Almost, every credit card advisor worth his salt will tell you to read fine prints carefully before deciding on the credit card. Despite all the explaining this fact is often overlooked. How fine prints can affect the ownership of credit card? This article takes a look at the murky credit card world. You will be astonished how, these large sentences in small fonts, asterisks and special symbols can change the way credit card benefits you. We take a look at how fine prints can change the three most important benefits viz. 0% intro APR, the annual fees and credit card spending limits.

1. 0% Intro APR

Ok, the credit card states that it has a 0% intro APR. But what does it relate to, purchases, balance transfers, cash advance what exactly? Check it out. And about the length of 0% Intro APR period– one fine print states that– The length of your introductory period will be either 6 months for purchases and balance transfers or 3 months for balance transfers, depending on our review of your application and credit history. This adds a lot of ambiguous element to the APR. Next thing to bother about 0% intro APR is what defaults will terminate the benefit, for example: If a person makes a late payment the introductory or special rates terminate instantly and standard purchase rate apply. If you default twice the APR rate increases to 18.5% and if you default thrice, the APR will jump to 24.99% and so will be the interest on cash advances. Now do you see the 0% Intro APR hitting below the belt! So read the fine print always and get the facts clear about credit card straight from the issuing company.

2. Annual Fees

You must’ve seen various credit card offers stating — No, annual Fees*. Some people straightaway make the conclusion that the credit card won’t cause them a penny for ownership– and that too for life. Are the credit card companies that naive? Will they let you go so easily? Didn’t you see the * after No, annual Fees. Yes, that asterisk (*) could spoil the honeymoon of No annual fee for you. It could lead to a page where written in very small fonts are lines that could mean — The annual fees for the credit card will be waived for the first year. Thereafter, the annual fee will be $45 for the Basic Card. And If you default on repayments for a certain period the Annual fees will apply instantly. Any waivers, or benefits will cease instantly! So, take extra care of those asterisks.

3. Credit card spending limit

A credit card with no preset spending limit can excite a consumer so much that he runs straight to the credit card company to get the card. But, buried somewhere in fine prints he will find the statement– The credit card has no preset spending limit which gives you purchasing power that adjusts with your use of the Card. No preset spending limit does not mean unlimited spending. Your purchases are approved based on a variety of factors, including current spending patterns, your payment history, credit history, and financial resources known to us. So, things change suddenly. Credit card companies will allow you to overspend even beyond the credit limits and happily slap you with a over-the limit credit fees. So, even if you spend 1 dollar above your spending limit you could be slapped as much as $30 for crossing your credit limits. Strange but true, borrowing 1 dollar will cost you $30 extra.

Many things can be said about fine prints, every fine prints tries to apply certain restrictions, or explain a controversial point which credit card companies shy away from writing in bold. These fine prints weigh heavily towards the credit card company, and if a consumer doesn’t read it carefully he falls into the trap.

What is a Credit Score?

Imagine that you are walking down the beach in your bathing suit. Too scary? Okay, imagine someone else and a crowd is watching. The crowd holds up signs that read “10″ or “6.5,” depending on how attractive the person in the bathing suit is to them. Crass? Unfair? Subjective?

 In the credit game, the crowd judging you is a company called “Fair Isaac” and the numbers range from 375 – 900. This is your credit score-your FICO score which heavily determines your credit attractiveness to a large number of people (i.e., banks, insurance companies, loan companies).

It’s unnerving enough just knowing you’re being judged on anything. But how about being judged on things you have little control over, or not even knowing the criteria upon which you are being judged? It’s like wearing a blue bikini and heels and not knowing that you should be wearing a red bikini and flip flops to score higher.

This is not an exaggeration. For the longest time, no one knew the criteria for credit scoring. Only after enormous public and government pressure, consumers are now allowed to get their credit scores, although the formula used to calculate your score is still as mysterious as the recipe for love.

Your credit score is derived from information accumulated in a credit bureau that issues your credit report. Your score is based on the number of credit accounts you have, your payment history, and your personal information, and is derived from a calculation so complex that there is no exact formula to print. But it is a statistical yardstick projecting whether or not you will default on future credit.

Fair Isaac developed this statistical model (used by all three credit bureaus and most banking institutions), but will not reveal the exact recipe for the model. The company maintains that its model is a proprietary system, and keeping it a secret ensures its continued existence. If it gave away the product, how would Fair Isaac make money? What most people don’t realize is that this credit scoring model is a product sold to lending institutions and, of course, credit bureaus. 

This scoring model did not start out to be the industry standard, but since it was the most complete model available when the banking industry was interested in such information, it became an integral part of the credit granting process. The model took years to develop, and Fair Isaac has all kinds of empirical data to back up its accuracy. The lending industry considers this model to be fair and accurate.

Since almost everyone uses it, it implies that everyone is measured by the same yardstick. Many (if not most) American and Canadian consumers are at the mercy of this statistical model.

At the credit scoring conference held by the FTC in July 1999, Fair Isaac gave the opening presentation and talked about some of the things used in calculating consumer credit scores. What I found out was that a lot of what goes into the score calculation is beyond the control of the consumer.

What Exactly Factors into Your Credit Score?

Below is a list of the factors used to score you, listed in order of importance. (Information marked with an asterisk [*] is obtained from information that you provided on an application and is not considered in a credit bureau score.)

1. Major derogatory items on your report (i.e., bankruptcy, collections, foreclosure, slow-pays);

2. Time at present job;

3. Occupation (professionals are given heavy weight);*

4. Time at present address;

5. Ratio of balances to available credit lines (the lower the better);

6. Whether or not you own your home (if you do, this is heavily weighted);*

7. Number of recent inquiries;

8. Age (50+ is the best);

9. Number of credit lines on your report; and

10. The number of years you have had credit in the credit bureau database.