Credit Card Clauses to Avoid

Credit Card Clauses to Avoid

When you are looking for a credit card, it can be easy to try and find the offer with the lowest interest rate, no annual fees, and the best rewards. However, there is much more to credit cards than the benefits you see initially. Take a look at your contract before you sign, and you may find a few clauses that you’re not aware of.

Arbitration Clause

In the event of a dispute, your agreement with the arbitration clause will mandate that you go to arbitration instead of court. Although legal fees would probably end up costing more than the disputed credit card amount, arbitration has some downsides as well. When the arbitrator makes a decision on your case, it is final. You have no other option if they decide in the creditor’s favor. Also, credit card companies and banks usually pay the arbitration costs, and they could threaten to take away their business from the arbitration firm. These facts have been said to cause arbitration firms to favor the companies instead of the consumers.

Congress is currently investigating the relationships between credit card companies and arbitration firms, and they are considering the option of a regulation that would ban arbitration clauses in these contracts. However, for now, you should still be aware of this clause, and try to avoid companies that require arbitration. With other companies, you will still have the option to choose arbitration should a conflict arise, but at least you would know that the choice was made on your terms, not on the terms of the credit card company.

The Universal Default Clause

Even if you are diligent in making your credit card payments on time, human error could cause you to forget a bill or a difficult situation could result in a late payment. If you agree to a contract with a universal default clause, your credit card company could increase the interest rate on your account if you are late on any of your credit account payments.

An increasing number of credit card companies are adding this clause to their agreements, but there are still some who have not. Read your contract entirely before you sign the agreement to avoid falling for this clause. If there is no other option, choose the company with the lowest default clause.

If your credit card agreement does have a universal default clause, it is important to avoid activating the clause. Many things, including late payments, missed payments, and high debt to income ratio, could cause the universal default clause to go into effect. Usually, the clause is activated without notice or explanation. Some companies will frequently check your credit report to see if they will be able to use the clause, and customers with poor payment history could be reviewed more often than others. If you check your credit history frequently and avoid poor credit practices, you should not have to worry about the universal default clause.

Limited “Change-in-Terms” Provisions

A credit card company may say that they do not have a universal default clause, but they may try to get the same results with “change-in-terms” provisions that will allow them to increase interest rates at any time and for any reason. This is even more dangerous because they don’t necessarily need a specific reason to increase your rate. They can just do it at will.

If this clause is unavoidable, make sure you choose the card that states reasons why they will raise your rates and fees without notice. An even better option would be a company that states specific limits that will cause the increase, such as going over the credit limit, having a certain credit score, or bouncing a check.

Finding all of the clauses and potential downfalls of a credit card agreement can be difficult. Most companies only include a portion of their terms and conditions with the credit card application, and the rest comes when the customer actually receives the credit card. Visit your company’s website or call their 800 number to ask about all of their terms before you choose a card. Once you find the right card and the right contract, you will be glad you were well informed.