Why Is a Credit Card Agreement the Worst Thing to Read?

credit card agreement

Raise your hand if you have and use a credit card regularly.

Just over 72 percent of you should have put your hands in the air, according to survey results released in 2014 by the Federal Reserve Bank of Boston.

These surveys found that most Americans had at least one credit card. And among people using credit cards, the average person has over three credit cards to their name.

Now raise your hand if you actually read your credit card agreement.

Only 26 percent of you should have your hands high. A recent study from CreditCards.com found that only a small group of credit card holders regularly read through their credit card agreements.

Why don’t people read their credit card agreements?

Everyone has their own reasons for skipping over this important and legally-binding document. But there’s also a good explanation for why the majority of cardholders don’t read their agreements.

The same study from CreditCards.com shows that cardholders need to read at an 11th-grade level in order to understand their credit card agreement. And that’s the average.

However, the study states that more than half Americans read below that level, either at a 9th-grade level or lower.

Therefore, the majority of credit card companies issue agreements too complex for the average consumer to read and understand. As a result, many people skip reading over it and just sign up for the card without understanding the fine print.

What’s more, the study points out that your reading level isn’t directly tied to the grades you completed in school. In fact, most people read a few grade levels below the highest grade of education they received.

Why are today’s documents so hard to read?

Readability (or lack thereof) is just the start of why most people don’t understand their credit card agreements.

There are other issues that make it unlikely the average consumer will sit down, read, and understand their agreement.

In addition to their complexity, these documents are flat-out long. CreditCards.com found that the average agreement was nearly 5,000 words.

Many banks and credit card companies claim they need to keep complex language in the agreements for legal purposes.

They say their contracts and documents need to hold up in court, so much of the language included in an agreement comes from previous court cases with legal precedents.

However, in 2011 the U.S. Consumer Financial Protection Bureau pushed to get financial institutions to simplify their documents and cut the length of their credit card agreements.

Today, agreements are 10 percent shorter than they were in 2011 and a grade level easier to read, according to CreditCards.com.

Yet, companies still have a long way to go with improving these contracts so consumers can better understand what they sign on to when they receive and use a credit card.

For now, your credit card agreement is dense, complex, and hard to understand. But it’s still important that you know what information you can find in an agreement, and where to find it.

What’s included in a credit card agreement?

Your credit card agreement lists out the terms and conditions that you agree to when you open the card. Everything you need to know about fees, interest rates, payments, balances, and other features of your card is stated in that agreement.

The most important pieces of information to look out for are:

  • The APR and interest rate on the card
  • How interest is calculated on various balances
  • All the fees associated with it and how much they are
  • The minimum finance charge
  • Length of the grace period, or amount of time you have to pay your bill once you receive it without incurring interest charges

Note that there will be more than one interest rate and more than one fee to find and understand.

You could have a normal APR, for example, but your card could also feature different rates for promotions or penalties. Interest rates could also vary depending on what kind of transaction you run on your card (either a normal purchase, cash advance, or balance transfer).

Not knowing some or all of this information can hurt you. In fact, experts from the CreditCards.com study claim that people who understand the terms of their credit card agreement pay less for their line of credit.

How should I read my credit card agreement?

You should be able to find the details about the following within your agreement.


This section covers the charges and fees triggered when you use the card or fail to pay a bill.

It also discusses payments and when they’re due, how the credit card company calculates interest, and any special promotions included with the card.


Credit card companies can change some of the rates or terms of the line of credit.

However, they need to list out what can change, why the change may take place, and how much notice they need to give you should they make a change.

Additional Information

This section should include details about your rights as a cardholder, well as the rights of the credit card company. It should also give you information on how to process a dispute and how they’ll handle that.

Visit the Consumer Financial Protection Bureau for a more detailed breakdown of how your credit card agreement reads and where to find specific information in the document.

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