From the Fine Print: A Closer Look At Credit Card User Agreements
June 17th, 2007 | by rachel |
Every credit card that you have includes pages and pages of “fine print” known as the CREDIT CARD USER AGREEMENT (CCUA). This printed agreement spells out specific details between the credit card issuer (CCI) and the card account holder. Each card agreement is different. The best way for you to use credit responsibly is to be aware of what is contained in the written agreement(s) for the card(s) you carry. More than likely, that means you will need to spend some time actually reading that fine print.
As you read, pay attention to these things:
1. Who does the credit card agreement apply to?
Credit cards are issued by banks. All fees, payments, and interest charges are paid to the issuing bank. In effect, when you apply for and receive a credit card, you have entered into a contract and you have received a loan.
2. When and how does the agreement take effect?
Your acceptance of and/or use of the card automatically implies your acceptance of the terms of the user agreement. You should know what the agreement contains and, if their is anything in it that you disagree with, YOU are responsible for declining the card. In some agreements, there is a time limit (often 5 business days) for rejecting the card. If/when that time passes, the agreement automatically becomes valid.
3. What categories will be used to label your charges?
Credit card issuers use different labels to categorize your charges. Those categories will be used to determine interest rates on portions of your balance. The user agreement should spell out what defines the various categories (purchases, cash advances, balance transfers, etc.) and how they will be charged.
4. How is the credit line established/maintained?
Before issuing a card, the card issuer will review your credit reports and establish a credit limit based on the information from those reports and your application to them. During the time that you maintain a credit account with that issuer, your credit limit will be monitored and it can be raised and lowered based on your future credit worthiness and performance. You may find it helpful to know when and how your credit line will be evaluated. Be mindful of language in the agreement that authorizes the issuer to arbitrarily reduce your credit limit and/or that gives them blanket authorization to request and share information from your credit reports. That language does NOT automatically mean that there is a problem but you will want to know if that language is present. Finally, find out if and under what circumstances YOU may request an increase in your credit line.
5. How will the account be monitored and protected?
In the age of identity theft and electronic transactions, credit card security is more important than ever. One of the ways that credit card issuers are competing for your business is to offer high levels of security for the cards they issue. Your user agreement will provide details of what you can expect in the way of monitoring usage of your card.
6. How will the finance charges be calculated?
Although user agreements contain plenty of confusing language, this may be the section that contains the most. Finance charges are computed for the entire balance owed but they are computed at different rates (depending on the category of the charge) and for different lengths of time. What is important for you to know is the METHOD that is used to calculate your charges.
7. What will it cost to have and use the card?
If you have a card that charges an annual fee, you need to know what that fee is and when it is charged to you each year. Also, you need to be aware of any INTRODUCTORY interest rates that may apply to your card and the time period(s) that they will be in effect.
8. What is the payment schedule?
Most credit cards are billed monthly. The actual appearance of the bill will vary but all bills should contain basic information such as: the previous balance, payments received, new transactions, finance charges and a minimum payment amount. The information about the billing cycle will also indicate how the minimum payment is calculated, the order in which payments will be applied, and the length of the grace period (if there is one). Be aware that, often, grace periods don’t apply to cash advances or any categories that are processed as cash advances.
9. What constitutes DEFAULT?
Credit card issuers protect themselves by including default provisions. This is how they limit their losses on accounts that are not being paid as they should be. Cards will vary in their definition and terms of default. YOU need to know what constitutes default for each of the credit accounts you hold.
10. What is your liability for fraudulent charges?
If your card is lost or stolen, you have a limited liability for any charges that are made without your authorization. The user agreement will detail those charges. Hopefully, you will never need to know this information! In addition to the amount of liability, the card issuer will set rules about the timetable and process that should be used to report lost or stolen cards.
11. What is the process for disputing charges?
The agreement will provide details and contact information for how, when and where to dispute charges. Be prepared for finance charges to continue to acrue while the dispute is being investigated.
12. What EXTRAS does the card include?
Depending on the card, there will be more or less information included in the fine print. You may find sections pertaining to any or all of these things:
- Rewards Program
- Travel Program
- Insurance Coverage
- Privacy Policies
- Lists of Fees
- Information about Foreign Currency Transactions
Certainly, you don’t have to memorize the user agreement for your credit accounts but you do need to be familiar with the information that is in them. Hopefully, you will have long, prosperous relationships with the card issuers. If you don’t, however, you’ll be able to clear up the problems much easier if you know what is written in the fine print.