6 min read

Breaking down the small print: credit cards

Andre Spiteri
3 February 2017

Ever accepted the terms and conditions on a credit card without really reading them? We look at what the fine print is all about.

Let’s face it. Terms and conditions are long-winded, technical and boring and reading them is hardly anyone’s idea of a good time. As a result, you probably tick the box or sign the agreement without even skimming over the details. Unfortunately, if a problem occurs and you haven’t read the fine print, ignorance is no defence.

Here’s a starter’s guide to understanding credit card terms and conditions and why it’s a good idea to read them before signing on the dotted line.

Why is the fine print important?

The terms and conditions are your contract with your credit card provider. They outline your responsibilities as a cardholder and set out what will happen if you don’t abide by the rules. This is really key to avoiding unnecessary credit card charges, additional debt and, most importantly, preserving and improving your credit score.

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What’s the fine print all about?

Your credit card agreement contains a breakdown of all applicable charges as well as the criteria you need to meet in order to avoid them, including the minimum amount you have to repay each month.

Different credit card providers will have specific terms and conditions; it’s a good idea to go through them carefully. With that being said, let’s have a look at the most common terms you’ll come across when reading your credit card’s fine print.

Annual percentage rate (APR)

Your APR is the annual interest rate you pay on top of your balance, along with any upfront fees and charges you may have to pay. It can be fixed or variable, and it’s not to be confused with the “representative APR” that’s advertised when you’re shopping around.

While a representative APR is the typical interest rate charged by a given card provider, your actual APR may vary depending on your individual circumstances, including your credit score. If your credit score is low, your card provider will consider you a bigger risk, so it’ll make up for this by charging a higher APR. Conversely, a high credit score means you’re less of a credit risk, so your interest rate is lower.

You should also bear in mind that different transactions can attract different interest rates. The terms and conditions should contain a breakdown of all these different rates and an explanation of when they apply.

Credit Limit

This is the maximum amount you can spend on your card. Hefty fees apply if you exceed this limit.

Minimum monthly payment

The minimum amount you have to repay off your balance each month. If you pay less than the minimum amount, you’ll be charged the same fee as you would for a late payment.

Your right to cancel

You can cancel your credit card agreement within 14 days of receiving your card.

Of course, you’ll still be liable for any debt you’ve built up during that period. You’ll need to pay this within 30 days or risk paying late payment fees and interest on the amount.

What terms should I look out for?

There are two main things you should look out for when reading your credit card’s terms and conditions: 1) the applicable fees; and 2) how perks and rewards work.

Applicable fees and charges

Your credit card agreement should have a detailed schedule of all the applicable fees and charges. These include the annual card fee, foreign transaction fees and any charges you’ll incur when you breach the terms and conditions.

Keep a particular lookout for balance transfers, i.e. using your credit card to pay off another credit card’s debt, as additional fees will most probably apply.

There’s often also a limit to how much of your balance you can transfer to your new card. Many credit card providers only allow you to transfer up to 90% of the balance. This leaves some credit to cover the transfer fees and interest on the total amount of your debt.

You should also avoid withdrawing cash with your credit card at all costs. Cash withdrawals with a credit card are called cash advances and their cost can really add up. You’ll be charged a fee (usually about 3% of the amount you’ve withdrawn), as well as interest on the amount. Many credit card providers apply interest on cash advances - at a higher rate than normal - from day one.

Perks and rewards

Many credit card providers offer incentives for first time cardholders, including attractive APR rates for the first six to 12 months. However, conditions apply.

Special offers can be withdrawn if you pay under the monthly minimum or exceed your credit limit. The same goes for introductory APR rates, which will usually be withdrawn and the normal rate applied if a payment is more than 60 days late.

Dealing with changes

Bear in mind, that your credit card provider can make any changes to the agreement provided they give you 30 days written notice. When this happens, it’s good to have a quick look to refresh your memory.

And, of course, don’t forget to keep an eye on your credit score. The better your score, the more likely it is you’ll be offered the lowest interest rates and best credit cards.

by Andre Spiteri

Andre is a former lawyer turned financial writer. Andre has written this article especially for ClearScore.

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