From the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®


(December 21, 2004) — Did you know that in most states, credit card companies can change the terms of your credit card holder agreement with just 15 days' notice? To avoid finding yourself suddenly subject to new credit card terms, the Virginia Society of CPAs recommends that you carefully read the fine print in the flyers periodically inserted in credit card statements. Here are the basic elements of a credit card agreement:

Interest rate

Credit card companies typically disclose the interest rate as an annual percentage rate (APR). Some lenders charge a fixed APR, while the interest rate on a variable rate rises and falls based on an index, such as the prime rate. Obviously, the lower the APR, the better, but be sure to carefully read the fine print. Many cards charge different APRs for purchases, cash advances and balance transfers. Other cards have a low “introductory rate” that rises dramatically after a few months.

Grace period

The grace period is the time between when you charge a purchase and when you begin to pay interest on that charge. The standard is 25 days, but some credit card companies are reducing that number. If your credit card company does not offer a grace period, you will pay interest on your purchases, even if you pay your balance in full each month.

Annual Fees

Some credit card companies charge a flat annual fee for using their card. For consumers who regularly carry a balance, a card with an annual fee and a low interest rate may be better than a card with no annual fee and a high interest rate. Credit card holders who pay off their balance each month should look for a card with no annual fee, since the interest rate doesn’t matter.

Late payment fees

Most consumers know that credit card companies assess penalties for late payments. But you might not realize that, with some cards, your payment has to be received not only by a certain date, but also by a certain time, such as 5:00 p.m. or the close of the business day EST, in order to avoid a late fee. Check your agreement to see what date and time your payment is due and be sure to allow sufficient mailing time.

Over-the-limit fee

Many credit card companies charge you a fee for exceeding your credit limit, even in cases where they authorize the transaction.

Cash advance terms

Taking cash from your credit card can be expensive. Credit card companies typically charge a fee equal to 2 to 4 percent of the amount advanced. Cash advances carry a higher interest rate and there’s no grace period. You start accruing interest charges as soon as you make the transaction. To make matters worse, your payments are most likely applied to your lower-interest balance first.

Balance transfer fees

Before transferring a balance to your credit card, ask if there is a fee. A balance transfer fee can often wipe out any interest rate advantage.

Currency conversion

Many companies are raising the typical fee for overseas transactions. Since this fee is embedded in the exchange rate you’re shown, you might not even realize the charge. Check the fine print in your credit card agreement for your company’s policy.

Credit purity

If you read your credit card agreement, you may find a clause stating that your credit card company reserves the right to raise your interest rate if it finds you have been late paying other bills. Yes, lenders routinely scan credit reports, and if your payment to one company is late, you may find your APR has increased on credit cards totally unrelated to the company that received the late payment.

Miles, rebates, and other perks

Many credit cards allow you to earn cash back, free airline miles, or other bonuses by using your card. Don't sign up for a card based on these perks alone. High interest rates and annual fees can end up costing you more than the value of the perks.

CPAs recommend that consumers thoroughly read and fully understand the terms of their initial credit card agreement and any new inserts announcing revised terms.


The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at


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