Credit Card Terms and Conditions

Reading your Credit Card Terms and Conditions is tedious and may seem too complicated, but there is key information which should not be overlooked.

Luckily, today there has been a movement towards so called "summary boxes," making this process easier, but there are still snags which can catch you off guard. Here are the most important ones.

Annual Fees—Not so Common, but Still in Existence.

Many credit cards still charge you an annual fee even though you’re already paying them interest. It’s not as common as it once was, but it’s not something you should forget.

You should be especially careful to check for fees on Gold and Platinum cards as they still tend to charge much higher fees than normal cards.

Different Methods for Calculating Interest

Because of this subject’s complexity, this is one of the most overlooked of all the terms and conditions. In basic terms, each company calculates interest in a slightly different way from other companies, which affects you because it dictates how much you’ll owe the company if you run a balance. There are three main methods:

One method is termed the average daily balance. This is more complicated than the alternatives, but also the most common now.

Your balance from the end of each day in the billing cycle is added up, and then divided by how many days there were, and interest is charged on this amount, basically acting as a monthly average of what you owe. As such, this method can be advantageous if your balance jumps around a lot.

The "adjusted balance" method charges interest on whatever your balance was when the company sent the bill. A close variation of this is the ‘previous balance’.

You’re charged interest on your balance as it stood at the end of the billing cycle before this one, regardless of how much you’ve spent or paid off since. This method is a bit unusual, but is still straightforward.

Along these lines, be sure to consider the actual rate of interest each month instead of just relying on the APR. This is because the APR is an estimate of the total cost of borrowing, including not only interest but other charges all combined.

Travel Often? Watch Currency Conversion Fees.

One more aspect to watch for applies if you plan to use your card out of the country. Check for heavy fees for non-American currencies, as cards do vary in this respect.

Grace Period.

Don’t forget the grace period, and be sure to choose a card which has at least some grace period. Otherwise, you could end up being charged interest from the minute something is charged. However, very few cards have any grace period on cash advances or credit card cheques.

Heavy Penalty Charges.

Another trick card companies use is to establish heavy fees charged for a late payment, or for taking a cash advance, or for accidentally exceeding your limit on the card. The so called “catch” of some cards are high penalty fees, making these definitely cards to avoid.

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