For any credit card holder or prospective credit card holder, knowing the terms of their credit card agreement are very important. These terms are a form of protection for both the credit card holder and the credit card company and are straightforward so that they are easy to understand by the average person. Understanding one’s rights is important when it comes to credit cards and ignoring the credit card terms when signing up or revised terms that are mailed out can be a costly mistake.
Each and every time these terms are updated, the credit card holder should go through them. Any charges made after they have been sent out indicate that the terms are accepted and the typical way to not accept them is to stop using the credit card. Typical credit card terms include information on a variety of facets of holding a credit card. These are portions that should be focused on:
Interest Rate Information
One of the most important things to look for on the credit card terms is all the information regarding interest rates. Credit card terms typically will have this information in larger print and bold so it is easy to see. Typical credit cards can have a fixed annual percentage rate of anywhere from around ten percent to around thirty percent. With a fixed rate credit card, the card holder will continue to pay the same interest rate no matter what the economy does and the only time it changes is if the card issuer tells the card holder that it is going to change and they must do so with quite a bit of notice thanks to recently passed credit card regulations.
Alternately, credit cards can have a variable annual percentage rate plan with a similar range of percentages, from around ten to thirty percent annual interest. In the credit card terms, there will be information on the variable rate. With a variable rate card, the interest rate can change based on a specified baseline rate. This rate is typically one of the government lending rates which currently are at historic lows. If these rates increase, which could happen if a different person is put in charge of them, then the credit card’s interest rate will go up the same amount. These rates are typically listed as prime plus a percentage and are good for most people, offering them a great rate now and still a fairly good rate later on.
With all of the interest rate information in the terms, the card holder or applicant should always check things like the default interest rate and what has to happen to end up getting that rate. This rate is much higher than the standard rate and is placed on accounts that have missed a payment or payments. Some credit card terms specify one late payment, even by a day, will get the rate while others are more flexible, allowing for a late payment or two per year before the default interest rate is applied to the account.
Finally, buried in the credit card terms are details about how often the bank may change the interest rate, how much notice they must give and on what basis they may change the rate. Most terms have provisions to raise the interest rate on a card holder for late payments, as mentioned, but they can also raise the interest rate simply because the card holder’s credit score has fallen.
Suppose a card holder has good credit and they go and make a major purchase such as a home or a vehicle. Their credit rating will change because of this and because there is more debt, it will likely go down, albeit by only a few points. Most credit card terms are not specific about how much the score has to change for the interest rate to change but it is something that credit card applicants and card holders should be aware of.
Payment Information
Another important part of the credit card terms is all of the payment information that is in them. The credit card company will outline detailed information on where payments are made as well as information about making online payments. Within this part of the credit card terms will show which type of payments are accepted and how quickly they are processed, as well as if there is a fee associated with a specific payment type.
Along with checks and money orders mailed into the credit card company, virtually all credit cards can also be paid over the internet using various payment methods. Some of these methods happen instantly, such as using an ATM card style transaction, credit card payment and even bank drafts from a bank account from the same bank as the credit card. However, some are not instantaneous and the credit card issuer must list both the methods that are not and how long they take to process.
This is important to know because more and more credit cards are assessing big interest rate or late payment penalties for late payments and the days of easily getting these penalties waived are unfortunately over. Some credit card issuers are more flexible than others with these things, including accepting the scheduling of a payment as payment received to avoid penalties and this will be outlined in the terms.
There will also be listings for any fees associated with any of the payment methods in the credit card terms. These can range from nominal fees to excessive and depend greatly on the credit card issuer. For instance, one bank charges eleven dollars to process a same-day payment by phone, easily a third of the minimum payment for many credit card accounts.
By looking at the credit card terms before signing up for a credit card there will be no surprises when the bill comes due or a payment is late and always reading any new terms that come out is the best protection the consumer can have against run away interest rates and fees.