat
This is probably the most straightforward. If you put a user on your card, you are still 100 percent responsible for all their charges, no matter what.
See the fine print up close: "You are responsible for any use of your account by an authorized user or anyone else that you permit to use your account. You must notify us if you want them to stop using your account. You also are responsible for getting any cards, checks or other means of accessing your account from the authorized user. If you request, we may issue cards that access your account to your authorized users. If you wish to terminate an authorized user, we may close your account and open a new account with a different account number."
Related Content: How to get removed as an authorized user
If for any reason you can't find complete terms and conditions, be a proactive consumer and ask a representative from your credit card company. A good rule of thumb is to look for small links or different symbols used as footnotes when evaluating online offers and follow them or the back pages of your paper statements.
Hopefully, the dreaded "fine print" isn't so mysterious - or daunting - anymore.