The Lazy Way To Understanding Credit Terms and Conditions

Do You Find Credit Terms and Conditions Confusing?

I was tooling around the Internet for follow up information on the WAMU eAppraiseIT scam reported by the Associated Press yesterday, and I came by a comment.

The commenter stated, "I don't have time to go over the credit agreements". I understand. Who has time to dissect a credit agreement and all that fine print?

So, I will outline 6 lazy ways to understand all of the terms and conditions on your credit credit agreements.

1. Call the customer service agent and ask them to explain all the terms and conditions of your agreement. They are the experts, and they (or their boss) should be able to explain your terms and conditions in plain English (although sometimes with a thick overseas accent :)

2. Ask the customer service agent how your base rate is calculated (e.g. Prime or LIBOR). Capital One uses LIBOR whereas, WAMU uses Prime as the base rate.

3. Ask how many points above your base rate your card is.

When the customer service rep tells you your interest rate they will say something like "prime plus 5.24%."

With the recent drop by the Federal Reserve Board, the Prime base rate is 7.50%. So Prime (7.50% ) plus 5.24% equals 12.74%.

4. Ask if there is a grace period for payments without getting a late fee. Most times there is no grace period, so keep that in mind.

5. Ask what your 'default rate' is. Once you are in a default rate status, it will take a minimum of six month's of on time payments to get out what I call the Default Dungeon.

6. Ask what it takes to go into default status. Some accounts default after one missed payment and others default after two or more.

Many times after you default your account may be subject to 'universal default'. Universal default means that all of your creditors may raise your rates because you defaulted on another account.

If you don't understand any of the terms or conditions on your credit agreement, don't hesitate to call and ask. You are the customer, and if they want to keep your business they will patiently answer all of your questions in plain English.

What do you think? Do you have any other questions that you'd like to offer for the list?

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