How to Read Credit Card Agreements

April is financial literacy month, and that means it’s a good time to talk about one of the most challenging financial documents to understand—the credit card agreement. The purpose of a credit card agreement is to spell out the conditions of your line of credit. According to an analysis done by, the average credit card agreement is written at a 12.37 grade level, while the average person reads at grade level 9. It is written by lawyers and can be more than ten pages long. Consequently, this provides room for a lot of small print and jargon.

We want to help you decipher what you have agreed to when you accepted your credit cards. Here are some tips on how to approach your agreement.

1. Take it line by line.

Make sure you do not skip any of the small print. Yes, there is a lot of information in this document (the average credit card agreement has 3,771 words), but all of it is important. If your deal with the creditor seems too good to be true, it probably is, and you need to know why. Skipping anything here could be detrimental to your credit later.

2. Make sure you know the terms of your interest rate.

Promotional Rates

Many cards will use promotional interest rates to get your attention, such as 0% Annual Percentage Rate (APR) for six months for balance transfers. Often in the small print there is a transfer transaction fee and/or an amendment that says the balance must be paid in full before the end of the six months or the accrued interest will be applied to the account. Be sure to check for this before making any transfers.

Penalty Rates

Also, if you are late making your payment, a penalty APR could be applied to your account. In the agreement a penalty APR could be anywhere from zero to 29.99%, and if your rate is increased for this reason, the Penalty APR will apply indefinitely.

Paying Interest

Typically, you will not be charged any interest on purchases if you pay your entire balance by the due date each month. There can be some catches to this though. If you take out a cash advance or balance transfer interest can start accruing on the transaction date. This could vary based on your agreement so make sure to look out for this.

3. Your credit card agreement can change at any time.

Your agreement states something along the lines of, “We reserve the right to amend this Agreement at any time, by adding, deleting, or changing provisions of this Agreement.” This is something you cannot avoid. Your creditor has to give you notice of these changes in advance and you often have the option of rejecting the change. If you choose to reject the change though, your credit card account may be terminated, so be sure to check the fine print.

4. Types of Transactions

There are three types of transactions: purchase, balance transfer, and cash advance. Be sure you know how to make each type and if the interest rate is different based on the type.

How your payments are allocated

If you have different types of transactions on your credit card, and each has a different rate, you should make sure you know how your payments are allocated. Some agreements allocate to the balance with the lower APR first, which causes you to pay more interest in the end.

5. Know your credit availability.

Your credit card agreement should let you know how much your credit line is approved for when you receive your card. The amount of credit you have could vary based on the transaction type. You could be approved for a certain percentage for a cash advance and another amount for purchases. You already know you should avoid going over your credit limit but if you do, there is a clause in your agreement that will let you know how the creditor will handle the situation. Some may permit the transaction without raising your credit line, some may treat the amount of the transaction that is more than the credit line as immediately due, or they may refuse to permit the transaction.

6. Be sure to check your statements for errors each month.

It is imperative that you check your statement each month to make sure you do not have any unrecognizable charges. Your agreement will tell you how to handle these if you do run across them. There is often a time limit for you to contest charges made in error.

7. Know Where to Go for Help.

If you have a credit card and are having a hard time making your monthly payments, Clearpoint Credit Counseling Solutions can help. We offer free Budget and Credit Counseling online, 24 hours a day, seven days a week, and we can help if you are in over your head with debt. We offer a Debt Management Plan that can help decrease your interest rate, lower your monthly payments, and get you on your way to financial freedom. We often can work with your creditors to eliminate fees and negotiate a lower interest rate. Go here to get started now! It’s definitely easier than reading your credit card agreement!

Courtney is Clearpoint's Social Media Specialist, a mom of two boys, married to her high school sweetheart, introverted by nature and a lover of music, movies, coffee and all things Asian. People and their behavior is her specialty; helping others is her passion.

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