The Importance of Terms and Conditions
The terms and conditions of credit finance agreements are complied with legal documents most people do not bother to read. However, when deciding to take advantage of card offers or whether to keep an existing account, provisions hidden deep within these agreements are very important to consider. In fact, some of these provisions are so ominous if they are found within the terms and conditions the card should never be used or paid off then cancelled.
Here are 6 provisions to be wary of:
1. Back Dating of Interest Finance Charges
This is a problem when statement balances are incurred over rather than paid off every month. Most credit companies will charge interest from the day the purchase is posted to the account. However, some credit cards will return date the charge and start interest finance charges the day the item was purchased. This can be multiple days before the merchant has received funds for the purchase. This manner of calculating financing charges will only become noticeable if the statement is not paid off monthly. It can add up to hundreds of dollars of additional interest charges compared to the more favorable "when posted" method.
2. The Dreaded Two Cycle Billing
The first month an account statement is not paid off in full many companies will charge interest on the average of two months rather than just the current monthly bill. Two cycle billing is a method of using two billing cycles to compute interest charges instead of using just the immediate prior billing cycle. For example, if a monthly statement balance of $ 100 is not paid off during the grace period the two cycle billing company will average what was on the prior statement with the current statement to calculate finance charges even though the prior statement balance was paid off during the grace period AND even if the prior statement balance was $ 10,000!
3. Card Rates & Annual Fees
There still are a large number of customers paying an annual fee just to have the ability to carry a credit or charge card. This is really is too bad because there are plenty of companies that will issue a card without an annual fee. Additionally, many companies will waive the annual fee for good customers if asked to do so.
Sadly there are customers paying over 20% annualized interest finance charges even while having good credit scores and first rate credit histories. Interest finance charges are not fixed and can be negotiated to achieve significant reductions.
4. Bank Accounts Set Off
It can be convenient to have credit cards, checking and savings accounts all at the same bank. If fact, many banks offer the same online banking website to manage all of these accounts for their customers. However, there is a provision in many bank account agreements that allow the bank to take funds from depositing checking and / or savings accounts to pay cards that they issued if the balance goes unpaid. Having credit and charge cards separate from banking deposit accounts is crucial to avoiding this exposure.
5. Grace Period
The Grace Period is the number of days available each month to pay the account statement in full. By law credit finance companies that issue cards must give their customers a minimum 14 day grace period. However, many credit agreements have 20, 25 or even 30 day grace periods. A longer grace period can make a significant difference with monthly budget planning. Also, some companies have recently been sending notices that they are reducing the grace period. A call to customer service may get the longer grace period reinstated.
6. Retroactive Interest Rate Increases
It is common knowledge that credit companies can change interest rate finance charges whenever they want to. If fact, some cards are issued with a variable interest rate and will fluctuate based on the published bank prime rate. A bad trap to avoid is a teaser offer with no or low interest rates then a much higher even putative rate applied RETROACTIVELY if the balance is not paid off at the end of the introductory period. The company will go all way back to the beginning of the introductory period, for months, and apply interest finance charges on the balance. This can be a big shock if someone is not aware their account has this provision.
Make intelligent credit choices by doing the appropriate research and asking the right questions!