Importance of Fine Print in Credit Card Deals

August 09, 2007

It feels nice to receive a new credit card or get additional credit card deals on your existing card labeled ‘exclusive' and sometimes ‘only for you' and the like. While you read through the bold lettering and attractive images on the credit card application or promotional letter, you often skip reading the column titled ‘Terms' or ‘Dependencies' or ‘Conditions apply' and similar attachments in the mail that is usually in a much smaller print. Although all of us know that reading this fine print is important, somehow, most of us choose to ignore it or do not to read it with as much attention as we read the highlighted parts of the mail. Credit card companies are experts at using this very human trait to their advantage. They put in all the information that they are required to (by law) or sufficient to hold up in the Courts in this fine print. By not reading and understanding this fine printed part of their document, you often end up paying much more than you had budgeted or spent on the credit card.

You should, as a rule, read through the fine print as you would any other binding contract (like taking a loan or buying a house). Remember that defaulting on a contract entails late fees, penalties, and surcharges, and most of all unplanned expenditure. However, there are certain guidelines that by and large help you cover the more important parts of the document or the monthly statements. If you pay attention to a few things in the fine print, you can steer clear of unnecessary financial burdens.

The most important thing to keep in mind is that the terms of your credit card are always subject to change. Remember that the credit card companies retain the right to alter or modify all the terms they had offered you in the initial contract. Industry experts stress on the need to read everything in the introductory credit card deal and in all the subsequent mails. Look out for notifications in your monthly statements. Among others, the things that can bring about a change in the terms of your contract include hikes in interest rates, end of introductory periods and acquisition of the issuing bank by another company.

You also need to look out for certain other key parameters in the credit card deals.

APR, Variable Interest rate - When credit card companies are out to get your attention, they offer very low interest rates. Remember that this attractive rate is time bound. Read the fine print for validity periods of promotional rates as well as the applicable rates after the introductory period is over. Most people overlook this; a statistic reveals that 53 percent of Americans carry balances past the lower-rate period. Furthermore, many creditors will increase your rate if you miss a payment.

Fees - The most paying revenue stream of the credit card companies are fees. The different kinds include late fees, inactivity fees, annual fees, fees for not paying off your balance, fees for exceeding your limit, cash advance fees, overdraft protection fees and balance transfer fees. Study the fine print; try and remember them.

Interest Rate Calculation - The fine print reveals how your interest rates are calculated. Generally, credit card companies use the average daily balance method. Some companies start charge interest on unpaid balances (in case you do not make the payment in full before due date) right from the billing/statement date. Remember that your principal payments are always applied to purchases made at the low rate. If you make purchases over two periods - during the lower-rate introductory period and the subsequent higher-rate period - your payments will first be applied to the purchase made at the lower rate.

Grace period - The period, after which a particular charge starts attracting interest, is also subject to change. Keep a tab on the changes.

Varying credit limits and interest rates - The credit limit offered by a creditor initially may not be the limit actually assigned to you when you receive the credit card. Card issuers determine your credit limit based on your current credit history. Moreover, the card company keeps a tab on your overall finances. A late payment, higher spends or debt, erratic activity on all your accounts and/or other credit cards may harm your credit history and cause your creditor to raise your interest rate on a specific credit card.

To summarize, do read the fine print carefully, and try to keep the essential things at the back of your mind while making purchases. In case, you do not understand any part of it, do not hesitate to confirm details with the credit card company. This article is meant to give you a fair idea of what to look for in the fine print so as to avoid rude shocks in the form of your statements.

What you can proactively do to look out for changes in your credit card conditions, without poring over the fine print? How to update yourself with the ever-changing credit card terms and conditions?

Read the filler - You receive a credit card statement every month. Pay attention to the accompanying mail or inserts. Although many of them may be invitations for memberships or requests for money, some may have updated information on your card.

Read the papers - More often than not, whenever your card company is involved in a merger with or acquisition by another financial institution, your credit card terms and conditions may change. Keep an eye on the financial pages on a regular basis for such news about your card company. In the event your card issuer is involved, anticipate changes in your card conditions.

Use Your Customer Service - Sometimes, you may receive notice of a change that is worded very formally and difficult to understand. Do not hesitate to call the company's customer service line and ask for a simpler explanation. The agents may clarify your position with respect to the changes in the card conditions.