At least once per year, usually in the fourth quarter or the first quarter, credit card companies will send out what is called a "change of terms notice" to their cardholders. This letter will document the changes to your credit card agreement ranging from potential increases in fees to new clauses. Because these changes can be drastic, it is vital that you read the letter in full to understand the amendments being made to your credit card agreement. In this article, we will look at some of the typical changes.
Rising Annual Percentage Rates
Many credit card companies will use this notice to raise the annual percentage rates (APRs) that they charge on outstanding balances. This can be a substantial change because it increases your borrowing costs, especially if you tend to run balances from month to month.
In fact, to provide some perspective, suppose that a person carries a stable $10,000 balance over the course of a year and is under contract to pay 18% per annum in interest charges ($1,800), which, if not paid, are tacked on to the amount owing. Now suppose that that person's rate is raised to 23% per annum - the amount of interest added to the balance will jump to $2,300. That's an almost 28% increase in annual payments. (Note that credit card companies compute their interest in a variety of manners and this is just a simplistic look at the effect of changes to APR.)
So, keep an eye peeled for this in the fine print. If you see that the rate has increased substantially, it may be wise to transfer the balance to a card with a lower APR if you can.
Cash Advance Charges
Credit card companies have a tendency to use changes of terms notice as an opportunity to initiate or raise fees for other services.
For example, because cash advances have become so popular in recent years, some credit card companies are now charging a transaction fee every time you take a cash advance on your card. Depending on how often you use cash advances, it is important to keep an eye on this amount as it is money out of your pocket. Also, be sure to check for an increase in interest charges being levied on cash advances. Note that these rates may differ from the APR being charged for other balances.
Even if a company doesn't change the APR it charges on its customers' balances, it may include a new clause in the revised agreement. For example, such a clause might say that if the customer is late making payments on two occasions over a rolling 12-month period, the company has the ability to raise the interest rate being charged on outstanding balances by a certain percentage.
While that might sound benign, in some cases that percentage might actually be huge! For example, one major credit card company that instituted this policy in 2008 would, in this situation, change the APR on the customer's outstanding balance from 23.99% to 32.24%.
These days, many of us use credit cards that help us pay down our mortgage or rack up sky or cruise miles, and that's a good thing. After all, why not earn back some money on your charges, right?
The trouble is that credit card companies may use a change in terms notice to alter those deals and give you less credit for each dollar you charge. They may also change how you can access these points from when you are able to use. As miles/benefits are typically a major reason for going with one card over another, make sure you keep an eye out for these kinds of changes.
Notification of Information Sharing
Some credit card companies may use a change in terms notice to let their customers know that they will be sharing your information with other service providers and/or telemarketers. That is, unless you opt out.
If you don't want the company to share your personal stats with others you may have to send in a letter requesting that it not be done, or fill out and send in a form letter. In short, be on the lookout for this change because failing to opt out may mean getting a mailbox full of junk mail and receiving a plethora of courtesy phone calls right around the dinner hour.
Changes in Dispute Deadlines
If a customer receives his or her monthly credit card bill and notes an error on it, it is usually possible to call the company and have it corrected. That is, provided the customer alerts the company to the error within a certain period of time, which may range between 30, 60 and 90 days. With that in mind, some credit card companies may use this opportunity to restructure their dispute deadlines and reduce the amount of time a customer has to alert the company of a mistake.
To be clear, such revisions do not preclude individuals from taking credit card companies to court in order to get them to make a valid correction. However, given that "fair" warning was in the notice, it will be tougher to prevail should the case head to trial. Also, no one likes the hassle, or the costs, of going to court. So keep an eye out for these changes.
The Bottom Line
Be sure to review any notice you receive from your credit card company regarding changes to the terms of your agreement. The company may make dramatic changes to the rates being charged on outstanding balances or cash advances. Additionally, new fees may be levied, and/or the company may also change other provisions of the agreement.