Most Americans Don't Understand Credit Card Terms, and Here's Why

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Can't make heads or tails of that credit card contract? You're not alone: A new study out today from J.D. Power finds that only 47 percent of Americans "completely understand" the terms of their credit cards. Of those in the dark about their card agreements, an amazing 73 percent weren't sure about their interest rate.

That's shocking to hear. Credit card interest rates frequently exceed 20 percent, which means you can get in serious debt if you're not careful. It's hard to believe that so many Americans are signing on to high-interest credit products without knowing exactly what they're getting into.

But there are good reasons why some consumers might not be totally well-versed in their credit card agreements. For starters, not everyone needs to know the interest rate on their card. I hold two credit cards and don't know the rates of either, because I pay off my balance in full every month. About 35 percent of Americans likewise don't carry balances on their cards, so they don't necessarily need to know the rate -- they're not really borrowing money.

Also at issue is that credit card marketing isn't always as transparent as it ought to be. While the CARD Act mandated more transparent pricing on card agreements, the latest Credit Card Application Study released this week by found that the websites of some credit cards aren't totally clear on the terms of the cards.

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"Product disclosures are still too long and too dense, and marketing language is still misleading far too often," writes CardHub's Odysseas Papadimitriou. "If you don't know exactly what to look for, it's easy to miss a key rate or fee."

Capital One cards topped the list with a perfect transparency score, while Wells Fargo, American Express and Barclays brought up the rear.

The good news is that the most basic information -- annual fees and interest rates -- tends to be communicated clearly. But Papadimitriou says that some cards aren't totally clear on the true cost of balance transfers. And he also says that the true value of your rewards points is likewise hard to decipher.

"They've been gravitating towards giving rewards in miles and points ​to better hide the true cost of the product," he says. "If they say 1 percent cash back it's clear, but you have no clue if those 'points' are worth a penny or a dollar." Indeed, J.D. Power's survey found that just 59 percent of people understand how their rewards work, down from 66 percent a year ago.

It's true that you shouldn't be signing a credit card agreement unless you're totally sure what you're signing up for, and the website might not always tell the whole story. It may be a pain, but read the fine print thoroughly.

Matt Brownell is the consumer and retail reporter for DailyFinance. You can reach him at, and follow him on Twitter at @Brownellorama.

Originally published