How to read a credit card agreement?

Before applying for a credit card, the user must be aware of all the terms and conditions associated with it. Credit card issuing agencies also need to disclose all the facts to the borrowers, but many a times users do not go into the details of all the terms. Hence, their huge credit card bills come as a shock to them, but its already too late.

The details of the terms and condition and disclosures that a user must note in detail when applying for a new credit card are as follows.

Annual Percentage Rate (APR)
Annual percentage rate is the interest that you need to pay to the credit card company on an annual basis. APR is paid on any amount borrowed. 

On top of that credit card issuers should also disclose to the users the APR on balance transfers, cash advances and defaults. Other types of APRs include tiered APRs and introductory APR. Tiered APR charge greater interest rates on balances over a specified amount and introductory APRs are the ones which are raised after a certain amount of time has elapsed.You should also check out if your APRs are fixed or variable. In case they are variable check out, how often and how much they change and how will they impact you.

Grace Period
If you want to avoid finance charges, then you should pay your credit card bill within the grace period as specified in the agreement. Usually this period is of 25 days but many card issuer offers less time. So, don't take this time for granted and cross check your grace period. It is always advisable to pay your bills on time and avoid finance charges.

Process of Computing Balance for Purchases
A variety of methods are used by credit card companies for calculating balances. These calculations can be done over one or two billing cycle.Some take into account the average daily balance while other consider the account's previous balance. New purchases may or may not take into account for calculations. As a rule of thumb, the calculations based on a single billing cycle and the average daily balance have lower finance charges.

Minimum Finance Charge
There is a set minimum finance charge that must be paid even if your finance charge is lower than the specified amount. Say, your finance charge comes out to $0.80 for a month and the minimum finance charge for your card is $3, then you will have to pay $3. To avoid this charge pay your bills on time.

Annual Fee
Many credit card issuer levy an annual fee for using the credit card. In such case, you should know the fee amount and whether it is charged monthly or annually.

Other Fees
There are various other types of fees as well that you should know about. Fees for exceeding your spending limit, fees for balance transfers, returned cheques, late payment fees, etc. Make sure you have adequate information about all these things before availing of credit card services.