Reading the fine print on a credit card agreement is a lot less fun than going on a shopping spree or racking up rewards, but it’s an important step you should always take before signing up for a new card.
Luckily, credit card issuers are required by law to provide a tabular summary of the fine print that’s clear, concise, and easy-to-read. This summary, known as the Schumer box, can help you quickly evaluate the costs associated with a credit card before you apply. It can also help you understand the terms of your existing credit cards so you can avoid unnecessary charges.
Here’s how you can read a Schumer box and use the information to inform your credit card choices.
What Is a Schumer Box and Where Can You Find It?
“A Schumer box is a disclosure of your interest rates and fees for your credit cards that you would find on your billing statement — or if you get an offer for a credit card you might see it there as well,” says Rod Griffin, senior director of public education and advocacy for the credit bureau Experian.
Named after New York lawmaker Chuck Schumer, who was responsible for the 1988 legislation that made the disclosure a requirement for all credit card applications and solicitations, the Schumer box is filled with important information about interest rates and fees you may be charged. “Think of the Schumer box as a summary of what this card is going to cost you,” says Beverly Harzog, a credit card expert, author, and consumer finance analyst for U.S. News and World Report.
Harzog notes that if you’re looking for a Schumer box online before you apply for a card, you may have to hunt for it a bit. On most credit card issuer websites, you’ll see a small link that says something like “Prices and Terms” directly underneath the application button. If you click on it, you’ll see the Schumer box prominently displayed.
One word of caution, however: “It doesn’t replace reading the fine print,” says Harzog. While the Schumer Box provides a quick way to access most of the information you need about a credit card, you should still read the full terms and conditions before applying for any card.
Reading a Schumer Box
Although Schumer boxes occasionally vary from card to card, there are some common sections you’ll find in most of them. Here’s a basic example of a typical Schumer box, as well as an overview of what each section tells you:
|INTEREST RATES AND INTEREST CHARGES|
|Purchase Annual Percentage Rate (APR)||This is the APR for new purchases you charge to the card, which you’ll pay if you carry a balance and don’t pay it off within the grace period. The exact rate will be based on your creditworthiness but will fall somewhere in the rate range provided. Note that most credit cards have variable APRs based on the Prime Rate. If there’s a 0% introductory APR period for new purchases, the details will be displayed here.|
|Balance Transfer APR||This is the APR you’ll pay on a balance you transfer from another credit card. If there’s a 0% APR balance transfer offer, the details will show up here.|
|Cash Advance APR||This is the APR you’ll pay if you use your card to take out cash. The cash advance APR will typically be higher than the purchase APR or balance transfer APR, making cash advances an extremely expensive method of borrowing. Because of this, try to avoid using cash advances if possible.|
|Penalty APR and When It Applies||Some credit cards impose a penalty APR if you miss one or more payments. This section will tell you when it will be applied and for how long.|
|How to Avoid Paying Interest on Purchases||This section informs you of the grace period. If you pay your bill in-full by the due date, you won’t pay a cent in interest on your purchases. This section also specifies when interest begins accruing for cash advances.|
|Minimum Interest Charge||This specifies the minimum interest charge on a small balance.|
|Credit Card Tips from the Consumer Financial Protection Bureau||This directs you to a resource page from the Consumer Financial Protection Bureau where you can find more information on safe credit card use.|
|Annual Membership Fee||This is the amount you pay every year to keep the account open. Many cards do not have annual fees, but premium cards with boosted rewards and other perks often do. While some annual fee cards can be worth it because of the extra benefits they offer, make sure that the card’s rewards and perks align with your lifestyle and spending habits so you get your money’s worth.|
|This box describes the different types of transactions that will incur fees, and how much the fees are.|
The balance transfer fee is the amount you’ll pay for transferring a balance from another credit card. This is typically a percentage of the amount you transfer, usually 3% to 5%.
The cash advance fee is the fee you’ll pay to withdraw money. Keep in mind that this fee is in addition to the high APR on the cash advance balance.
Foreign transaction fees are charged for using your credit card to make a purchase in a foreign currency. Some credit cards don’t charge foreign transaction fees, but many do.
|Penalty fees only occur if you misuse your card. These are entirely avoidable if you stick to your budget and make your payments on-time. |
A late payment fee is imposed if you miss your due date. You can be charged this fee in addition to a penalty APR.
The return payment fee is the amount you’ll pay if your payment bounces because there are insufficient funds in your bank account.
The return check fee
is an additional fee that you may owe if you mail a check for payment and it bounces.
Most Important Things to Pay Attention To
Both Harzog and Griffin said that everything in a Schumer box is important, but they did highlight a few key areas to focus your attention. “First and foremost, you’re going to want to look at the interest rates,” says Griffin. “You want to look at the penalty rates, because if you miss a payment, your interest rate can go up dramatically.”
Harzog also highlighted cash advances, which you should try to avoid using if possible. “With a cash advance you’re going to pay a fee plus that APR, so you really need to pay attention to that.” You should also consult the section that tells you how to avoid paying interest. “Most credit cards from major issuers are going to have a grace period,” says Harzog. “You want to be sure that’s listed.” Otherwise, interest could begin accruing when you make a purchase. That’s important to know so you can make your payments right away.
Keep in mind, it’s possible to avoid every one of the charges listed in the Schumer box. If you always pay your bill on time and in full, you’ll never need to pay any interest or penalty fees. But you should still understand what you could potentially owe in different situations.
Finding the Right Credit Card for You
The Schumer box is important, but that’s not the place to start when comparing credit cards, according to Griffin. “When you’re looking for a credit card, define what you need from it,” he advises. Do you want to be able to travel without paying fees? Would you like to earn cash back or miles? Are there other perks and benefits, such as travel insurance, that you hope to get from the card?
You should first look at the financial benefits to you, Griffin says, and then look at which cards have the best interest rates and the lowest fees. In other words, the Schumer box should be your second point of comparison once you’ve narrowed down your options.
If you’re going to use your credit card while traveling abroad, check the Schumer box for foreign transaction fees.
Harzog recommends using different credit cards to build a rewards strategy. “Try to get a card that’s going to help you earn rewards that you don’t currently get from another credit card you have,” she says. If you already have a card that earns triple points on travel purchases, for example, you might want a different card that provides cash back on groceries.
On the other hand, “if you’re trying to build credit, just get the best credit card that you can get,” says Harzog. “Don’t worry about rewards while you’re building credit.”
High-risk borrowers are more vulnerable to high APRs and bad terms, so comparing Schumer boxes among the credit cards you qualify for is especially important if you have bad credit or no credit history.