What Is a Credit Card Disclosure?

Definition & Examples of a Credit Card Disclosure

Elderly man on a laptop with credit card in hand
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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.

Here's a breakdown of what you can expect to find on these disclosures.

What Is a Credit Card Disclosure?

Credit card disclosures are essentially the contract between a credit card issuer and a credit card user. They detail all the ways a customer could incur costs while using a credit card, and 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 balancing.

In addition to detailing fees and costs, the disclosure will also detail basic features like when payments are due every month.

The Truth in Lending Act requires credit card issuers to include these credit card disclosures with credit card applications and new credit cards. The Federal Reserve Bank of St. Louis has a sample credit card disclosure with explainers that can help you better understand these documents.

How Does a Credit Card Disclosure Work?

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

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

Here are some key costs to look for when you are reading a credit card disclosure.

APRs

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

One of these APRs 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. That's because customers may qualify for different APRs on regular purchases depending on their credit history, total debt, and income. In general, the better your credit score, the lower your APR.

If you're taking advantage of a special deal (something like "0% APR for six months"), then that promotional APR will be detailed in its own section. This will describe the promo rate, the time frame for this rate, and whether certain actions on your part could immediately end the promotional period.

If you transfer your balance from another account to your credit card, that will come with an APR. There may be an introductory balance transfer rate, and if so, then the disclosure will include the rate's period and the post-promotional balance transfer APR. This APR could be the same as your regular purchase APR.

Cash advances typically come with a higher APR than other credit card uses. As such, the terms for cash advances will be detailed in their own section.

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

Penalties

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

Grace Period

The grace period is the amount of time you have to pay your balance in full before you pay interest. The grace period usually appears on the credit card disclosure under a section called something like “how to avoid paying interest on purchases.”

Grace periods usually only apply to purchases, not balance transfers and cash advances. That means interest begins accruing on those balances immediately unless the disclosure specifically states otherwise. The grace period may 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. For example, your minimum finance charge could be $1. In that case, if you build up $0.75 in interest costs during a month, that will be rounded up to your minimum finance charge of $1.

Calculation Method

The credit card disclosure must state how your finance charges are calculated. For example, is your interest calculated based on the balance at the beginning of the month? The end? The average daily balance? The disclose will let you know exactly how this is calculated.

Fees

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

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

Key Takeaways

  • A credit card disclosure is a document that outlines all 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, including everything from standard purchases to late fees and foreign transactions.
  • It's important for customers to carefully read their credit card disclosure—companies will assume that you have read the terms and understand them.