Understanding Credit Card Terms

Learn More about the Fancy Terms Banks Use to Confuse

Feb 22, 2009 Armand Famiglietti

Credit card companies often use terms, conditions and policies that are confusing to the consumer. Check out these explanations to educate yourself on their terminology.

When it comes to using credit cards wisely, you want to make sure you fully understand the terms and conditions of the contract you are entering into with the bank or credit card company.

Introductory Rate

Make sure you understand the terms of the introductory rate in their entirety. These are usually periods of time between three and eighteen months where the credit card company offers you a lower interest rate on balance transfers and or new purchases. These rates are usually immediately cancelled if a delinquent payment is made. Be sure to keep tabs on when your introductory rate ends so that you are not surprised when a monthly bill with a large amount of interest arrives.

Late Fees

Late fees have become increasing larger in recent years. These fees are usually between $20 and $40. Also, if you have an automatic payment system set up which fails to complete a transaction such as correctly making a payment, you will be most likely charged for that as well.

Leniency or Grace Period

Credit card companies have gotten away from these as well. This is a period of time when you can be delinquent on a payment without the credit card company charging you fees or raising your interest rate. Credit unions, which operate differently than a bank, still offer these services.

Balance Transfer Fee

The balance transfer fee used to be 3 percent of the transferred balance with a minimum of $5 and a maximum of $75. However, credit card companies now usually charge a flat 3 percent transaction fee. This is important to remember, because if you are transferring a balance for a teaser rate, it might not make financial sense. It’s best to run the numbers, keeping in mind if you have to transfer that same money a second time, you will incur an additional 3 percent.

Universal Default

Many companies have backed off their universal default policies after consumer uproar along with a series of Congressional laws that tightened their leeway in regard to how the bank can charge the consumer with penalties. Universal Default is a policy that says if you missed one credit card payment to a bank, then another bank with which you have a credit card may also raise your interest rate because you’ve “universally defaulted.” Note this can occur even if the bank with which you missed the payment doesn’t raise your interest rate.

Opt Out

As the credit crises continues for bank and consumer lenders, many companies are sending letters to customers giving them new terms in regard to their credit card. Most of the time, this has to do with raising the interest rate. The consumer has the right to “opt out” of the credit card agreement. This means that until the expiration date of your credit card, your terms will remain in effect. At that time the credit card account will be closed. It should be noted that if you miss a payment, the credit card company does have the right to assess penalties and charge additional fees.

The copyright of the article Understanding Credit Card Terms in Personal Budgeting/Finance is owned by Armand Famiglietti. Permission to republish Understanding Credit Card Terms in print or online must be granted by the author in writing.

The almighty credit card machine

And the almighty credit card