A credit card offer leads with the good part — the rewards, the intro rate, the sign-up bonus. The agreement is where the cost lives.
Nobody enjoys reading these documents, and you do not have to read every line. You do need to know where the important terms are and what they mean, because once you carry a balance, they decide how much you pay.
Where to find the agreement
Before you apply, the issuer has to show a summary table of rates and fees, often called the "Schumer box." That table is the fastest way to compare cards.
For the full terms, the Consumer Financial Protection Bureau keeps a public credit card agreement database with agreements from hundreds of issuers. These are the standard terms, not your individual account, so the rate you are offered may differ. For your own agreement, ask your card issuer.
The terms to read first
Purchase APR. The annual interest rate on purchases. Check whether it is fixed or variable. Most are variable, which means they rise and fall with a benchmark rate.
Intro or promotional APR. How long it lasts and what rate replaces it. Under federal rules, a promotional rate generally must last at least six months.
Penalty APR. A higher rate that can apply if you pay late. Find out what triggers it and how high it goes.
Cash advance APR and fees. Usually higher than the purchase rate, and the CFPB notes that interest on cash advances generally starts on the day of the transaction — no grace period.
Balance transfer terms. The rate, the fee, and how long the rate lasts.
Fees. Annual fee, late fee, foreign transaction fee, returned payment fee. A card with an annual fee needs to earn that money back for you, every year.
The grace period
A grace period is the time between the end of a billing cycle and the payment due date. If you pay the full statement balance by the due date, you usually pay no interest on purchases.
Two things the CFPB points out:
- Card companies are not required to offer a grace period. Most do, on purchases. Check the agreement.
- Carrying a balance can cost you the grace period. If you do not pay in full, you are charged interest on the unpaid portion — and on new purchases starting from the date each one is made.
Issuers must have procedures to make sure your bill is mailed or delivered at least 21 days before the payment is due.
"No interest" is not always no interest
Two offers can sound alike and work very differently.
A 0% intro APR means no interest builds during the promotional period. Whatever is left at the end starts accruing interest at the regular rate from then on.
A deferred interest offer — common on store cards and big purchases, often worded as "no interest if paid in full within 12 months" — is different. According to the CFPB, if the balance is not paid off by the end of the period, or you are more than 60 days late on a minimum payment, you can be charged the interest that would have built up from the original purchase date. Paying off most of it is not enough.
If the agreement says "if paid in full," treat the deadline as a hard one.
Protections you have
The Credit CARD Act of 2009 and the rules under it give you several protections. The CFPB summarizes them:
- No rate increases on new transactions in the first year of the account, generally.
- 45 days' notice before an interest rate increase.
- Existing balances are protected in most cases. An issuer generally cannot raise the rate on what you already owe unless, among other exceptions, your minimum payment is more than 60 days late.
- A path back. If a late payment triggered a rate increase, the issuer must restore your old rate after six consecutive on-time payments.
- Payments over the minimum go to the highest-rate balance, generally. The issuer decides where the minimum goes.
These are general rules with exceptions. If a change on your account does not look right, the CFPB accepts complaints at consumerfinance.gov/complaint.
Questions to ask before applying
- Will I pay the full balance every month? If not, the APR matters far more than the rewards.
- Does the annual fee pay for itself based on how I really spend?
- Is this a 0% intro rate or deferred interest?
- Does the issuer report to all three credit bureaus? If you are building credit, it needs to.
- Am I applying for this because I need it, or because the offer arrived?
Where we fit
A credit card can be a useful tool for building credit and a fast way to build debt. The difference is usually in the terms and the habits, not the card.
If you are comparing offers or trying to understand the terms on a card you already have, Credit4Vets can walk through it with you at no cost.
Sources: CFPB — Credit card agreement database · CFPB — When can my credit card company increase my interest rate? · CFPB — What is a grace period? · CFPB — Deferred interest offers · CFPB — How payments are applied across APRs