Q: Paperwork from credit card companies always seems to be filled with tiny print that’s hard to read and even harder to understand. How do I read the fine print from my credit card issuer?
A: Fine print is designed to keep you from paying attention, but it often contains important information you can’t afford to miss. Here’s what you need to know about reading and understanding the fine print on credit card applications and billing statements.
What do all those terms mean, anyway?
First, let’s take a look at 12 basic credit card terms that are important to know but are often misunderstood:
- Accrued interest – The amount of interest incurred on a credit card balance as of a specific date.
- Annual Percentage Rate (APR) – The rate of interest that is paid on a carried credit card balance each year. The amount of interest charged each month will vary according to the current balance. This number can be determined by dividing the current APR by 12 to get the monthly APR rate, and then multiplying that number by the current balance.
- Annual fee – The yearly fee a financial institution or credit card company charges the consumer for having the card.
- Balance – The amount of money owed on the credit card bill.
- Billing cycle – The amount of time between the last statement closing date and the next.
- Calculation method – The formula used to calculate the balance. The most common is the daily balance method, where charges are calculated by multiplying the day’s balance by the daily rate, or by 1/365th of the APR.
- Cash advance – Money withdrawn from a credit card account. Cash advances usually have strict limits, higher interest rates and fees.
- Credit limit – Also known as a line of credit, this refers to the maximum amount of money that can be charged to your credit card.
- Default rate – Also called the penalty rate, this refers to an especially high rate of interest that kicks in if the consumer is late in making monthly payments and/or has violated the terms and conditions of the card.
- Grace period – The time between making a purchase and being charged interest on that purchase.
- Late payment notice and fee – These will alert the consumer to a missed payment and its associated fee.
- Minimum payment – The smallest amount of money the consumer can pay each month to keep the account current.
What’s the big deal about all the small print on my credit card application?
Don’t sign on the dotted line (or digital signature pad) just yet! Those microscopic letters on your credit card application actually contain important information. Here are some common claims you might find on an application and what the small print below these claims actually says:
Claim: Sign-up bonus: $950!
Fine print: Must spend $3,000 on the card within the first three months of ownership. Redeemable only at participating airlines.
Claim: Interest-free offer!
Fine print: Expires after 18 months, the same time a 22.5% interest rate kicks in.
Claim: 0% balance transfer!
Fine print: With a $300 balance transfer fee.
Claim: 5% cash back on grocery spending!
Fine print: Capped at $1,000 per quarter and only at participating grocery stores.
Claim: Cash advance of up to $1,500!
Fine print: With 20% interest and a $200 cash-advance fee.
Claim: Generous 25-day grace period!
Fine print: We reserve the right to shorten the grace period at any time.
How do I find the fine print on my credit card application or statement?
Read the fine print before you sign up for a credit card offer. You can find this information on the credit card’s paper or digital application under a label marked “Pricing and Terms” or “Terms and Conditions.” You can also find this information when researching credit cards online; look for it under the “Apply Now” button where it may be labeled as described above, or as “Interest Rates and Fees” or “Offer Details.”
If you’ve already signed up for the card, you’ll find these conditions on the “Card member Agreement” that generally accompanies a new credit card. The text will be lengthy, but will likely be divided into sections, including a pricing schedule, relevant fees and payment details.
Your credit card statements will also have lots of fine print, though most of it will be on the back of the bill. This information will include all the information from your application, as well as some additional information, including reports to credit bureaus, how your interest rate on the balance is calculated, how you can avoid paying interest on your purchases and how to dispute fraudulent charges on your bill.
You can find the small print on your credit card applications and statements by looking for an asterisk (*) or dagger (†), which indicates small-type footnotes at the end of the page or document.
Do I need to read all the fine print?
Fine print will appear all over your credit card paperwork, but it’s best to pay attention to the tiny letters near the points you most care about. For example, be sure to read up on the information given on all special promotions, introductory offers, bonuses, rewards and more. In general, you’ll find this rule to be true: “The large print giveth, and the small print taketh away.” In modern English, this means that the large print is designed to grab your attention and make you sign up for the card immediately, while the small print contains all the qualifiers, exclusions, justifications for future cancellations and more, about these claims.
Fine print written in financial jargon can be difficult to spot and to understand, but ignoring the small words on your credit card paperwork can have disastrous consequences. Let our guide help you learn how to read the fine print on your credit card applications and statements. Don’t let anything get past you!
Your Turn: Have you ever regretted missing the fine print on your credit card paperwork? Tell us about it in the comments.