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Understanding Credit Card Terms

Although more and more people nowadays use credit cards to shop and pay their bills, few of them actually bother to read through the cardholder agreement, which states the terms and conditions under which the credit card could be used. On the other hand, it is partially the credit card company at fault that the agreement is almost always printed out in really small fonts that make it difficult to read.

You’d better stop neglecting any changes in the terms on your existing account that your credit card issuer send you. You might miss some important information that may in turn affect your credit score at some point in the future. In addition, it is better to develop a habit of thoroughly reading the terms and conditions before signing a consumer loan contract or a cardholder agreement. So, keep in mind that the cardholder agreement isn’t just a piece of paper.

Essentially, the cardholder agreement is a legal contract between the lender and the borrower that highlights all terms and conditions under which the credit could be used. This agreement specifies the rights and obligations of customers under the contract they sign. Do not hesitate to get in touch with a customer care official with your credit card company. You can ask him to explain all clauses of the agreement that you cannot understand. It is their job to make sure you are fully informed of the contract’s terms and conditions. Once you put your signature on the dotted line at the bottom, you automatically assume full responsibility for everything that is written in the cardholder agreement.

The most important items in the agreement are as follows: the annual interest rate, minimum monthly payment, grace period (if any), penalty fees and charges for late or overdue payments, credit insurance terms and conditions (if such apply), annual service fee and, last but not least, the credit limit of your card. The agreement will specify the use of the credit card, the dispute resolution process, and personal information disclosure. The agreement may also contain clauses on minimum payment due, finance charges, finance charges on purchases and cash advances, information about lost and stolen cards, amendments and change terms, and service fees, among others.

The term “introductory rate” is a false friend to all borrowers because in reality, the interest rate on your consumer loan is very likely to increase after the first year or so. Be particularly cautious if you spot it in your agreement.

Once you’ve read all terms and conditions in the cardholder agreement, you have to ask your credit card issuer if the card is sufficiently protected and whether it is accepted by most merchants. You also need to take into consideration if the limit on your credit card will be high enough to meet your financial needs and whether the card offers any extra bonuses such as cashback rewards, air miles or free liters of fuel at a particular gas stations, hypermarkets, etc. Remember that the cardholder agreement that you are required to sign before getting a credit card is a legally binding document. You are required to abide by the terms and conditions after you’ve placed your signature. If for some reason you find it difficult to read the terms and conditions, do not hesitate to ask someone to read them for you, if necessary, or print them out in larger fonts before you sign the agreement. Once you sign, you will receive a copy of your agreement. Keep it with your other financial papers, just in case you need to have a second look at the terms and conditions.