Credit cards' fine print is ever so important

Have you received a notice in your mail lately about a credit card's terms and conditions? It could pay you to read it.

New rules that are part of the Credit Card Act of 2009 are intended to protect card users from sudden interest-rate hikes and to provide greater information about fees. The rules took effect February 22, 2010.

The rules have led some card issuers to change how they structure fees and finance charges. But before they do, they must inform you. So be sure to read the fine print they send, or it could cost you.

Here are some things to look for:

Is your interest rate changing? Under the new rules, card issuers have to tell you 45 days before they increase your rate or make significant changes to the card's terms. If you disagree with the new terms, you can cancel the card for future purchases and pay off your balance at the old rate.

If you do cancel a card for future purchases, the issuer can require that you pay off the balance within five years and increase how much you pay per month.

Is your card adding an annual fee? Some cards that haven't required annual fees in the past may require them now. If your card is among them and you keep it, you'll see the annual fee on a future statement.

Do you have a variable interest rate? Card issuers must tell you in advance if they're raising your interest rate—unless your rate is variable and based on an index, such as the prime rate. Some variable rates are structured so they can't fall below a certain point but don't have an upper limit.

Is the calculation of your variable rate changing? A change could link your payment to an index that could cost you more.

Is your rate a promotional rate? If you have a balance when your promotional rate ends, it could be subject to an interest rate that zooms suddenly higher.

Does your card have an inactivity fee? Some issuers may charge a fee if you don't use your card, or if you don't make a certain amount of purchases in a given period.

Can you exceed your credit limit? Card issuers now must get your permission before they can charge you a fee if you spend more than your credit limit. If you don't give them permission to charge this fee, they may refuse to allow an over-the-limit purchase.

Does your card allow for a grace period? Some issuers may charge interest immediately upon a purchase, rather than after your payment due date. So you could owe interest charges even if you pay your bill in full. Some issuers may credit the interest back to your account if you pay in full.

Will it cost you to use your card overseas? Some issuers are increasing fees for transactions in foreign currencies and transactions in dollars made overseas.

How much will a balance transfer cost? Some issuers are raising the percentage rate on fees for transferring a balance from another card.

What you can do

You can avoid most finance charges by paying off your balance in full each month. If you do carry a balance, here's a strategy for reducing your credit card debt.

If you don't understand the terms of your credit card or have questions, call the issuer. Toll-free numbers are often on the back of a card.

If you don't agree with changes in your card issuer's terms, you can try to find a new card. Make sure, though, that you're not just swapping your card for another with similar terms.

Be aware that closing a credit card account and opening another can hurt your credit score. If you're planning a big purchase, such as a home or car, you may want to wait until you've made the purchase before you switch cards.

You can compare cards' terms online at sites including* You may need to click "Apply now" to access specific cards' terms and conditions, but you can do so without completing an application.

*When you access this site you will be leaving our site. Vanguard is not responsible for the accuracy of information on third-party sites. Vanguard receives no remuneration for website links in this article. This article is for educational purposes only.

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