Can’t understand your credit card agreement? You’re not alone

You get your new credit card in the mail, activate it and you’re ready to spend. By this point, as a savvy consumer you know the APR, whether there’s an annual fee and what kind of rewards you can earn. But then a thick envelope with the card agreement lands with a thump in your mailbox, and out spills thousands and thousands of words guaranteed to make your eyes glaze over. 

If you stuff the agreement in a desk drawer or even immediately toss it in the trash, you’re not alone: New research from CreditCards.com found that 46 percent of cardholders “never” or “hardly” ever read the agreement. And when asked to describe the paperwork in one word, 71 percent did so using negative terms like “lengthy,” “wordy” and “verbose.”

One reason for this “agreement antipathy” could be that the documents are written at an 11th grade reading level, according to an analysis of 2,000 agreements by CreditCards.com. So what’s the problem? Researchers say the average U.S. consumer reads at a ninth grade level or below.

Clearly, not understanding your agreement and its associated terms and fees can be costly for consumers.

“Unreadable contracts really hurt consumers because if you don’t understand what you’re signing up for, it can end up costing you a lot of money,” Matt Schulz, CreditCards.com’s senior industry analyst, said in a statement. “If you don’t know all the fees that come with a card, for example, how are you supposed to work to avoid them?”

The federal Consumer Financial Protection Bureau tried to simplify the length and language of credit card contracts in 2011. At the time, CreditCards.com said agreements were typically written at a 12th grade reading level and averaged 5,400 words in length. Current agreements average about 4,900 words.

“These contracts are so daunting that many people never even try to read them,” Schulz added. “But the sad truth is that experts say the average American reads two or three grade levels below the highest grade they finished in school, so even if they did try to read their credit card agreement, a lot of it would simply go straight over their heads.”

The credit card research site did single out an agreement written at an 8th grade level: the HSBC Bank Platinum Rewards Card. The card with the shortest agreement, at just under 3,500 words, is issued by State Employees Credit Union. On the flip side, CreditCards.com said the Synovus Bank Visa/MasterCard agreement is written for someone who might need an advanced college degree to decode, while the agreement for Fifth Third Bank cards clocks in at a whopping 11,383 words.