Quick guide to reading a Credit Card’s Terms and Conditions
Starting Fresh
Searching for a credit card can be a tedious task, especially when you get hit with terms you’ve never seen before. So below is an explanation to some key terms of credit cards, that will help you be more confident in your understanding of the Terms and Conditions of credit cards and landing a card that fits your needs.
Annual Fee
There are many different ways this is referred to but usually one of the first items to look at in the fees section of a credit card’s Terms and Conditions. What it boils down to is how much you are going to be paying every single year you own that card.
For example, Capital One’s QuickSilver One Card has an annual fee of $39, so if you keep this card for 7 years, you will have paid $273 in annual fees just for that card.
Annual fees are something to primarily look into when searching for credit cards, though its not necessarily a bad thing for a credit card to have. Some higher end cards like American Express’s Gold Card have an annual fee of $250, which gives the user some better rewards/benefits. If you plan to use the card enough that it pays itself back in rewards, then the annual fee may be something you don’t have to worry about.
Annual Percentage Rate (APR)
There are 2 different types with a credit card. APR is based on annual percentage so when calculating for Purchases and Cash advances, banks use months and days, respectively.
First is for Purchases, which means if you don’t completely pay off your entire balance for the previous billing period on the due date, you will be charged said percentage for the overflow amount still left on balance.
Example, $387 left on account with a 26.99% APR would gain an interest charge of $8.70 after payment due date (26.99% APR divided 12 months = 2.249% per month x $387 = $8.70)
Second is for Cash Advances, which means if you decide to pull cash from an ATM, this is the interest rate that will be charged until you pay back that money. Note that with Cash Advances, you start getting charged interest on the transaction date and accrue interest per day.
Example, $200 pulled from ATM with an APR of 26.99%, would accrue $0.14 a day (26.99% APR divided by 365 days = 0.07% per day x $200 = $0.14). Side note to this: Cash advance normally compounds interest so the second day would charge interest on $200.14 and so on
Refer to your cards Paying Interest portion for more details.
Other Fees
There are 2 different types with a credit card.
First is for Transaction fees, and are normally the fees charged when a particular transaction happens, for example, when doing a cash advance or paying for something outside of the United States.
For example, when pulling money out of a ATM, a Capital One Quicksilver Card will charge either $10 or 3% of money pulled and is based off whichever is greater, so if you pull $500 you will pay $15 since 500 x 3% is greater than $10 .
Second type is Penalty fees, which are accrued when you either don’t pay on time and get a late payment fee or when a payment that you submitted is bounced and thus the bank isn’t able to process payment transaction.
These fees are usually right under the Annual Fee part of the Terms and Conditions.
If you found this article useful, please leave a 👏 down below and follow my account for more useful financial tips and tricks.
