Making sense of your credit card’s terms and conditions and what they mean for your wallet

Behind the jargon in your credit card’s terms and conditions are details that impact your finances each time you use your card. Understanding the fine print helps you spend smarter and avoid charges that make you say: “Wait, what?”

Here are what some of those terms mean.

On what you’re paying in interest and fees

Your credit card has multiple charges depending on how you use it—here’s what each one means.

What you may be charged with:

• Annual membership fee: Yearly fee that varies by bank and card type. Some cards may offer waived annual fees when you reach the required spend per year
• Finance charges: Typically computed on your unpaid balance using the bank’s prevailing rate. Avoid finance charges by paying your full statement balance by the due date. 
• Foreign transaction fees: Automatic currency conversion using the bank’s exchange rate on the transaction date—this also varies by bank and credit card type

• Cash advance fee: A percentage of the amount withdrawn, typically 3-5% depending on the bank, plus immediate interest with no grace period
• Late payment fee: Triggered when you miss your payment due date, the amount varies by bank
• Over-limit fee: Charged when you exceed your credit limit, the amount also varies by bank

What “available credit” actually means

Available credit isn’t the same as your credit limit. It’s the amount you can spend right now. This is calculated by subtracting pending transactions, current balance, ongoing installment amounts, and any temporary holds from your total limit.

Your due date

Your payment due date is calculated based on your statement cycle, typically providing you with 20-25 days from your statement date to make a payment.

How the payment system works:

• Auto Debit Arrangement (ADA): Automatic payments from your bank account—if your due date falls on a Monday, the payment will be debited on the preceding Saturday
• Weekend/holiday payments: Due dates automatically move to the next business day
• Payment application order: Your payments go toward fees first, then interest, then your actual purchases

Why timing matters: Missing your payment due date triggers late fees and can negatively affect your credit score, even if you pay just one day late. Setting up ADA eliminates this risk.

The costly mistakes that trigger extra charges

Beyond the regular fees, certain actions can trigger penalty charges or account restrictions.

Common mistakes and how to avoid them:

• Going over your credit limit: The general rule is to keep your credit utilization under 30% of your limit
• Returned payments: Ensure your ADA account has sufficient funds, or your payment checks will clear
• Cash advances exceeding limits: These count against your credit limit and may trigger restrictions

The minimum amount due

You should always pay your card in full and on time. The minimum amount due is the least amount you must pay to keep your account in good standing.

This includes:

• 3.5% of your outstanding balance
• Any amount over your approved credit limit
• All past due amounts from previous months
• A minimum floor amount set by the bank

How payments are actually applied (the order matters): 

For Metrobank credit cardholders, your payments go toward charges in this order: finance charges and fees first, then cash advance fees and interest, followed by installment interest portions, annual fees and overlimit fees, late charges, cash advance principal, installment principal portions, and finally your retail purchases.

This means that if you only pay the minimum, most of your payment goes toward fees and interest rather than reducing your actual purchases. The things that cost you the most get paid first, while your shopping balances get paid last.

Understanding your credit card’s terms gives you control over your credit card costs and helps you use your card as a financial tool rather than a source of surprise expenses. Make sure you take the time to review your actual card agreement.

For more tips on how to take charge of your finances, visit lifebanking.ph.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Financial decisions should be based on your own research and personal circumstances. Consider consulting with a qualified professional before making any financial decisions.