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Your Credit Card: Why and How to Focus on the Fine Print

Many costs and complaints could be avoided if consumers better understood a card's rules and fees

It doesn't take much effort to find out about the latest offers in credit cards—promotions galore appear in newspaper, TV and radio ads, in telephone and mail solicitations to your home, and even in e-mails. But consumers do find it difficult comparing one credit card with another, especially when they all boast low interest rates and fabulous features designed "just for you." Many people also need help understanding the cards they already carry around.

You may not want to read every word of every document about a credit card, especially the fine print. But we suggest that you try to understand as much as you can about the most important features of a card, because that little extra work can save you a lot of time and money later on.

"Many of the complaints we receive about credit cards occur because the customers didn't understand the basic terms and conditions of the account before they signed up," says Kathleen Nagle of the FDIC's Division of Compliance and Consumer Affairs in Washington. "These complaints could have been prevented if the consumer had taken a little more time to read the paperwork from the card company." Janet Kincaid, who oversees an FDIC office in Kansas City that handles consumer complaints about credit cards, agrees that the bulk of the problems involve "consumers who aren't aware of fees and service charges even though they are clearly defined in the card member agreement."

To help you shop for a new credit card or resolve problems with your current card, FDIC Consumer News offers the following tips:

1. Learn about the most important costs and rules of the card.

   Among the main things most consumers should want to know: Is there an annual fee? What's the interest rate—better known in the business as the Annual Percentage Rate (APR)? Is the offered rate an introductory, short-term "teaser" rate that will go up in a matter of months? Is there a "grace period" that lets you pay your bill in full without being charged interest? What method will the card issuer use to calculate your monthly interest payment? (The most common method is the "average daily balance" approach, where finance charges are calculated on the daily average for the billing period. Other calculation methods, including one called the "two-cycle" system that covers balances for two months instead of one, may result in higher interest charges.)

   Also, what is your credit limit, and what's the penalty if you go over your limit? How and when can your interest rate or credit limit be changed? How do you earn special bonuses, like airplane tickets or discounts on cars? (Beware: Some people can end up paying more in card fees or interest than the value of their freebies.)

   In general, if you expect to pay your credit card bill in full each month, the interest rate isn't your number one concern—you're probably better off having a card with no annual fee and the kinds of features (including rebates and rewards) you expect to use. If you expect to carry a balance on your card most months, you'll want to look for a card with a low APR, a grace period before finance charges are imposed for your new purchases, and the right mix of benefits to justify any fees.

   We've developed a checklist of information to help you ask the right questions about a card. If you can't find the answers in the card company's literature or if you just don't understand something, call the company's customer assistance line (most are toll-free) and ask for a simple explanation. Also ask where to find this information in the paperwork, so you can refer to it later if you have more questions or a problem.

2. Closely review your account statements and other mailings from your card company.

   Read your account statement carefully as soon as possible after it arrives. Why? First, the sooner errors are detected, the easier it will be to get them corrected.

   Also, you may not be covered by some federal consumer protection rules if you don't act within prescribed time limits. Let's say you spot an error in your monthly statement, such as a wrong dollar amount on a purchase. To be fully covered by federal consumer protection rules, you must send a letter to the creditor that is received within 60 days after the creditor sent you the statement with the error. So, if you don't closely examine your credit card bill or you wait months to give it a good look, you could end up paying for someone else's mistake. (Note: Lost or stolen credit cards come under different rules. In those cases, the most you'd owe is $50, but you owe nothing if you report the lost card before unauthorized charges are made.)

   Here's another reason to read your account mailings promptly. Card issuers generally are required to give you notice (typically at least 15 days) before increasing your interest rate, lowering your credit limit, adding fees and penalties, reducing or eliminating your grace period or cutting back on bonus programs. But card issuers sometimes provide this notice as part of their regular mailings to customers. So if you don't monitor your monthly billings or other mailings for notices of rule changes from your card company, you could pay more for a credit card that offers you less—and not even realize it. "Card issuers are not required to get your signature agreeing to these changes," explains Kate Spears, also of the FDIC Division of Compliance and Consumer Affairs in Washington. "Once you charge something to the card under the new rules, that's considered to be your acceptance of the changes."

   Spears gives another example of why it's important to read the mail from your card company. Some lenders wait until after a card application has been submitted and approved before they send out additional details about the new card. "If after reviewing the new information you don't want a card, you can return it without being liable for any annual or other fees, but only if you haven't made any charges to the account," she says. "Once you use the card, it's implied that you've agreed to all of the rules, so you'd automatically be responsible for any fees."

3. Hold on to the original card agreement and any later notices of account changes.

   "Lots of consumers throw away the paperwork they received, often because it was too confusing or too overwhelming," says the FDIC's Nagle. "That's a mistake because they may need to refer to this information, even years later, if a problem or disagreement arises."

   These documents could help you quickly answer questions such as these: How do you notify your card company if you charged something to your account that's defective? What's your liability if someone else makes unauthorized purchases with your card? If you cancel the card before the expiration date, do you lose certain freebies, such as cash-back bonuses?

4. Don't be afraid to complain or cancel a card if you think you're not being treated fairly.

   Given the intense competition in the card industry, you might be surprised at how far a card issuer will go to keep you as a customer. So if you're not happy with your card's interest rate, credit limit or other terms, or if you just don't like the way a problem is being resolved, try to work things out with the card company directly.

   If you can't resolve the problem on your own, consider contacting the government for help. These offices may be able to enforce a consumer protection rule or provide information about it. You also have the right to file a complaint against the card issuer with its primary federal regulator. If the card was issued by a bank or savings institution, the federal regulator would be one of four agencies—the FDIC, the Federal Reserve, the Office of the Comptroller of the Currency, or the Office of Thrift Supervision.

   At a minimum, the FDIC can help you determine which banking agency to contact. First, you must know the name of the institution that issued your card—information you can get on your account statement or by calling the card's customer service number. Then, you can find out the name of the primary regulator for that institution by consulting our online directory or by calling the FDIC's Consumer Call Center toll-free at 800-934-3342. For a complaint involving a credit union, contact the National Credit Union Administration.

   Some cards are issued by companies that are not federally insured depository institutions. Complaints involving those cards should be directed to the Federal Trade Commission (call toll-free phone 1-877-382-4357; write to the FTC's Consumer Response Center, 600 Pennsylvania Avenue, NW, Washington, DC 20580; or e-mail by going to the Web site at https://www.ftc.gov/ftc/complaint.htm.

   And as we've said before in FDIC Consumer News, if you're unhappy with your current cards, remember there are thousands of others being offered to the public. Chances are that you'll find at least one or two to your liking.