7 tips to understanding credit card contracts

Whether you're charging your cell phone payment plan to your credit card or simply signing up for a new card, there are things you should know about your contract before signing on the dotted line. After all, skipping the fine print could result in surprise fees and high prices. What's more, "by understanding the fine print in your contract, you'll be able to make a better educated decision as to how you're going to use your credit card," says Elena Jara, education co-ordinator with Credit Canada, a professional financial consulting agency in Toronto.

Here are 7 things you need to know about any contract you sign:

1. Gain an in-depth understanding of a contract's terms and conditions, such as "what your interest rate is, how a company is charging you and whether you'll be given a grace period if you make a purchase -- or will you automatically be charged interest from the day you made your purchase. All of this information is in your contract," says Jara.

2. Shop around. Always review contracts from multiple vendors to find the best price, guarantee, warranty, terms and conditions. Better yet, if one company offers more favourable terms than another, "don't be afraid to negotiate a better program or a better interest rate for yourself. You'd be surprised how just by asking, you can get what you want," says Jara.

3. You might like a salesperson's pitch, but don't rely on friendly gestures. After all, a contract isn't worth the paper it's written on if a company goes belly up. So be sure to ask friends or family about a company's reputation. Or check with the Better Business Bureau or investigate a company online at www.bbb.org/Canada

4. Talk is cheap when it comes to a contract's viability. According to the Financial Consumer Agency of Canada (FCAC), you should never rely on verbal promises. Make sure any agreements or claims made by a salesperson are written into the contract. And if you decide to strike out any elements you don't agree with, make sure these changes are initialed by you and the salesperson before you sign for legally binding terms.

5. After you sign on the dotted line, find a safe place to store your contract. "Companies save their contracts so you should too," warns Jara. That's because it's not uncommon for a company to automatically renew a contract within a certain time period, alter interest rates or change its terms. By having your original contract on record, you'll have a much easier time launching a complaint.

6. Take your time. So you read through your contract but you're still not certain if it's the right plan or card for you? Think about it. Ask your friends and family for assistance.

7. Know how to terminate a contract. According to the FCAC, a short period of time is allowed to cancel a contract without penalty. This cooling off period should be described in your contract. And if it isn't, the FCAC recommends checking the Consumer Protection Act of your province or territory in order to avoid additional fees.

Published June 16, 2010

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