Decipher Credit Card Offers With the Schumer Box
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If you receive credit card offers in the mail, you've seen the Schumer Box, even if you don't know what it's called.
The Schumer Box is that table included with credit card marketing materials that summarizes the costs associated with the credit card. The box is named after New York Senator Charles Schumer, who was a member of the House of Representatives when he helped introduce Truth in Lending Act (TILA) in 1988.
As a result of the Act, all credit card issuers are required to have a standard Schumer Box in an effort to make it easy for consumers to compare card offers and quickly see what a credit card will cost them. Sometimes, the Schumer Box is referred to as a summary box, clarity box, honesty box, or transparency box. (See also: How to Choose a Credit Card)
Information Required in the Schumer Box
Prior to the Schumer Box, many consumers had a hard time reading all the fine print and figuring out exactly what the terms were. Now, consumers can just look at a table that must — by law — be easy to read. For example, long-term rates have to be shown in type that is at least 18-point in size, and other key disclosures are required in 12-point type. No fine print for the fees related to your credit card.
Here is the information required in the Schumer Box.
Annual Percentage Rate (APR) for Purchases
This includes the introductory rate and must list how long the introductory rate will last, as well as the regular interest rate, and whether it is a variable rate (changing regularly) or fixed (stationary). In box 1 of the example above, you see three different possibilities for introductory rates, depending on your credit. If you have excellent credit, your rate will be 8.99%, but if your credit is less than great, you will have a higher rate. The regular APR, after one year, is 14.99%.
This portion of the Schumer Box includes information for other types of interest rates, such as those charged for cash advances, balance transfers, and defaults. Boxes 2, 3, and 4 show other APRs, including the balance transfer rate (15.99%) and the cash advance rate (21.99%). In the penalty APR box (28.99%) there is also an explanation of the activities that trigger the penalty rate., and how long the penalty will apply to your account.
Variable Rate Information
If your APR is variable, there has to be an explanation of how that rate is figured. For many credit cards, this means the Prime Rate plus a certain amount, based on your credit.
Your Schumer Box also includes information about a grace period. Many credit cards offer a grace period of 20 (or even 30) days during which interest isn't charged, as long as the balance is paid in full by the due date. If you carry a balance, though, there usually isn't a grace period. In box 5, you can see that this card has a grace period of 25 days, and a clear explanation of how to avoid paying interest is provided.
Finance Calculation Method
This section tells you how interest is charged to your account. Many credit cards use the "average daily balance" method (see 11 on the example). This means that the sum of your balance on each day of the billing cycle is divided by the number of days in that billing cycle. You are charged interest each day, which is most advantageous to the credit card issuer.
Minimum Finance Charge
This is the amount of money that you will be charged, minimum, if you carry a balance. It can be as small as 50 cents, or as much as $15, depending on the card. In the case of box 6, you can see that the minimum charge is $1.50.
This is the amount that you pay each year just to have an active account. Most "regular" credit cards come with no annual fee. However, there are some rewards cards that charge fees of between $35 and $75 a year. Other premium cards charge between $95 and $450 a year. Some cards with annual fees will waive the fee for the first year. In box 7, you can see that is an annual fee, accounts set-up fee, participation fee, and additional card fee. All of these fees are listed out, with their amounts, so you can see what the card costs. An explanation of how set-up and maintenance fees can reduce your available credit is also included.
Fee for Foreign Purchases
If there are foreign transaction fees, they will be listed in this section. Often, credit cards charge 3% of the purchase in foreign transaction fees. Many cards also impose a minimum dollar amount, usually $5. Box 8 contains this information. This can even include purchases made in U.S. dollars, if they are made in another country.
This section (box 8 in our example) lays out other common fees, such as balance transfer fees, cash advance fees, late fees, over-the-limit fees, and any other fees that might be charged. Many credit cards charge balance transfer fees and cash advance fees of between 3% and 5% of the amount. Most credit cards also have minimums, such as a $5 minimum, so that if you are transferring a smaller amount the issuer still gets a specific amount.
It is common to see late fees and over-the-limit fees of around $35, although some issuers base such fees on your credit card balance, and they can range from $15 to $45. Numbers 9 and 10 show examples of penalty fees that you might fee for a returned payment, or for some other problem.
Below the main terms, there is another section (numbers 11 and 12) that sets forth exceptions, as well as shares more information about your costs. For instance, there might be an explanation of what triggers the default APR, or a better explanation of how often the variable rate is set, and where the Prime Rate is published.
Using the Schumer Box
You should use the Schumer Box to help you make an informed decision about which credit card to use. Because all credit card issuers have to use the same format and share the same information, you can easily compare which offers work best for you.
When evaluating a credit card offer, carefully look at information about promotional APRs, and how long introductory periods last.
You should also make a note of minimum charges, since that can make a big difference in what you actually end up paying.
Don't Skip the Fine Print
Don't forget the fine print, however.
Information about rewards programs will be handled separately, and information about dispute resolution and binding arbitration is also in the fine print.
Card member benefits, like rental car collision coverage and extended warranty coverage, aren't listed in the Schumer Box, either. All of this information is important, and you should understand it. You'll usually find it in a little, stapled group of pages included with the marketing materials.
Reading the Schumer Box is a good way to tell, at a glance, the basic costs associated with a credit card and what you can expect from the credit card. It's useful for comparison purposes, but the Schumer Box doesn't exempt you from reading the rest of the card member agreement. Make sure you read everything before signing.