By manybanking.com Staff
Many consumers never look at the Terms & Conditions of a credit card before they fill out an application, and those that do are often confused by what they find. The law compels issuers to release this information, but it doesn’t compel them to make it easy to understand.
Here are 10 things consumers may find in the Terms & Conditions of a credit card and what they mean for them:
1. “Your payments will be applied to low APR balances before higher ones.” This is called negative payment hierarchy and means that the payments you make will go towards paying off debts that have the lowest associated APR first such as balance transfers. Charges that have higher APRs like cash advances will continue to earn interest and take longer to pay off.
2. “The terms of your account, including APRs are subject to change.” Variations of this statement are found in numerous credit cards, and this gives the issuer the right to change your interest rate, fees and other terms for any reason at any time.
3. “The standard purchase APR may vary.” If you have a credit card with a variable interest rate, that interest rate can vary monthly according to fluctuations in the Prime Rate. There should be a stated maximum APR, however.
4. “We may increase your minimum payment due.” The typical minimum payment is around 2% - 2.5% of the balance, but this statement allows credit card issuers to up that percentage. This is often done when a large percentage of the balance is at a lower APR so that room can be made on the card for higher APR transactions.
5. “Default APR may be applied if…” This statement contains the conditions for which the APR can be raised to the maximum, which can be 30%. These conditions typically included a late or missed payment, a returned payment or charges made over the credit limit. Default rate policies have gotten stricter and in some cases a single late payment can trigger the default rate, which may remain for up to a year or more.
6. “Balance Transfer fee applies with this offer.” Many so-called Balance Transfer credit cards advertise 0% APR introductory periods but fail to note that a fee is associated with the balance transfer. This fee is usually about 3% of the transfer amount and is not capped.
7. “Cash advance transaction fees apply.” In addition to having higher associated APRs, cash advances may also have a transaction fee of 3% of the advance amount. Often there is a minimum of $10 or more.
8. “Foreign currency transaction fees apply.” Some credit cards charge a fee for purchases made outside of the U.S. whether or not they are made in foreign currency. A typical fee is 2% - 3% of the U.S. dollar amount per purchase.
9. “Services fees apply to Rewards redemption.” Cashing in on Rewards points can cost you a service fee on some cards. Even if you earn enough points for a free plane ticket, it may not be free outright.
10. “We determine your APR based on a review your application and credit history.” While you may apply for a credit card based on a promise of a low rate, the rate you receive may not be the one advertised. If your credit history is not excellent, you may only qualify at a higher APR.
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