Credit card agreement terms to check before you apply

To check a credit card agreement, find the three rates it charges, the conditions on any promotional rate, the rule for how your payments are split between balances, the condition on the interest-free period, what a missed payment triggers, and what the provider can change. Those six things decide what the card costs you. The headline offer rarely mentions more than one of them.

A card agreement is written by the provider, and that is normal. It also means the person applying starts at a disadvantage, because the conditions that cost the most are the ones the application does not lead with. This guide takes each one in turn, with the kind of wording to look for and the question to ask. The clause wording below is written by us to show the pattern. It is not taken from any real agreement.

What should you check in a credit card agreement?

In the US, the account-opening disclosures must state each rate for purchases, cash advances and balance transfers, the rate that applies once an introductory rate ends, any penalty rate and what triggers it, the fees, and the grace period and its conditions, or that there is none (US rules). In the UK, before a regulated credit agreement is made, the provider must explain how much you will have to pay periodically and in total where that can be determined, the features that could have a significant adverse effect on you, and the consequences of failing to make payments (UK rules). The full agreement is where the conditions below live.

Why are purchase, balance transfer and cash advance rates three different things?

Because the agreement charges them differently, and the one on the advert is usually the purchase rate. A balance transfer and a cash advance each have their own rate, often a fee, and in the case of cash, interest from the day of the withdrawal.

The wording often looks something like this:

Interest is charged at the Purchase Rate on purchases, at the Balance Transfer Rate on amounts transferred from other cards, and at the Cash Advance Rate on cash withdrawals, cash-equivalent transactions and gambling transactions. The rates are set out in the Summary Box.

In plain English, there is no single rate for the card. What you pay depends on what you used it for, and the agreement decides which category a transaction falls into.

What it depends on is which transactions the agreement puts in the cash category. The question to ask: which transactions count as cash advances, and where are all three rates written down?

When does a promotional rate end?

A promotional rate ends on the date the agreement states, or earlier if a condition in the agreement is triggered, and the conditions are usually about payments.

The wording often looks something like this:

The promotional rate on balance transfers applies for the Promotional Period shown in your offer. If you fail to make a minimum payment by its due date, the promotional rate will end and the standard Balance Transfer Rate will apply to the remaining promotional balance from the next statement date.

In plain English, the promotion is only as good as your payment record. One late minimum payment and the whole transferred balance moves to the standard rate, not just the part you have not paid.

What it depends on is which events end the promotion, and whether a transfer fee is charged on top. In the US, a temporary rate must last at least six months (US guidance), and a card company is permitted to charge a balance transfer fee on a zero percent offer (US guidance). The question to ask: what ends the promotional rate early, and what rate applies to the balance when it does?

How are your payments allocated between balances?

When you carry more than one kind of balance, the agreement decides which one your payment clears first.

The wording often looks something like this:

We apply the minimum payment to balances in the order set out in the Summary Box. Any amount you pay above the minimum payment is applied first to the balance with the highest interest rate, then to the balances with the next highest rates in turn.

In plain English, there are two rules, not one. The minimum follows an order written somewhere else, and only the part above the minimum goes to the most expensive balance first. If you only ever pay the minimum, the second rule never helps you.

What it depends on is the order used for the minimum, the order used for anything above it, and how balances at the same rate are handled. In the US, the amount you pay above the minimum must, as a rule, go to the balance with the highest rate first (US rules). The question to ask: in which order is my minimum payment applied, and in which order is anything above it?

What is the interest-free period and what is its condition?

The interest-free period is the gap between a purchase and the point interest starts, and it comes with a condition: you keep it only if you do what the agreement says, usually paying the full statement balance by the due date. Pay less, and interest can be charged from the purchase date on everything.

The wording often looks something like this:

You will not pay interest on purchases if you pay the full balance shown on your statement by the payment due date each month. If you do not pay the full balance, interest will be charged on all purchases from the date of the transaction.

In plain English, the interest-free period is a reward for a specific behaviour, not a feature of the card. Pay less than the full balance and it disappears for every purchase on the statement, not just the part you left unpaid.

What it depends on is which balance must be paid in full, and whether the period covers transfers and cash advances or purchases only. The question to ask: which transactions does the interest-free period cover, and what exactly must I pay to keep it?

What does a missed payment trigger?

A missed payment can trigger several things at once: a late payment fee, the loss of any promotional rate, a higher penalty rate on some or all balances and a report to a credit reference agency. Each is a separate condition, and they can stack.

The wording often looks something like this:

If we do not receive your minimum payment by the due date we will charge a late payment fee. If a payment is more than 60 days late we may increase the rate on all balances to the Penalty Rate shown in the Summary Box, after giving you the notice required, and any promotional rate will end.

In plain English, the fee is only the first consequence. A payment that is late enough changes the rate on everything you owe and ends the promotion you took the card for, and the sentence does not say the rate ever goes back down.

What it depends on is how late a payment must be before each consequence, and what gets you back to the old rate. In the US, a card company may raise the rate when a minimum payment has not been received within 60 days of its due date, must give 45 days' notice, and must restore the old rate after six consecutive on-time minimum payments (US rules, US guidance). The question to ask: what does a single late payment trigger, and how do I get the old rate back?

Can the provider change your rate or your limit?

Yes. A card agreement lets the provider change rates, fees, limits and other terms, and the conditions say how much notice it gives and whether you can refuse.

The wording often looks something like this:

We may change any term of this agreement, including the interest rates and fees, by giving you at least 30 days' notice. If you do not accept a change to your interest rate you may tell us within 60 days, in which case your account will be closed and you may repay the balance at the previous rate.

In plain English, the provider can change the deal but must tell you first, and for a rate rise you have a way out: say no inside the window, stop using the card, and pay off what you owe at the old rate.

What it depends on is the notice period, which changes you can reject, and what rejecting does to the account. In the US, a card company must give 45 days' written notice before a significant change in terms, and you may reject a significant change, but not a rate increase caused by a payment more than 60 days late (US rules on notice, US rules on increases). The question to ask: which changes can I refuse, how long do I have, and what happens to the balance if I do?

Which documents does a card agreement refer to?

A card agreement is usually several documents: a summary box or a rates and fees table, a price list, rewards terms and insurance terms. A condition that reads "at the rate shown in the Summary Box" cannot be checked without the summary box, so a document you do not have is a gap, not a detail. Ask for every document the agreement refers to before you apply, and read them as a set.

What should you ask before you apply?

Ask the provider the questions above in writing, and keep the answers. The ones that do the most work are what ends the promotional rate early, in which order payments are applied, and what one late payment triggers. Three of these conditions also appear in the ten sneakiest terms in savings, credit card and loan fine print, beside the ones that catch savers and borrowers.

If you would like a second read of the agreement before you ask, you can review your credit card agreement with No Sneaky Terms. It quotes every condition from your own document, explains why it matters, shows any protection elsewhere in the same document, lists every document the agreement refers to that you did not supply, and gives you the question to ask. It does not rank cards, recommend one, judge what you can afford, or tell you whether to apply. That stays your decision.

The point is not to put you off the card. It is to make sure the offer you were shown is the agreement you understand. Laws vary by country. A local lawyer or consumer protection office can tell you exactly where you stand.