How to read your credit card’s terms and conditions

Credit card advertisements are often filled with dazzling promises — sign-up bonuses with a line of zeroes, free trips to sandy white beaches near sparkling blue water and 0 percent balance transfer offers that last for months upon months.

If you’re racing toward the apply button in the hopes of cashing in on a free vacation or saving hundreds of dollars in interest, stop right there: Have you taken a careful look at the terms and conditions that accompany that offer?

Without fully understanding the terms of a credit card offer, you could be in for an unpleasant surprise in the event that you:

• Don’t qualify for that large bonus
• Unexpectedly forfeit your 0 percent offer and end up with hundreds of dollars in interest charges
• Start racking up tens to hundreds of dollars of unexpected fees

What are credit card terms and conditions?

“Terms and conditions” is a document in which credit card issuers fully disclose their policies. It becomes a legal agreement once a consumer uses the credit card for the first time.

The terms and conditions page is usually divided into two parts. At the top, you’ll find a Schumer box, which contains all the rates and fees information in a standardized table. Below that, you’ll see a dense collection of fine print that spells out the card’s terms and conditions, such as payment allocation, rewards program information and card benefits.

Where to find terms and conditions: You’ll usually find a terms and conditions link close to the apply button on a card’s promotional page or application page. If you can’t immediately locate the link (sometimes the information is directly on the page), searching the page for common phrases can help you locate the information, such as “benefits and terms,” “rates and fees” and “offer details.”

The CARD Act of 2009

The Credit Card Responsibility and Disclosure Act of 2009, or the CARD Act, gave credit cardholders some valuable protections. This law gives you a safeguard from retroactive rate hikes on the card balances you carry, more time to pay bills and advance notice of any changes in the credit card terms, among other protections.

It also gives you 45 days to look for a better deal if you’re unhappy about any changes in terms and conditions, whereas previously, you had only 15 days. You can opt-out if they don’t agree with significant changes in terms and conditions of your account — if you do, you’ll have to pay off your balance per your cardholder agreement and shut down the account.

What to look for in terms and conditions

The Truth in Lending Act requires credit card issuers to disclose information (such as finance charges, fees, APRs and payment grace periods) in a standardized way to you before you open an account. You should be able to find pricing and terms information adjacent to any credit card application. If you can’t locate this information, contact the issuer directly and request it. They are required by law to give it to you.

You should be on the lookout for the following:

Regular interest rate

The interest rate you’re charged for carrying a balance (aka the card’s APR) is located at the very top of the Schumer table. The APR is usually listed as a range. If you’re approved for the card, you will receive an APR that falls somewhere within that range, depending on your creditworthiness.

What to look for:

• Penalty APR: Card issuers may charge a penalty APR if you don’t comply with the credit card terms and conditions, which can cause your interest rate to skyrocket since this is typically higher than the purchase APR.
• Purchase APR: The purchase APR is the interest rate that you will have to pay for making purchases with your credit card and carrying the balance over.
• Cash advance APR: If you use your credit card to borrow cash, your issuer may charge you a cash advance rate, which is also usually higher than the purchase APR.

Intro APR for balance transfers and new purchases

If the card includes an introductory APR for balance transfers or new purchases, that information will also be listed in the first two rows of the Schumer box, in the following format:

Introductory rate (usually 0 percent, but not always) + the number of months the offer lasts + the go-to rate (the regular APR after the introductory offer expires)

What to look for:

• Restrictions on 0 percent offers: Watch out for terms that could cause you to lose the 0 percent introductory APR on balance transfers or new purchases, such as missing a payment due date.
• Balance transfer fees: If you think that 0 percent balance transfer offer is going to cost you $0, think again — you’ll usually have to pay a 3 percent to 5 percent balance transfer fee, or a minimum of $5 to $10. These fees can amount to more than a hundred dollars, depending on the size of your balance. Be sure the fee is worth it before you sign up.
• Deferred interest offers: Search for the phrase “deferred interest” in whichever 0 percent offer you’re considering. Keep in mind that you must pay off your balance by the end of the introductory period to qualify for that 0 percent interest. If you have even a penny remaining on your balance transfer or financed purchase, you’ll forfeit your introductory offer and have to pay all the interest.

Annual fee

Within the Schumer box, you can find the annual fee — that is, the fee that you have to pay for card membership. The terms will also indicate whether the fee is waived in the first year.

What to look for:

• Maintenance fee: Less common, but especially important to watch out for, are additional maintenance fees on top of a card’s annual fee. While a card geared toward applicants with good scores is unlikely to include such hidden fees, subprime cards sometimes advertise an annual fee upfront and only mention in the fine print that you’ll have to pay additional fees each month on top of that.

Other fees and penalties

Other than the ones already mentioned, the Schumer box includes other rates and fees.

What to look for:

• Cash advance fees: When you take out a cash advance using your credit card, you’ll immediately be charged the cash advance APR, as well as a cash advance fee. This is usually $10 or 5 percent, whichever is higher.
• Cash advance terms: We generally don’t recommend using credit cards for cash advances, and when you read the terms, you’ll understand why. You’ll often have to pay an exorbitant fee and a higher rate of interest, plus there’s no grace period, so you immediately start accruing interest on a cash advance.
• Foreign transaction fees: These apply whenever you make an international purchase, while you’re abroad or shopping online with an international merchant. How much the foreign transaction fees are depends on the issuer, but they vary between 2 to 3 percent.
• Returned payment fees: Your credit card issuer may charge you if you attempt to pay your bill with a check or online payment that is declined by your bank, due to insufficient funds.
• Late payment fees: When you miss your credit card payment, your issuer may also charge you a late payment fee, which cannot exceed $30 (as of 2022), thanks to a Consumer Financial Protection Bureau regulation.

Sign-up or welcome bonus

Usually, near the top of the fine print and under “offer details” you’ll find information about the card’s sign-up bonus. This includes the amount of points or cash back offered, requirements to earn the bonus (typically a dollar amount spent in a certain period) and limitations on earning it.

What to look for:

• Sign-up bonus limits: Before you apply for a card to earn a giant sign-up bonus, make sure you’re eligible. Issuers will usually specify in the fine print whether owning the card previously or having other cards within the same family will disqualify you. Sometimes you’ll have to wait for a certain time frame before you can reopen the same card to earn another bonus and sometimes you can only earn one for a particular card once in your lifetime. The fine print may also specify purchases that do not qualify for your spend goal to achieve your intro bonus, such as balance transfers, foreign currency and lottery tickets.

Earning rate

In the fine print near the sign-up bonus section, you will also find information on earning points or cash back, including earning rates, what types of purchases are qualified to earn points or cash back, caps on earning and other limitations.

What to look for:

• Earning rate caps or limits: Be sure you understand fully what kinds of purchases qualify or don’t qualify for bonus rewards (purchases are tracked using MCC codes) and keep an eye out for spending caps on those bonuses (for example, you can only earn a 5 percent bonus for the first $2,500 in purchases per year). Issuers are usually good about specifying spending caps upfront, but it’s a good idea to check the terms and conditions for less conspicuous caps.

Redeeming rewards

Usually, in the vicinity of the earning rate, you’ll see information on redeeming rewards, including redemption options and limitations, as well as rewards expiration. Unfortunately, this information isn’t always located neatly in one location. In fact, for points-and miles-based programs, which tend to be more complicated, it’s a good idea to visit the rewards program site to get the full details on redeeming rewards.

What to look for:

• Rewards expiration, forfeiture and cancellation: Keep an eye out for terms that could result in your losing your rewards earnings — for example, not paying your bill on time or defaulting on your account. Another thing to look for is an expiration date for your points or cash back. While some issuers let you keep unredeemed rewards as long as your account is open, others impose a strict time limit on them (which can be as short as one month).
• Redemption limitations: Check the details on redeeming rewards carefully — what are the redemption options, what dollar or point amount do you need to reach to redeem your rewards, and how difficult is the redemption process? If a card offers great rewards but you have to jump through a lot of hoops to claim them, it may not be worth your time.

Other benefits

Details on other card features — such as car rental insurance or extended warranties — may be listed in the terms and conditions. Here you can learn what the benefit covers, eligibility requirements and limitations.

What to look for:

• Restrictions on card benefits: You should peruse the terms and conditions for any additional benefits that you intend to use. These might include purchase protection (How much and what types of purchases does it insure? How do you file a claim?), travel insurance (Is the coverage secondary or primary? What types of incidents does it cover? In which countries?), travel credits (What is covered? Do you have to enroll to earn the credit?) and more.
• Arbitration waivers: The terms and conditions may inform you that your cardmember agreement will include a waiver for arbitration — which means you waive your right to have a claim heard in court or jury or to participate in a class-action lawsuit. You may be able to opt out of arbitration early on. In case you can’t, it’s good to know what you’re getting into upfront.

Bottom line

Many credit card holders have experienced the pang of buyer’s remorse after signing up for a card that didn’t deliver on their expectations. Of course, terms and conditions are dense and confusing (and don’t always spell out all the limitations), so misunderstandings can’t be completely avoided. However, by reading the terms and conditions closely and looking out for key pieces of information, you may be able to spare yourself some disappointment.