Without fully understanding the terms of a credit card offer, you could be in for an unpleasant surprise.
Credit card advertisements are often filled with dazzling promises – sign-up bonuses with a long line of zeroes, trips to sandy white beaches near sparkling blue water, 0% balance transfer offers that last for months upon months. If you’re racing toward the apply button in the hopes of cashing in on a free vacation or saving hundreds of dollars of interest, stop right there: Have you taken a careful look at the terms and conditions that accompany that offer?
Without fully understanding the terms of a credit card offer, you could be in for an unpleasant surprise in case you:
- Apply and don’t qualify for that large bonus.
- Unexpectedly forfeit your 0% offer and end up with hundreds of dollars in interest charges.
- Start racking up tens to hundreds of dollars of unexpected fees.
Read on to learn how to avoid these and other common pitfalls.
Where to find credit card terms and conditions online
You’ll usually find a terms and conditions link close to the apply button on a card’s promotional page or application page. If you can’t immediately locate the link (sometimes the information is directly on the page), searching the page for common phrases can help you locate the information:
- “benefits and terms”
- “rates and fees”
- “pricing details”
- “APR” (i.e., the card’s interest rate)
- “see rates”
- “pricing and terms”
- “offer details”
- “rates and disclosures”
- “terms and conditions”
What you’ll see on first glance
The terms and conditions page is usually divided into two parts. At the top, you’ll find a Schumer box, which contains all the rates and fees information in a standardized table. Below that you’ll see a dense collection of fine-print that spells out terms and conditions with the card, such as payment allocation, rewards program information and card benefits. This information is often all located on the same page, but not always – sometimes you’ll have to look elsewhere for rewards program and benefit information. (For instance, Chase keeps this info under a separate link titled “offer details.”)
Where to find key pieces of information
Regular interest rate
The interest rate charged for carrying a balance on the card (AKA the card’s “APR”) is located at the very top of the Schumer table. The APR is usually listed as a range, which means – if approved for the card, you will receive an APR that falls somewhere within that range, depending on your creditworthiness.
0% offers for balance transfers and new purchases
If the card includes an introductory APR for balance transfers or new purchases, that information will also be listed in the first two rows of the Schumer box, in the following format:
Introductory rate (usually 0%) + number of months the offer lasts + the go-to rate (the regular APR after the introductory offer expires)
Within the Schumer box, you can find the annual fee – i.e., the fee that you have to pay for card membership. The terms will also indicate whether the fee is waived the first year.
Other fees and penalties
Any other rates and fees that the card charges will also be listed in the Schumer box, including: balance transfer fees, cash advance rates and fees, foreign transaction fees, returned payment fees, late payment fees and the penalty APR (if the card has these).
Usually near the top of the fine print, you’ll find the information on the card’s sign-up offer, including amount of points or cash back offered, requirements to earn the bonus (usually a dollar amount spent in a certain period) and limitations on earning the bonus.
Near the sign-up bonus section in the fine print, you should also find information on earning points or cash back, including earning rates, what types of purchases are qualified to earn points or cash back, caps on earning and other limitations.
Usually in the vicinity of the earning rate, you’ll see information on redeeming rewards, including redemption options and limitations, as well as rewards expiration. Unfortunately, this info isn’t always located neatly in one location. In fact, for points- and miles-based programs, which tend to be more complicated, it’s a good idea to visit the rewards program site to get the full details on redeeming rewards.
Details on other card features – such as car rental insurance or extended warranties – may be listed in terms and conditions. Here you can learn what the benefit covers, eligibility requirements and limitations.
‘Gotchas’ to watch out for
Scrolling through a card’s terms and conditions can be tricky – with a page crammed full of spidery print, it’s easy to overlook important information. A small oversight can end up costing you in fees and penalties, lost sign-up bonuses, forfeited rewards, or could result in even more dire consequences for your personal finances. Based on some common cardholder complaints, we suggest you keep a close eye out for the following items:
- Sign-up bonus limits – Before you apply for a card to earn a giant sign-up bonus, make sure you’re eligible. Issuers will usually specify in the fine print whether owning the card previously or other cards within the same family will disqualify you from earning the sign-up bonus. Sometimes you’ll have to wait a certain timeframe before you can reopen the same card to earn another bonus. Sometimes you can only earn a bonus for a particular card once in your lifetime. (While you’re at it, keep an eye out for unwritten limitations, like the Chase 5/24 rule.)
- Earning rate caps or limits – Be sure you understand fully what kinds of purchases qualify/don’t qualify for bonus rewards (to learn how purchases are tracked, see our article on MCC codes) and keep an eye out for spending caps on that bonus (e.g., you can only earn a 5% bonus for the first $2,500 in purchases per year). Issuers are usually good about specifying spending caps up front, but it’s a good idea to check in the terms and conditions for hidden caps.
- Rewards expiration, forfeiture and cancellation – Keep an eye out for terms that could result in you losing your rewards earnings – e.g., not paying your bill in time or defaulting on your account. One item to keep an eye out for is an expiration date for your points or cash back – while some issuers let you keep unredeemed rewards as long your account is open, other issuers impose a strict time limit on your rewards (as short as one month!).
- Redemption limitations – Check the details on redeeming rewards carefully – what are the redemption options, what dollar or point amount do you need to reach to redeem your rewards and how difficult is the redemption process? If a card offers a high rewards rate, but you have to jump through a lot of hoops to claim your rewards, it may not be worth your time.
- Restrictions on 0% offers – Watch out for terms that could cause you to forfeit that 0% introductory APR on balance transfers or new purchases – e.g., missing a payment due date.
- Balance transfer fees – If you think that 0% balance transfer offer is going to cost you $0, think again – you’ll usually have to pay a 3-5% fee for the transfer, which can amount to more than a hundred dollars, depending on the size of your balance. Make sure the fee is worth it before you sign up.
- Restrictions on other benefits – You should peruse the terms and conditions for any additional benefits that you intend to use – e.g., purchase protection (How much and what types of purchases does it insure? How do you file a claim?), car rental insurance (is the coverage secondary or primary? What types of rentals does it cover? In which countries?), travel credits (What is covered? Do you have to enroll to earn the credit?), etc.
- Cash advance terms – We generally don’t recommend using credit cards for a cash advance, and when you read the terms you’ll understand why – you’ll often have to pay an exorbitant fee, a higher rate of interest, plus there’s no grace period (you immediately start accruing interest on a cash advance).
- Unexpected fees – Do a close read to make sure you understand all the fees that the card may incur. In addition to checking whether the card charges an annual fee (and whether it’s waived in the first year), you should look for penalty fees (which are common), returned payment fees (which are also common) and a penalty APR (which can cause your interest rate to skyrocket). Less common, but especially important to watch out for, are additional maintenance fees on top of a card’s annual fee. While a card geared towards applicants with good scores is unlikely to include such hidden fees, subprime cards sometimes advertise an annual fee up front and only mention in the fine print that you’ll have to pay additional fees each month on top of the annual fee.
- Arbitration waivers – The terms and conditions may inform you that your card member agreement will include a waiver for arbitration – which means, you waive your right to have a claim heard in court or jury, or to participate in a class-action lawsuit. You may be able to opt out of arbitration early on, and, in case you can’t, it’s good to know what you’re getting into up front.
Many a credit card holder has experienced the pang of buyer’s remorse for signing up for a card that didn’t deliver on their expectations. Of course, terms and conditions are dense and confusing (and don’t always spell out all the limitations), so misunderstandings can’t be completely avoided. However, by reading the terms and conditions closely and looking out for key pieces of information, you may be able to spare yourself some disappointment.