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Looking at the fine print of a credit card agreement–or the terms and conditions–is the most important thing you can do when applying for or accepting a credit card. Merely glancing at the numbers isn’t enough, however, to ensure you’re getting into a good deal. Understanding what you’re agreeing to and how these fees and interest rates stack up against other issuers is key.
This article will go over the highlights of a credit card agreement and give you a great idea of what to look for in a card. Keep in mind though that many of these terms will soon change for the better when the Credit CARD Act of 2009 goes into effect in early 2010.
BankRate recently completed a 2009 Credit Card Survey that examined 20 credit cards and took a look at 14 key points in the agreement, including conditions, interest rates and fees. The study concluded that terms generally vary by issuer, not card, meaning that finding the right credit card issuer is critical.
When it comes to raising rates, the survey found that all credit card issuers will change some part of your terms, although some many be more leniant and forgiving than others. For example, Discover raises your interest rate if you pay late or go over your credit limit twice. USAA Federal Savings –a top lender– will only raise your rate if you miss your minimum monthly payment twice. In general, most credit card issuers will raise your credit card rates for any single mistake.
Universal default rates — also known as the “any time, for any reason” clause — is also very common. If your credit card agreement makes mention of this clause, be aware that your APR may change at any time, whether you do anything wrong or not.
The banks that will always state that they can implement this at any time are Bank of America, American Express, Chase, First National Bank Omaha and FNB Omaha, and US Bank.
Citibank, on the other hand, doesn’t raise your rates unless you violate your terms, although they do review every account when it’s due to expire, often every two years. This means you should prepare around this time for a possible rate increase.
Wells Fargo and Capital One are the only two credit card issuers that actually refer to the “universal default” by this name and what it means is they may raise your interest rates based on accounts you have with other creditors. Capital One does not practice universal default and Wells Fargo states that it only looks at your borrowing habits with the bank, not other creditors.
The average daily balance is another term to look at on your credit card terms and means that double-cycle billing does not occur. All of the top 10 card issuers that were examined in the survey used the average daily balance of your account when determining fees.
The survey also took a look at the average late fee range for the top credit card issuers and found that the lowest late fee is $20.70, on average. The highest? $38.50. When applying for or accepting a credit card, try to look for a card with fees that stay toward the low end of the range to avoid a huge fee hitting your account the moment you’re late.
Some credit card issuers, like USAA, have a flat rate late fee, sometimes around $35. Othe accounts have a range that’s assessed depending on your balance.
The average over-the-limit fee for the top card issuers is $32.
Most issuers charge a flat fee, which is a high $39. Others have a tiered system based on your balance. USAA, on the other hand, has no overlimit fee because it doesn’t let customers go over their credit limit. If a transaction is attempted that will go over the customer’s limit, it’s automatically denied.[Editor’s Note: Thanks to the CARD Act, consumers now must “opt in” to over-limit fees. Those who opt out will have their transactions rejected if they exceed their credit limits, thus avoiding over-limit fees.
For this reason, most major credit card issuers have stopped charging over the limit fees entirely and just reject the transaction. If your issuer still charges an over-the-limit fee, the fee cannot be higher than the amount you are over your limit.]
When it comes to balance transfers, the average is 3% of the amount with no limit. Bank of America charges 4%, Capital One 0%, and Chase will soon start at 5%. USAA caps the fee at $75 while AmEx and Wells Fargo cap at $99.
Almost all of the issuers in the survey charge to pay by phone, ranging from $12 to $15. Automated phone system payments also cost between $8 and $10. Thankfully, none of the banks in the study charge for payments at a local branch.
Lastly, the grace period of all the issuers in the survey ranges from 20 to 25 days. The grace period is the time you have to pay your balance in full before interest accrues.