In today’s credit-driven economy, it’s easy to forget that credit card agreements are binding legal contracts between you and the issuer. Most card holders know about interest rates, annual fees and other common parts of standard card agreements. It’s also valuable to learn about some of the other, lesser-known pieces of typical credit card contracts.
How to Read Them
Standard credit card agreements contain two main sections: the main terms and a list of definitions, which can be quite long and full of legal jargon. It is vitally important for consumers to know how to read and understand credit card agreements. Many people are unpleasantly surprised by “hidden” fees and charges that are actually not hidden at all; they’re right there in the fine print of the card agreement. By taking time to study every card agreement you receive, you can minimize the chances of being surprised by unwanted expenses.
Term Limits
The contract length of most credit cards is between two and four years and depends on multiple factors. It’s easy to see the expiration date because it’s usually printed on the front of the credit card. Term limits, the amount of time the card is active until you have to renew it, are set by the issuing company and determine the contract length. Note that cards do not automatically renew. If you have paid your bills on time, the card issuer will likely send you a new card before the old one expires but you’ll have to activate it and accept the new agreement. The function of term limits is to allow card issuers to update the agreement. Look for new interest rates and other important changes when you receive a new card and contract in the mail. Card issuers work with a current expected credit loss (CECL) model to determine the best contract length for card holders. Under the new CECL model these limits exist to lower expected credit loss.
Rate Reductions
Every six months, credit card issuers are required by law to review your account and determine whether your interest rate can be reduced. They don’t have to tell you about the review so make sure to ask about getting a rate reduction if you’ve been making on-time payments for more than six months.
Data Sharing
Most contracts include information about how, and with whom, the card company shares data they collect on you. Legally, you have the right to opt out of this data collection. If you don’t see an “opt out” check-box on the front of your card agreement, call and ask a representative how to opt out.
Account Closure
Card companies can close your account for just about any reason under the sun. Often, accounts are closed for sequential late payments but companies have been known to close accounts for card holders who lose their jobs, don’t use cards very often or suffer from a lowered credit rating.
Always read card agreements carefully and make some notes as you go. It’s boring to sift through all the legalese but the effort will pay off. Not only will you avoid unexpected fees, but you will be able to use the card properly in all circumstances.
If you’re confused about credit cards and need help with your financial planning, we can help! Take a look at our services and schedule a free consultation today!
