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How to Make Sense of a Credit Card's Terms and Conditions

Daniel Bortz

A zero percent introductory interest rate sounds great. So does a juicy rewards program. And who couldn't use a sweet $100 sign-up bonus? We've all seen credit card commercials touting such offers, but most close with those dreaded words: "terms and conditions apply."

Digesting the high volume of information contained in a credit card offer is not only time-consuming for many people but headache-inducing. Fortunately for consumers, credit card issuers must include a Schumer box in the terms and conditions, named for Sen. Charles Schumer, D-N.Y., which contains basic information in large type, including the card's annual percentage rate. The Credit Card Accountability Responsibility and Disclosure Act of 2009 also gives credit card users legal protection from unfair practices. For example, issuers can't raise the interest rate for the first 12 months after opening the account unless the cardholder is more than 60 days late on a minimum payment.

Despite these protections, long disclosure statements can be overwhelming, and the language can confuse the average consumer, says John Ulzheimer, president of consumer education at SmartCredit.com. "Even if they wrote them in fourth-grade English, I don't know if people would take the time to read them or fully understand them," he says.

[Read: A Guide for Credit Card Newbies.]

While it's up to you as the consumer to make sense of the fine print, you can avoid most of the grunt work by asking issuers the right questions.

What's considered a late payment? Even if you think you'll never miss a payment, accidents and financial complications happen, so it's best to find out how late fees are assessed. Ask what triggers a late fee, how much the fee is and whether a late payment will affect your APR. Although the CARD Act protects from hikes in your interest rate for the first year (unless you miss the 60-day payment deadline), tardiness can come back to bite you, says Bill Hardekopf, a credit expert at LowCards.com. Hardekopf says issuers can still raise your interest rate on new purchases during the first 12 months, so long as they give you 45 days notice.

Can you explain the overlimit fees? Jana Castanon, community outreach coordinator at Apprisen, a national nonprofit credit-counseling agency, says some first-time credit users don't understand how overlimit fees work. Unless you opt in for these fees, you can't exceed your credit limit. It's not fun to hear the cashier say your credit card has been declined, but many experts warn against opting in because it puts you at risk of getting hit with extra fees - and you could start a habit of spending beyond your means.

What constitutes a foreign transaction fee? Consumers who do a lot of international travel may want to shop around for a credit card that has no foreign transaction fees. However, when looking at cards that include such fees, you should not only know how much the charges are (fees average 3 percent) but also how the issuer defines a foreign transaction. With many issuers, you don't have to make purchases overseas to get slapped with a foreign transaction fee.

"You could just be sitting in your living room and get hit with a foreign transaction fee," says Beverly Harzog, an independent credit card expert, consumer advocate and author of the forthcoming book "Confessions of a Credit Junkie." Harzog says her daughter purchased books online from a store in England and was charged a foreign transaction fee.

[Read: 10 Annoying Bank Fees - and How to Avoid Them.]

What's your policy on cash advances? Ulzheimer says some desperate consumers take out a cash advance, but he doesn't recommend it. Customers who opt for a cash advance can use their credit card to withdraw money at a brick-and-mortar bank or from an ATM. But the interest rates on cash advances are frequently higher than a card's standard rate, and there's no grace period, meaning "the interest clock starts to tick right away," says Greg McBride, senior financial analyst at Bankrate.com.

Many times the advance "limit" is lower than your credit limit - typically around a fourth of your credit limit, according to Ulzheimer. Additionally, taking out a cash advance can make an issuer think you're a risky credit card user, which may lead to negative effects like an increase in your APR.

What will balance transfers cost? Gerri Detweiler, director of consumer education at Credit.com, says credit card users can easily rack up hundreds of dollars in balance transfer fees if they don't understand how they're calculated. Most issuers charge a percentage of the total amount you transfer, but ask if there are any additional charges. For example, a bank that levies a 3 percent fee would charge you $300 for a $10,000 transfer. If you're offered a low introductory rate, clarify whether the rate is good for all balance transfers or only good up to a certain amount.

[See: 5 Ways to Give Your Credit Score a Quick Boost.]

How secure is my secured card? One way to build or mend credit is through a secured credit card, which has a fixed credit limit based on the size of your initial deposit. However, many secured credit cards levy extra fees, such as an application fee, an annual fee, a monthly maintenance fee, a fee for ATM cash withdrawals and a fee for talking to a customer service representative. Also make sure the issuer reports to the three major credit bureaus (TransUnion, Experian and Equifax) or else good credit behaviors won't affect your credit score.

How rewarding is my rewards card? In general, interest rates on rewards credit cards are higher than standard credit cards. As such, Harzog says these cards aren't worth using if you're going to carry a balance each month.

For an airline miles credit card, check if there are blackout dates and if miles expire. Some issuers wipe out your rewards if you default on the card, meaning the minimum payment goes unpaid for more than two billing cycles (i.e., 60 days).

See if you must enroll each quarter if you're applying for a card with a rotating rewards plan, where purchases for certain categories pay more points than others depending on the time of year. Unclear what a category includes? Don't be afraid to ask, Hardekopf says. Some supermarkets, for example, may not qualify as "freestanding grocery stores," so make sure you pick a card that best matches your spending habits.

The most important question about any rewards program: "How much do I have to spend to earn rewards?"

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