Understanding the details of a typical credit card agreement can be a freedom to debt utilization in considerable ways. Although details in fine print may be strenuous to the normal eyes, it should not be ignored.
Here are a few disclosures in the fine print of a typical credit card agreement.
Rates, Fees and Other Cost Information
APR or Annual Percentage Rate. Being one of the most important disclosures, APR is essentially the rate of borrowing. Depending on the type of transaction, a different APR will be charged for purchases, balance transfers, cash advances or even a penalty.
Paying interest. This is an important term to understand for any credit agreement. It refers to the time frame between the close of the billing cycle and set monthly payment due date, which will normally be a 25-day period. Many agreements allow the cardholder to set their own preferred payment due date.
Account fee. It is an annual fee simply for the convenience of having a credit card and related rewards and benefits. Many banks waive the fee in your first-year.
Penalty Fees. There are other types of fees stipulated in an agreement such as late fees associated with late payments on the monthly payment due, foreign transaction fees for international charges, over the credit limit fees and a returned payment fee.
Customer Agreement: Payment, Default and Closure
Promise to pay. Cardholder promises to pay the bank the amount of all credit obtained, including purchases, cash advances and balance transfers, as well as interest charges, fees and other transactions charged to the account.
Minimum payment. The agreement will stipulate the minimum payment amount required by the due date. A typical statement will show the new balance, minimum payment due, the due date and an explanation of when the payment must be received by the bank to be considered paid by the due date.
Account default. A typical agreement will stipute the account is in default when:
1. No payment received on the due date
2. Payment made is rejected or revoked
3. Credit limit is exceeded
4. Defrauding the bank by providing wrong, incomplete or misleading information
5. Upon bankruptcy or insolvency proceeding; and
6. Noncompliance with terms and agreements of the contract.
Account default may lead to certain actions by the bank such as fees charged, lowering of credit limit, closing or suspending the account, or filing of a lawsuit.
Closing or suspending the account. A typical agreement stipulates that the bank reserves the right to suspend or close an account for any reason. The cardholder may also close an account in writing or by telephone. It is important to note that the due obligations of the agreement continue until fully settled even if the account is closed.
Lastly, it is helpful to know what jurisdiction law will apply per the agreement should a dispute arise between the bank and cardholder, as provided in the agreement. Arbitration terms stipulated in the agreement tend to favor the credit card company majority of the times.
Overall, gaining an understanding of these terms and conditions can allow one to make an informed decision before entering into a credit card agreement.