Every batch of mail usually arrives with its token number of credit card offers, advertising in bold, color print "introductory rate" and "cash-back rewards". While solicitations can usually be spotted a mile away, understanding the terms of a credit card agreement can be a much murkier ordeal.
Through the Credit Card Act of 2009, sweeping reforms have enforced stricter guidelines on credit card companies and demanded more transparency. Despite eliminating the old tricks of high-interest penalties or confusing billing, don't take these credit card terms at face value. They should trigger you to take a deeper look and read the fine print. (For more, see Everything You Need To Know About Credit Card Rates.)

IN PICTURES: 6 Major Credit Card Mistakes

0% Interest Rates
A 0% introductory rate, or 0% APR, means you don't have to pay any interest on your balance for a certain period of time. The catch is the word "intro" indicating that at some point the offer will expire and default to a higher interest rate. Ken Lin, CE0 of credit score tracking website Credit Karma, says, "It's building a habit and a psychological dependence and preference for using this particular credit card." However, the new law mandates that credit card companies make intro, or also referred to as teaser rates, available for at least six months.

Get Cash Back
Bonus rewards or cash back programs are promotional campaigns by the banks to sign up more card user and incentivize spending. But you have to spend first - at a sufficient level - to get the payback, and the amount that must be charged in order to earn a reward can often be in the thousands.

IN PICTURES: Digging Out Of Debt In 8 Steps

Transfer Balance Fees
When you sign up for a new card, the credit card companies typically offer free balance transfers from your old credit card at a 0% interest rate - a grace period where lower interest rates are extended. However, what is spelled out in the fine print is that many credit providers have a 3-5% surcharge on the amount of the transfer.

You're Approved Up to $20,000
Receiving an offer for a sky-high spending limit may not be exactly what it seems. According to Lin, 90% of people who receive credit card promotions must have their credit pulled again after the fact to be approved. Given the approval process can take three to six months, an applicant's status is also subject to change. (To learn more, see Consumer Credit Report: What's On It?)

Interest Rates Up To 10%
Interest rates are not dictated by the bank or credit card company, but rather, they are based on an individual's credit score. On no-fluff credit cards, Lin says with a credit score of 750 or above, you should expect to pay somewhere in the ballpark of 8-10%. In addition, consumers also should watch ambiguous language, such as using the words "up-to" or "as low as", as they reflect a wide range of possible outcomes for the applicant.

Outcomes of the Credit Card Act
For the most part, experts say tightening the strings on credit card companies had a positive effect on the consumer, such as wins like eliminating finance charges for previous billing cycles or mandating bills are sent at least 21 days in advance.

Another positive change, says Howard Dvorkin, a personal finance expert, is requiring credit card companies to provide the duration (10, 20, 30 years) it will take to pay off a bill statement if you only make the minimum payment. "Before, you only saw you were making a $40 payment on a $5,000 bill," he says. "Now, it might say it will take you 30 years to pay it off."

The Bottom Line
But some critics say, as banks lower credit limits on card holders, those carrying balances on their cards are put at a disadvantage. For instance, if a borrower has a debt of $500 on a $1,000 credit limit and the credit limit is knocked down to $750, this shrinks the line of available credit. And in turn, since about one-third of your credit score is based on available credit, the card holder can expect the credit score take a hit. (For more, see 5 Keys To Unlocking A Better Credit Score.)

For the latest financial news, see Water Cooler Finance: The Beginning Of A Foreclosure Crisis?

Related Articles
  1. Savings

    How Volatile Exchange Rates Affect Your Vacation

    Those ever-changing fluctuations can make a difference in anything from your hotel room to an ATM transaction.
  2. Credit & Loans

    Can Corporate Credit Cards Affect Your Credit?

    Corporate cards have a hidden downside. If the company fails to pay its bills, you could be liable for the amount and end up with a damaged credit rating.
  3. Investing News

    What Is The New Credit Card Chip Good For?

    Under current U.S. credit card requirements, credit card issuers are required to issue chip cards as of October 1, 2015. Instead of swiping your card as you do now, you will slide the card into ...
  4. Credit & Loans

    5 Ways to Maximize Your Credit Card Points

    How to get the most bang for your rewards buck.
  5. Investing

    How to Effectively Compare Credit Card Rewards

    There are so many different reward credit cards that are available. Understanding how each type work will help you pick the best card for your needs.
  6. Credit & Loans

    Your Credit Score: More Important Than You Know

    Credit scores affect key aspects of your personal and professional life. Knowing your score and managing your credit input can make a big difference.
  7. Credit & Loans

    Joint Credit Cards: The Pros and Cons

    A joint credit card may sound like an easy way to split the bills, but make sure you know what you’re getting into first.
  8. Credit & Loans

    Travel Tips: Avoid Exchange Rate Headaches

    How to avoid the most common issues and hassles raised by exchange rates while traveling abroad.
  9. Investing

    Why U.S. Credit Cards Are Getting a Chip and Pin

    With the introduction of EMV technology into U.S. credit cards, consumers should worry less about fraud and counterfeiting.
  10. Credit & Loans

    What Qualifies as a Nonperforming Asset?

    A nonperforming asset is a loan made by a financial institution to a borrower who has failed to make any scheduled payments for at least 90 days.
  1. Transferable Points Programs

    With transferable points programs, customers earn points by using ...
  2. Luhn Algorithm

    An algorithm used to validate a credit card number.
  3. Roll Rate

    The percentage of credit card users who become increasingly delinquent ...
  4. Truncation

    The requirement mandated by the FTC for merchants to shorten ...
  5. Purchase Money Security Interest ...

    A security interest or claim on property that enables a lender ...
  6. Jamming

    A scam perpetrated by bogus credit repair firms that involves ...
  1. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>
  2. What types of liens are seen as good and which are bad for my credit?

    Creditors that allow purchases to be made through financing often require property to be pledged against a credit account; ... Read Full Answer >>
  3. What is the best way to start to rebuild your credit after a bankruptcy?

    Bankruptcies can be devastating to your credit score. Even worse, a bankruptcy will be listed on your credit report for between ... Read Full Answer >>
  4. What were the primary financial crimes involved in the ZZZZ Best case?

    ZZZZ Best was a company started by Barry Jay Minkow that claimed to be a carpet cleaning business. In fact, it was a Ponzi ... Read Full Answer >>
  5. Can a creditor sue me for a delinquent account?

    If a credit card account becomes delinquent, the creditor can sue the debtor for the balance as soon as the delinquency occurs. ... Read Full Answer >>
  6. How do I transfer my credit card history from one country to another?

    It is currently not possible to transfer your credit history to another country if you relocate. The credit metrics used ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!