Melissa Lambarena
NerdWallet
Sifting through a credit card’s terms and conditions can be daunting. The language isn’t always straightforward, and it’s not uncommon to feel lost.
Two-thirds of consumers report fully understanding credit cards’ rewards offerings, according to J.D. Power’s 2019 Credit Card Satisfaction Study. And cardholder satisfaction with issuers’ explanation of terms scored low in comparison to other card features and services.
But the more you understand your card, the better financial decisions you’ll make. “I’m big on calling the company and asking them to walk me through it,” says Jamila Souffrant, creator of Journey to Launch, a personal finance blog and podcast.
Here’s what to think about while navigating your card’s fine print.
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HOW MUCH WILL THE CARD COST?
You can understand the long-term expenses of carrying a credit card by reviewing the card agreement that comes with it. Identify every potential charge and stay organized.
“Have all the material laid out in front of you, pull out your highlighter, and identify the key pieces of information that you need to be aware of — the interest rate, any fees, conditions, things of that nature,” says Yusuf Abugideiri, a certified financial planner at Yeske Buie, a financial planning firm.
Start with the Schumer box, a hard-to-miss table on the first page of your card agreement that lists fees and interest rates, including:
• ANNUAL PERCENTAGE RATES. Your “standard variable APR for purchases” is the interest owed for purchases when you carry a balance. Your APR will vary based on the card and your creditworthiness, but the average APR in the second quarter of 2019 for credit card accounts that incurred interest was 17.14%. You can avoid interest charges by paying your bill in full monthly. Note that some cards have different APRs for things like balance transfers and cash advances.
• INTEREST-FREE INTRODUCTORY OFFERS. Some cards feature a 0% intro APR offer that can help you finance a large purchase interest-free for a period of time, or help you pay down an existing balance faster by moving it to the
card. Note that this is different from a deferred interest offer . In these cases, “interest is actually accruing and if you don’t pay the entire balance off before (the promotional period expires), you’re going to get socked retroactively with all of that interest,” says Chi Chi Wu, staff attorney at the National Consumer Law Center. Make a note of the expiration date.
• ANNUAL FEES. Annual fees are typical on rewards cards or cards for those with poor credit (typically credit scores of 629 or below). For rewards cards, Souffrant says she looks for perks that can offset the fee. Cards designed for poor credit usually don’t offer rewards. A better choice might be a no-annual-fee secured credit card. These require a cash deposit upfront, typically a few hundred dollars, which becomes your credit limit. You get the money back when you graduate to an unsecured card or close the account in good standing.
• OTHER FEES. Look for fees on things like cash advances, balance transfers or late payments. You can avoid some of these fairly easily, but others may be inevitable, depending on your habits. For example, if your card carries a foreign transaction fee, you’ll be charged each time you use it overseas.
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ARE THERE REWARD LIMITATIONS?
If your card offers a rewards program, its terms might be included in the general card agreement or in a separate document. Here’s what to look for:
• SIGN-UP BONUSES. While these can be generous, you’ll have to meet a spending threshold first — typically several thousand dollars — within a certain time period. Don’t overspend just to earn a bonus; make sure you can truly afford it, Abugideiri says. If you plan to keep the card long term, its ongoing rewards will be more important than a one-time bonus.
• REDEMPTION VALUES. Terms and conditions often note that reward values vary depending on what you redeem for, but they don’t always specify how much each option is worth. You may have to log in to your account or ask customer service. Be aware that some cards have minimum required redemptions, meaning you can only redeem “starting at $25,” or “in $5 increments,” for example.
• ELIGIBLE TRANSACTIONS. Credit cards with bonus categories may specify limitations on them. Purchasing gas at a pump may earn you one rate, but buying something inside a gas station convenience store may earn you a different one. Cash advances or balance transfers generally don’t qualify for rewards.
