A credit card policy lays out the terms and conditions associated with the card, including applicable interest fees and potential penalties. The credit card holder agrees to the policy upon activation and use of the card. A credit card is a plastic card issued to a holder, typically by a local bank or credit union, which extends the holder a line of unsecured credit. The holder can use the credit card to buy goods and services or to obtain cash advances, with the understanding or agreement that the money will be paid back according to the terms of the card. A credit card differs from a charge card in that a charge card must be paid back in full at the end of each month, whereas a credit card has revolving credit, or the ability to pay monthly installments that gather or accrue interest until the balance is paid off.
While a credit card is a convenience for the holder, it is a product to the issuer, designed like any other product to make the issuer money. The card issuer makes money when the holder opts to pay the card balance in installments over time, rather than paying off the balance monthly.
As per the credit card policy, interest on revolving credit is typically charged daily. The amount of interest charged differs greatly between cards, with lower interest rates typically afforded to low-risk customers. These customers have well-established, unblemished credit histories. Credit histories are maintained by credit bureaus, and can be checked by credit card issuers. These reports contain details on all loans (e.g. personal, auto and mortgage), credits cards, and any outstanding debts that went to collection, such as a dental bill that went unpaid, or an unpaid legal judgment.
Even with a well-established credit history, however, one might have a credit card with a high interest rate. It is often possible to get the interest rate lowered by calling the bank or issuer and requesting a new rate.
A credit card policy might also state that late payments will cause low interest rates to be raised. To avoid accidental late payments, some people opt to set up automatic bill paying online.
When a credit card carries a balance, the statement will show the balance and a minimum due. Paying the minimum due incurs the most interest. On a large balance, the bulk of a minimum payment is largely interest with only a very small percentage of the payment going towards paying down the principle, or amount owed. In the end, the card holder can end up paying two or three times as much in interest as was originally owed.
Aside from interest, penalties, and payment obligations, the credit card policy might also include perks included with the card. Frequent flyer miles, cash-back programs, extended warranties or protections for goods or services purchased with the card can all be found in the credit card policy. Privacy information, or how the issuer will use your personal information, is typically provided in a separate leaflet.
Before applying for a credit card, be sure to read the credit card policy carefully and fully. If you have questions, call the bank or credit union and speak to a representative.