Credit card debt is a leading cause of bankruptcy, often surpassing both medical bills and mortgage troubles. A credit card can be a great financial tool, but you have to read the fine print if you don’t want to have problems with your account. In part one of this two part series, we’ll cover some of the things you should look for in the fine print of your initial offer from the credit card company.
Changes in Terms
One of the most important pieces of information that you’re missing by skipping over the fine print is the terms of your credit agreement are subject to change at any time. Credit card companies maintain the right to adjust your contract whenever they want, and there’s nothing you can do about it once you’ve signed on the dotted line. The most common contract change credit card companies make is to your interest rate.
The interest rate you sign up for is often times an introductory rate that expires after a few months. After the introductory period, the interest rate can go as high as the credit card company wants it to, as long as it has been outlined in the fine print. Many contracts also state that interest rates can immediately jump if you do things like make a late payment, miss a payment, or take a cash withdrawal.
Transfer of Debt
Some credit card contracts state any time you don’t meet all of the terms of your credit contract, such as when you make a late payment, the credit card company can sell your debt to someone else. If this happens, you will be legally bound under the terms of the new credit contract, no matter what they are. A higher interest rate, new repayment terms, and other differences are common, as you find yourself under the terms of a “higher risk” account.
Another practice involving credit card companies and transfer of debt is a little more tricky. When you have old debt on your credit that you’ve defaulted on, it stops reporting to your credit after 7 years, unless you reaffirm on the debt with any new activity, such as making a payment. Some credit card companies buy up this old debt, and then offer you a “new” credit card.
Once you send in your application, you’re eligible to have your old debt transferred to this new card, giving you an instant balance that sometimes exceeds your limit. Your only choice at this point is to begin making payments (or have your credit damaged), since all of this was outlined in the fine print on the application you signed. Don’t sign up for any accounts that mention old debt or reaffirming on debt in their fine print.
We’ll talk more about how reading the fine print can help you to stay in good standing with your credit card company in part 2 of this article.