What Is a Credit Card Disclosure?

Credit Card Disclosures Explained in Less Than 5 Minutes

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DEFINITION

A credit card disclosure is a document that outlines all of the fees, costs, interest rates, and terms that a customer could experience while using the credit card. Institutions that offer credit cards are required by law to disclose this information.

Definition and Example of a Credit Card Disclosure

Credit card disclosures are essentially the terms of a contract between a credit card issuer and a credit card user. They detail all the ways a customer could incur costs when using the card. They state exactly what those costs will be. The most obvious example of a cost included on a credit card disclosure is the interest rate that a customer will pay on outstanding balances.

The disclosure will also detail basic features, such as when payments are due each month.

The Truth in Lending Act requires that credit card issuers include these disclosures with all credit card applications and new cards.

How Does a Credit Card Disclosure Work?

A credit card disclosure is provided to anyone who has or is considering getting a credit card. The company offering the credit card is responsible for providing the disclosure. The company expects that customers will read and remember the contents.

Credit card disclosures provide transparency about pricing and fees. They also promote competition. All credit card issuers are legally required to disclose the same pricing information, so consumers can better compare cards. They can choose the one that best fits their cost preferences.

Types of Costs in a Credit Card Disclosure

Key costs to look for when you're reading a credit card disclosure include:

  • APRs
  • Penalties
  • Grace periods
  • Minimum finance charges
  • Calculation methods
  • Fees

APRs

Credit cards often come with multiple annual percentage rates (APRs). All of these rates must appear in the credit card disclosure.

One APR concerns regular purchases. This may be listed as your personal rate, but it's more likely that it will include several APRs or a range. Customers may qualify for different APRs on regular purchases, depending on their credit histories, total debt, and incomes. In general, the better your credit score, the lower your APR.

A promotional APR will be detailed in its own section if you're taking advantage of a special deal, such as "0% APR for six months." This will describe the rate, the time frame for this rate, and whether certain actions on your part could potentially end the promotional period sooner.

Another APR can apply if you transfer your balance from another account to your credit card. There may be an introductory balance-transfer rate. The disclosure should include the rate's period and the post-promotional balance-transfer APR, which could be the same as your regular purchase APR.

Cash advances typically come with higher APRs than other credit card uses. The terms for cash advances will often be detailed in their own section.

Each APR disclosure must also state whether the APR is fixed or variable. The disclosure should detail how the lender determines rate changes if the APR is variable, including citing the specific index that the rate will be based on.

Penalties

The penalty APR, also called a "default APR," goes into effect when and if you default on your credit card terms. The disclosure must state the penalty APR, what you could do that would trigger it, and how long it would remain in effect.

Grace Period

A grace period is the amount of time you have to pay your balance in full before you must pay interest. It usually appears on the credit card disclosure under a section labeled “How to avoid paying interest on purchases” or something similar.

Grace periods usually only apply to purchases, not to balance transfers or cash advances. Interest begins accruing on those balances immediately unless the disclosure specifically states otherwise.

The grace period might not apply if you had a balance at the beginning of the billing cycle.

Minimum Finance Charge

Credit card companies often specify a minimum finance charge that you’ll pay whenever you’re charged interest on the account. Your minimum finance charge could be $1. Your interest costs would be rounded up to your minimum finance charge of $1 in this case if you build up $0.75 in interest costs during a month.

Calculation Method

The credit card disclosure must state how your finance charges are calculated. Is your interest calculated based on the balance at the beginning of the month or at the end? Is it calculated on your average daily balance? The disclosure will let you know exactly how it's arrived at.

Fees

Credit card disclosure must include a list of fees associated with your card. Some common credit card fees include annual fees, cash advance fees, foreign transaction fees, often called a "currency conversion" fee. Other fees include late payment fees, over-the-limit fees, and returned payment fees.

Some fees, like the annual fee, are fixed. Others, like a cash advance fee, may depend on the transaction amount. A cash advance fee could be $5, or it could be 5% of the advance. Fees could also list both $5 and 5% fees and charge whichever is greater. All of these details should be included in the disclosure.

Key Takeaways

  • A credit card disclosure is a document that outlines all of the charges and terms that come with a credit card's use.
  • Any costs that customers could possibly incur should be detailed in a credit card disclosure.
  • These disclosures should cover a wide range of circumstances, from standard purchases to late fees and foreign transactions.
  • It's important to read your credit card disclosure carefully. Lenders will assume that you have read the terms and understand them.

Article Sources

  1. Office of the Comptroller of the Currency. "Truth in Lending."

  2. Consumer Financial Protection Bureau. "Section 1026.60 Credit and Charge Card Applications and Solicitations."

  3. Consumer Financial Protection Agency. "What Is a Grace Period for a Credit Card?"