Understanding the Terms & Conditions

When you’re looking at a credit card offer, take a look at the small print - it seems like a maze, but it’s vitally important. With the trend nowadays towards easier-to-read ‘summary boxes’, there aren’t as many excuses for ignoring the terms as there used to be.

Anyway, credit card lenders are devious, and there are plenty of things there designed to catch you out - here’s what you should be on your guard against.

Annual Fees.

Even though you’re already paying them interest, many credit cards still charge you an annual fee. It’s not as common as it once was, but it’s still around.

You should be especially careful to check for fees on Gold and Platinum cards - even though they’re not that hard to get any more, they still tend to charge much higher fees than normal cards.

Penalty Charges.

Pay attention to what kind of fees you’ll be charged for a late payment, or if you take a cash advance, or if you accidentally exceed your limit on the card. Some cards have unjustifiably high fees, and you shouldn’t sign up for them.

Interest Method.

This is one of the most overlooked of all the things in the small print, just because it’s so hard to understand. Essentially, every company has a slightly different way of working out how much interest you should pay each month.

There are three main methods:

With the ‘adjusted balance’ method, you are charged interest on whatever your balance was when the company sent the bill. Another version of this is the ‘previous balance’. You’re charged interest on your balance as it stood at the end of the billing cycle before this one, regardless of how much you’ve spent or paid off since. Odd, but easier to understand.

Then there’s the average daily balance. This is the most complicated, but also the most common now. Your balance from the end of each day in the billing cycle is added up, and then divided by how many days there were, and interest is charged on this amount. This method is only good for you if your balance jumps around a lot, as it avoids you paying lots of interest on a balance that just happened to be large on the billing date.

Also, make sure you look at the rate of interest each month, instead of just relying on the APR. The APR is an estimate of the total cost of borrowing - it is the monthly interest plus the various charges that will show you exactly how much you would pay.

Grace Period.

Check that the card you’re looking at has a grace period on purchases. Otherwise, you could end up being charged interest from the minute you spend. Almost no cards have a grace period on cash advances or credit card cheques, however.

Currency Conversion Fees.

If you plan to use your card abroad, you should take a look at how much the card charges for transactions made in other currencies.

Some cards can be much more expensive than others.

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