How to Read and Understand the Fine Print in Credit Card Offers

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Credit cards are a for-profit business. Issuers loan you purchasing power in exchange for being paid back more than you borrowed.

However, plenty of credit cards hide predatory terms in the fine print. Lots of them even couch those bad deals in terms that make them sound like good deals. When you’re considering opening a new credit card account, make sure you understand and agree to these finer points.

Here are six specific features to review, what to look for, and when to walk away:

1. Rewards Terms and Limits

With rewards cards, for every dollar you spend, a percentage of that purchase is applied to a benefit for you. This might be a cash rebate, frequent flier miles, a credit on your account, or a combination of the above. The idea is that you get something of value back, in proportion to how much you spend.

What to look for 

Review the rewards program’s exact details and write them down on a separate piece of paper. Specifically, look for:

  • What you get back
  • How much you get back per purchase
  • If there are any thresholds or limits
  • What fees are associated with the program
  • The process for using your rewards

Some cards may offer high rewards, but cap them at a level beneath the card’s fees. If, for instance, you get 5% cash back on a prepaid card that costs $7 per $100 you load on it, you’re losing money on that deal.

Similarly, consider how you’ll use the card. If you plan to keep it as an emergency resource without putting regular spending on it, then 3% cash back with a $75 annual fee is worse than no rewards.

2. Terms of Low-Interest Rates

Although the average credit card interest rates fall between 12.99% APR and an APR in the low 20s, you can find offers with zero interest. These are almost universally introductory offers with a much higher interest rate after an initial period.

What to look for

These low interest rates may be a trap, resulting in you paying higher interest later. Find out how long the introductory period lasts and the exact interest rate that kicks in after it expires. Also, look to see if there are ways you can lose the initial rate early. For example, many cards end the deal the first time you make a late payment.

Be extremely wary of cards that offer a long-term low interest rate. In many cases, these offers come with high fees. Although there is no interest, the costs can add up to the equivalent of an APR of more than 20%.

3. Late or Missed Payments

Almost every card available charges a late fee if you make your payment past the due date. These run between $28 and $39, according to research by U.S. News & World Report, and they’re added to your interest-accruing balance. This can sting, especially in a month when you already have trouble paying your bills.

What to look for 

Look carefully at the policies for what happens if you miss payment due date. Beyond the loss of an introductory interest rate, it can also bump up your regular interest rate. Read the policy carefully, and ask questions. Some cards might also suspend rewards or benefits after a late payment.

4. Balance Transfer Specifics

You can save on interest from high-balance cards and loans by putting the balance on a card with a low-interest balance transfer offer. This works out well for them because they’re getting business you were doing with another company — and because most people end up carrying that balance after the offer expires.

What to look for 

The most important information here is the length of the low-interest balance transfer offer and how the issuer prioritizes your payments. Calculate how likely you are to pay off or make a dent in the balance within the low-interest period, and then run the math on how long after that you’ll be accruing fees.

Prioritizing payments tells you whether the money you pay on the card goes first to the transferred balance or any purchases you made with the card. Because both accrue interest at different rates, this can make a surprising difference in how long it takes to pay your balance off.

Finally, look very hard at the balance transfer fee. It’s typically 3% to 5% and accrues immediately upon the transfer, which can make a huge difference to your bottom line. For example, moving money from a card with a 15% interest rate to a card with a 12% interest rate and a 5% fee could end up costing you more than just staying put.

5. Fee Structure

The card looks great, offering a high credit limit, flexible terms, great rewards, and small benefits and bonuses for cardholders. The interest is even lower than you expected for somebody with your credit rating. So, what’s the catch? Check out the fees.

What to look for 

Those too-good-to-be-true offers often have hidden costs in the form of a variety of fees. Annual fees, processing fees, monthly service charges, foreign transaction fees, exchange fees, and a host of other flat or percentage-based fees can show up on our statement. Added up, they can be the equivalent of APRs well above other cards you qualify for, or even higher than the law permits under usury statutes.

Go through the user agreement until you’ve tallied up every possible fee, then add them together. Then use the APR and what balance you imagine you’ll carry to calculate the card’s full and actual cost. In other words, don't let great perks trick you into opening a card that costs more than it's worth.

6. Bells and Whistles

Many higher-end cards come with a variety of small, but convenient, extra benefits for cardholders. For example, one card may give you a free Netflix account. Although these perks aren’t the core purpose of opening a credit card, they can make life more enjoyable and be used as a tie-breaker between two otherwise similar offers.

What to look for 

Nothing is truly free, and most perks come with some sort of a trade-off. Some may even comes with a fee. If the perk is a subscription or membership, there may be a flat annual or monthly fee for access. Find out what the cost is, then compare it to what you would likely spend on that service outside of this credit card offer (assuming you even want that service).

All in all, because they aren’t money-makers for the credit card company, these added extras can leave a lot to be desired when it comes to quality. Read the offer details carefully to be sure you know what you’ll be receiving.

Final Thought

This analysis isn’t just for new credit cards you’re considering opening. It can also help you make purchasing and payoff decisions as you work your way out of debt. For example:

  • Understanding the late payment policies of different cards can help you choose which to skip paying during a lean month.
  • Knowing the limits and details of your miles or cash-back offers can help you understand which one to use for specific situations.
  • Remembering the actual fees and interest paid each month can guide which card you aim to pay in full first.

Whether you’re looking at new credit, old balances, or what to do next with what you already have, understanding these fine points will help you master your credit instead of letting it master you.

If you have questions or concerns about your credit usage, or just need help making ends meet, don't forget that debt and budget counseling is free and available 24/7!

Tagged in Expert insights, Laws and legal questions, Creditor fees

Kevin Goodman is a finance freelance writer in New Mexico, where he frequently writes about money-saving tips for blogs and publications.
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