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Before you get a credit card, you should always look at the fine print. Credit cards are known for being tricky. The problem is, most card issuers only make about 2% off of you swiping your card. Yet there are a lot of rewards cards offering up to 2% back, or 5% back in certain categories and 1% back on everything else. They’re not going to make much money off of you that way, so they try to sneak in fees, caps, and other fine print in order to stay profitable. If you can scout out these things and avoid paying them, your wallet will thank you.
So where can you find the fine print? That’s a good question. The key to finding it is to look for the words “Terms and Conditions.” If you see those words, that’s where you’ll find things like the APR, the late fee amount, how long your grace period will be, and tons of other important information about your card. In some cases, this information may be at the bottom of the application page. Once you’ve found it, it’s time to start scanning it for the important information. (Reading the whole thing is ideal, but often there’s way more than you can read in a reasonable amount of time.)
If you’re thinking about getting a rewards card, one of the most important things to look for is the rewards program’s fine print. There are often caps to your earnings. You may see something like, “After the first $200 per month in qualifying purchases on dining, rewards drop to 0.25%.” If you’re planning to get this card to take advantage of all the money you spend on going out to eat, that’s something you’d want to know.
There may also be a minimum. For example, with some of Discover’s cards, you don’t earn the full 1% until you reach $3,000 worth of purchases for that year. If you’re a low spender, that can seriously cripple your rewards potential. Then there’s rotating rewards categories. You usually have to sign up each time the categories change to receive your rewards, and if you forget, you’re out of luck. Finally, there may only be a certain amount of rewards points you can earn each year. Look for cards that boast “no caps and no minimums.”
If you’ve had a credit card for a while, you may have noticed that after you make a late payment or two, your rate jumps up several percentage points. This is due to something called penalty APR. The credit card company is required to disclose this in the card’s Terms and Conditions. For many cards this will be in the high 20%. I’ve seen several with penalty rates of 29.99%. If you’re carrying a balance of $10,000, that means you’ll be paying over $3,000 a year in interest alone. Obviously it’s best to never make a late payment, but if you know you’re forgetful, look for a card with a penalty APR in the low 20s, or lower, if you can find one.
Credit cards have all sorts of fees. It’s how they stay in business while still offering things like 21-month 0% introductory APR. A smart customer will check out a credit card’s fees before applying. If you want to transfer money to your new card, don’t just check out the balance transfer APR. Also check out the balance transfer fee. Ideally, you don’t want to be paying any more than 3%. Most cards charge 3-5%, and there are enough options at 3% that you shouldn’t have to pay more.
Besides balance transfer fees, there may also be a foreign transaction fee. If you travel abroad a lot, look for a card without one. Then check out the late fee. $35 is currently the most common late fee amount. If your dream card is charging $49 for a late payment, you may want to rethink it. You can’t avoid a card with fees, but you can make sure all the fees you’re paying are average or lower.
There’s a lot more information you can find in the Terms and Conditions, and even more when you get your Cardmember Agreement in the mail, usually sent with your new card. It’s good to at least skim through this before making purchases. There may be a lot of information that you’ll find useful down the road. In my Cardmember Agreement, I found out that my card automatically provides rental car insurance. I had no clue when I signed up for the card! Read your fine print, and you’ll not only avoid nasty surprises, but you may also find out some cool new features you never knew your card had.