What We Found in the Fine Print of Credit Cards — And How They Relate to Your Credit

What We Found in the Fine Print of Credit Cards — And How They Relate to Your Credit
Caitlin Moffitt
By: Caitlin Moffitt
Posted: April 12, 2016
BadCredit.org publishes personal finance studies daily to inform users of the latest news and trends in the subprime marketplace.

Earlier this month, Lexington Law Firm published “Credit Cards: What We Found In The Fine Print,” a series of infographics featuring statistics about information found in the fine print of credit card agreement contracts.

So here’s a question for you: Do You Know What’s in Your Credit Card Contracts?

Words Hidden in the Fine Print

First of all, the average credit card contracts include similar words, like balance, agreement, charge, account, payment, interest and deposit. Here’s an image depicting all the common words in credit card contracts we looked at:

Lexington Law Credit Card Agreements ImageHave you ever thought about how these key words impact your credit score?

How Credit Card Utilization Affects Credit

Your credit score can be influenced by your credit utilization ratio — how much of your credit limit you are using. For example, if you have a credit card with a $1,000 spending limit, and you’re carrying a balance of $500, you’re credit utilization is 50%. Most credit experts advise you to keep your credit utilization ratio under 30%, because the more credit you are using, the more it may negatively impact your credit score.

In addition to credit utilization, payments can affect your credit score. One of the main five factors of your credit score is payment history, which makes up 35% of your credit score. If you are not making timely payments to your credit card balance, those late payments may end up on your credit report — increasing the risk of them negatively impacting your credit score. Also, when managing your credit card payments, it’s recommended that you pay the total balance off every month, to avoid paying interest.

Differences in Credit Card Interest Rates

We also compared credit card companies with the highest and lowest interest rates.

This is what we found:

Lexington Law Credit Card Issuer Interests GraphAs you can see, different credit cards and banks have different interest rates. The highest interest rates range from 18.16% APR to 29.90% APR. Comparing high and low interest rates, the lowest interest rates range from 8.45% APR to 10.99% APR.

Lexington Law Credit Card Issuer Interests GraphA better credit score makes you appear more trustworthy and accountable to lenders when they are deciding to approve or deny you for a new line of credit. The better your credit score, the likelihood of you being approved for a new line of credit — like a new credit card — increases. And you may be approved for a lower interest rate, which would help you save money when you’re paying off debts and credit card balances.

Don’t Be Fooled by Introductory Interest Rates

It’s important to note that each credit card plan, including its payment schedule and fees, is different. According to the study we conducted, “For example, a consumer could hypothetically be granted a Capital One credit line with a $3,500 limit. As part of a special offer, the person also may be subject to no annual fee and receive a six-month zero-interest grace period on purchases.

However, once the interest rate increases, the consumer may pay as much as 22.67% interest (Capital One average annual rate from 2010 to 2015). Prior to the increase, if the consumer makes only a minimum payment, it could take years to pay down the remaining balance. This could theoretically result in years of payments with the total interest paid potentially being higher than the original balance.”

Get the Most Out of Your Credit Cards

To get the most out of a credit card, it’s a good idea to follow these tips: Compare a credit card offer to additional offers, and pay careful attention to the fine print of each; if possible, don’t carry a balance, and always pay off the balance every month. If all else fails, remember, mounting debt can lead to a poor credit score. Help is available.

Lastly, we recommend monitoring your credit report and credit score to ensure that it is fair, accurate and substantiated. By doing this regularly, you’ll be better prepared when applying for a new credit card, and you’ll know how a new credit card can factor into your overall credit score.