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Reading a credit card agreement: four kinds of charge to find
Business credit cards carry four kinds of charge. Where each sits in the agreement, the fee names to look for, and why clearing the balance changes the choice.
This is a guide to reading the agreement for business credit cards: which kinds of charge to look for, what each is called, and which one matters for the way you use a card. No rates or fees appear here. Every one of them is set by an issuer, published in that issuer's current terms, and changed when the issuer decides to change it. A figure written on a page like this would be somebody's wrong number.
What is stable is the structure of the cost, which is what you need in order to read those terms and work out your own figure.
What to take away
- Four kinds of cost, and the fixed fee is the one that leads the advertising.
- Which cost dominates depends on whether you clear the balance every month. Get that straight first, because it reverses which card is cheaper.
- The largest cost on a business card is often not money at all. It is the guarantee you signed.
Four kinds of cost
Fixed. The annual or monthly fee, and any charge per additional card. You
Four Kinds of Card Cost
Fixed
- What it is
- Fee, per-card
- When it hits
- Always
- Easy to compare
- Yes
- Bounded
- Yes
Usage-linked
- What it is
- Balance, FX, %
- When it hits
- With behavior
- Easy to compare
- No
- Bounded
- Yes
Conditional
- What it is
- Bad-month charges
- When it hits
- On a bad month
- Easy to compare
- No
- Bounded
- Yes
Contingent
- What it is
- Personal exposure
- When it hits
- If business can't pay
- Easy to compare
- No
- Bounded
- No
pay it whether you use the account or not, which makes it the easiest to compare and the easiest to forget.
Usage-linked. The cost of carrying a balance, foreign transaction handling, and anything priced as a percentage of what you spend. It scales with your behavior, so a comparison that ignores your actual pattern is not a comparison.
Conditional. The charges that appear on a bad month: late, over-limit, cash advance, returned payment, replacement, expedited anything. You will not meet most of them, which is exactly why nobody reads them before signing.
Contingent. Not a charge. The exposure you accepted personally, discussed in credit cards. If the business cannot pay, this is the cost, and it is unbounded in a way none of the others are.
Which regime are you in?
Answer honestly, because the answer decides everything downstream.
Which Regime Are You In?
Do you clear the statement in full every month?
Fixed cost dominates; compare fee against rewards
Carrying cost dwarfs the fee; rewards are the smaller number
If you clear the statement in full every month without exception, the cost of carrying is close to irrelevant and the fixed cost dominates. Compare on fee against rewards you would genuinely earn.
If you carry a balance, even occasionally, the cost of carrying will usually dwarf the fee, and a card chosen on its rewards is being chosen on the smaller number. Rewards are a percentage of spending; carrying cost is a percentage of debt over time, and the second compounds.
If you are not sure which you are, look at the last twelve statements of whatever account you use now. The record settles it faster than the intention does.
Conditional fees are where the surprises live
Find them in the agreement before you need them, and note two things about each: what triggers it, and whether it can trigger more than once.
The names to search the agreement for:
- Late payment fee, and whether a late payment also moves the account to a higher rate, often called a penalty rate.
- Returned payment fee, charged when a payment you send fails.
- Over-limit fee, if the card allows spending past the limit at all.
- Cash advance fee, and the separate rate that applies to cash.
- Balance transfer fee, if you move a balance from another card.
- Foreign transaction fee, charged on purchases in another currency or processed abroad.
- Minimum interest charge, a floor on the interest billed in any month interest applies.
- Replacement or expedited card fees, and any charge per additional employee card.
Next to the rates, find the grace period: the stretch between the statement and the payment date during which purchases cost nothing if the balance is paid in full. Note whether it applies to cash advances at all.
Cash advances deserve their own note. On many cards the money taken out is treated differently from money spent, in how it is priced and in when the pricing starts. Do not assume the card behaves as one product just because it is one piece of plastic. Confirm with the issuer, in writing, using the questions in the cards checklist.
Building your own annual figure
- Write down the fixed cost: the fee, plus any per-card charge times the number of cards you will actually issue.
Build Your Annual Figure
- Write down fixed costfee plus per-card charges
- Estimate rewards on your own spending pattern
- Subtract two from onenormal-year cost
- If you carry, add the cost of carrying
- Add a line for plausible conditional fees
- Estimate rewards on your own spending pattern by category, not on the advertised maximum. Only count rewards you would use.
- Subtract two from one. That is the cost of holding the card in a normal year if you clear the balance.
- If you ever carry, add the cost of carrying, calculated on the balance you realistically hold and the number of months you hold it.
- Add a line for the conditional fees you can plausibly meet in a bad quarter. Not to predict them, but so the number is not a best case.
Do this for each card you are comparing, using the issuer's current terms on the day you compare. If a card wins by a margin smaller than your uncertainty about your own spending, it does not win.
What changes the figure after you sign
Promotional terms end on a date you were told once. Pricing can change under conditions the agreement sets out. Reward programs are revised by the issuer. Fee structures change at renewal. Your own spending pattern changes, and the card chosen for the old pattern quietly stops fitting.
That is why the fee anniversary belongs in the calendar rather than in memory. A card that made sense when you opened it is not a card that makes sense now, and the cost of not checking is paid annually and silently.
Where the alternatives sit
A card is one way to buy something now and pay later, not the only one. Supplier terms are another, often without a fee attached, and they are the subject of vendor accounts. Something secured against a deposit trades access for cash tied up, which is a real cost that does not show as one.
Compare across those routes rather than only within the card market. The cheapest facility is sometimes the one you did not think of as a facility, and the separation you are trying to build in the groundwork is easier to hold when the business is not carrying costs it did not need.
For the anatomy of card pricing in plain language, the Consumer Financial Protection Bureau's credit cards section is written for consumers and built on the same structure. For the wider set of funding routes a card is competing against, the SBA's guidance on funding your business has nothing to sell you.
Common questions
Is a no-fee card always cheaper?
Only if you clear the balance. If you carry, the carrying cost is the main number and the fee is a rounding difference.
How do I compare rewards fairly?
Against your own last year of spending, by category, and counting only what you would actually redeem. A benefit attached to something you do not buy is worth nothing regardless of its stated value.
Should the guarantee change which card I pick?
It should change whether you open one at all, and how much you let the balance grow. It is the cost you cannot cap by being careful with fees.
