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
doesn't take much effort to find out about the latest offers in credit
cardspromotions 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:
- 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 ratebetter 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 concernyou'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.
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.
- 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
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.)
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 lessand 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
- Hold on to the
original card agreement and any later notices of account changes.
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."
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?
- 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 agenciesthe
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 cardinformation
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.
these questions when reviewing credit card offers or re-evaluating
Is there an annual fee? What are the fees for late payments,
returned checks or charges over the credit limit? What's the
fee for getting a "cash advance" (such as using your
credit card to get quick cash from an automated teller machine)?
Is there a fee for paying off your balance in full each month?
Can one fee trigger another fee? For example, if a late fee
or annual fee makes your balance go over the credit limit, can
the bank also charge you an over-limit fee?
Charges: What is the Annual Percentage Rate (APR) on the
card? Is the advertised APR a short-term "teaser"
rate that may increase dramatically after several months? Does
the low advertised rate apply only to balances you transfer
to your card from other loans or cards you have and not to any
new purchases you put on the card? What method will be used
to calculate interest paymentsthe "average daily balance"
approach (the most common) or some other system that may cost
you more? Is there a different interest rate for cash advances
than for other uses of the card? Can the interest rate be increased
without prior notice and, if so, under what circumstances (for
example, if you're late on a payment)?
Periods: Does the lender give you time to send in a payment
before interest is charged on your account balance? If so, how
long is that grace period, and does it apply differently to
new purchases versus old purchases still on your account? How
many days beyond the due date will the lender give you before
imposing a fee for a late payment?
What's your credit limit? What are the rules and restrictions
on the various freebies, such as airplane tickets, cash rebates
or other bonuses? What is the card company's policy on sharing
or selling information about you (your address, phone number,
account number, payment history) to other companies or even charities
that might want to contact you? How can you "opt out"
if you don't want this information provided to anyone else?