Understanding Credit Card Agreements


Americans Can’t Understand Most Credit Card Agreements

Sep, 10th 2016

The infield fly rule in baseball. The mass appeal of actor Adam Sandler. Your credit card agreement. Yes, those are three things that can’t be understood by most people. But now, we at least have proof that the last item on that list is more than an opinion.

The web site CreditCards.com recently issued a study that claimed most credit card agreements can’t be understood by the average American. That’s because the agreements are beyond the reading comprehension level of Joe or Jill Average American.

Now, this news will come as no surprise to anyone who has ever attempted to wrestle with the demons of the tiny type found in most agreements. Whether you’ve read the terms or not, most consumers instinctively know that teams of high-powered lawyers devised the conditions, which usually devolve into the classic “heads we win/tails you lose” bet for anyone who wants to use their services. Yet still we agree to drink from the cup of sweet credit, hoping against hope that whatever we’ve agreed to won’t come back to haunt us.

That laisses faire attitude can be a big mistake. The philosopher Sophocles noted, “Not knowing anything is the sweetest life.”  He was wrong, at least when it comes to your credit card agreements. 

The Urban Institute issued a 2014 report that said one in 20 Americans who have credit are at least 30 days late on a credit card or non-mortgage account, which can generate problems for the cardholder.  Given that there’s a lot of money in penalties, fees and potential damage to your credit worthiness, and the fact that we live in an age where prospective employers sometimes ask for a credit check, the lack of understanding on the penalty consequences can become a serious problem for the unfortunate holder.

To reach their conclusions on the clarity of credit card paperwork, CreditCards.com took a look at more than 2,000 credit card agreements. Their analysis of the language contained therein concluded that the rules were written in a manner that can only be understood by those capable of an average 11th grade reading level.  Since roughly half of consumers are reading only at a ninth grade level, that means they are agreeing to things they don’t understand. And as any lawyer will remind you, ignorance of the law is no excuse.

Given that reading comprehension levels seem to be falling as the population spends more time watching screens than hefting books, this gap will eventually become a bridge too far. We may see the day where the temptation to include language that allows for more extreme measures than currently permitted by law are included in the agreements. After all, lawyers are paid big money by the banking industry, and it’s their job to enforce, collect and otherwise penalize bad behavior, even if it’s at the expense of the confused.


Not every card company seeks to use smoke and mirrors in their agreements. The HSBC Bank Platinum Rewards Card has an 8th grade reading comprehension level, the equivalent of Harry Potter and the Order of the Phoenix, minus the talking hat and magic wand.

In contrast, a MasterCard or Visa issued by Synovus Bank has 17th grade reading level, or just one step below the U.S. Constitution, which has an 18th grade level (for those of you scoring at home, that’s the equivalent of a graduate school level of comprehension).

These reading-level ratings were determined by a software called Readability Studio, which was fed credit card agreements that were filed with the U.S. Consumer Financial Protection Bureau. The survey also used something called the Flesch-Kincaid formula translate readability into a formula indicating the anticipated grade level of comprehension.

Why is this important?  Well, consider this analogy: there’s an old Twilight Zone episode where everyone happily gets on the flying saucers presented by an alien race because of their gift of a book that purports to hold the secrets to happiness. The book is incomprehensible, but the appealing title – To Serve Man – is irresistible, and hey, they mean us no harm. It’s only when a few humans realize that the book is a cookbook with instructions on serving humans for dinner that panics sets in. But it’s too late and the saucer ramp is up, whisking the foolishly unwary away to the interstellar slaughterhouse.

Okay, maybe that’s the extreme view. But considering the stakes (not the steaks, human) if you’re signing a financial document, you should at least understand the basics of the agreement.


Our beloved federal government has tried to do something to stem this rising tide of credit card obfuscation. In 2011, the Consumer Financial Protection Bureau began a campaign to shorten the credit card agreements and demystify the lawyerly language. They succeeded in bringing down the reading comprehension level from 12th grade to 11th grade, and sliced about 500 words off the length. On the list of battle triumphs, that’s the equivalent of winning a skirmish.

The result of that failure to restore order is that most people would rather lie down with a cold compress on their heads if you ask them to attempt to parse the language. The CreditCards.com study found slightly less than half of cardholders “never” or “hardly ever” read the agreements. Even those hardy warriors who did wade through the verbiage described the agreements as “lengthy,” “wordy” and “verbose.”  

 "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," said Matt Schulz, CreditCards.com's senior industry analyst. "If you don't know all the fees that come with a card, for example, how are you supposed to work to avoid them?"

Good point, Matt. The solution?  Read the contracts and highlight the sections you don’t understand with a yellow marker. And then find an 11th grader and ask them to explain, or call your bank’s customer service line for clarification. Remember, “lengthy,” “verbose” and “wordy” are not the Seven Dwarfs. But “Dopey” surely was.

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