When it comes to credit cards and all the in’s and out’s it can get confusing to say the least. There are so many different terms, rates, conditions, fees and it doesn’t stop there. This article has be developed to give the meaning to 32 different credit card terms we so often hear. It doesn’t matter if your an experienced card user or just applying for your first card this article can help you sort through the lingo.
Annual Fee: This is the fee that is charged once a month for the maintenance of the account. Some cards do not charge an annual fee.
APR: This is the yearly rate of interest. When it comes to credit cards, the better the rate, the better the offer. You can avoid paying interest by paying your balance off each month. Check out our list of the Best 0% Card Offers.
Available Credit: The amount of credit the card holder is able to use. It can be computed by subtracting the outstanding balance from the total line of credit.
Average Daily Balance: The average daily balance method of calculating finance charges uses the average of your balance during the billing cycle. Your average daily is the sum of your balance on each day of the billing divided by the number of days in the billing cycle.
Authorized User: Someone listed on the account, in addition to the account holder, who is able to use the account. The authorized user is not responsible for making payments on the account.
Balance Transfer: This is the process of moving a balance from one credit card to another. Credit card companies often offer a special interest rates for balance transfers to encourage people to apply for the card. You can take a look at our top Balance Transfer Card Offers.
Billing Cycle: The number of days in the billing period. It includes the day after the previous close date through the current closing date of the account.
Co-Signer: A co-signer is need when the person applying for a credit card doesn’t have the credit needed to obtain the card. A co-signer can be added to the account to meet the credit criteria required by the card issuer. The co-signer is responsible for the account if the payments are not made by the account holder.
Cash Advance: Cash withdrawn from the available credit of your credit card account. There is no grace period for cash advances. Interest accrues daily and at a higher APR until the complete balance is paid in full. The interest rate is usually very high and can cost you a great deal of money.
Credit: This is the promise to repay the accumulated debt or the amount borrowed. It allows you to buy now and pay later.
Credit Bureau: This is a company that collects information from various sources and provides consumer credit information on individual consumers for a variety of uses. The three major credit bureaus are Equifax, Experian, and TransUnion.
Credit Limit: This is the amount you can carry as a balance on your credit card. This is also known as the line of credit.
Credit Score: This is also known as a credit rating. Lenders use your credit score to determine if they will give you a loan or line of credit.
Finance Charge: This is a fee charged for using a credit card. It is made up of interest cost and other fees.
Grace Period: This is the period between date of the credit card statement and the date the full payment is due in order to avoid paying interest on funds borrowed.
Interest: This is the finance charge or the fee for borrowing the money. On your card statement it is listed under the Monthly Finance Charge.
Interest Rate: The percent over a specific time frame that the bank charges a customer for borrowing money. It is the same as the Annual Percentage Rate.
Introductory Rate: This is a special rate card issuers give in order to make their card more appealing. The special rate is good for a specific time frame at a specific rate. An example would be a card that offers 0% on purchases for 6 months.
Joint Account: This is an account that belongs to two people. Each person shares the responsibility of the account including making payments on the account. The account equally belongs to both people.
Late Payment Fee: The charge received when the monthly payment is received past the due date.
Monthly Finance Charge: This is the charge applicable when the card balance is not paid in full. It is calculated by multiplying the Average Daily Balance on the account by the monthly Finance Rate or APR.
Minimum Monthly Payment: The minimum amount due that must be paid each month to keep the account from becoming delinquent.
Outstanding Balance: The amount you owe on your credit card. This is the balance used to calculate payments and on which interest is charged.
Over The Credit Limit Fee: This is the fee applied when the credit limit is exceeded. Some cards charge this fee, but not all. Typically, this fee is around $35.
Payment Due Date: The date the payment is due in order to avoid a late fee or risk losing a special rate.
Prime Rate: The prime rate used is taken from the Money Rates column of The Wall Street Journal. The prime rate is merely a base rate used to make loans to certain borrowers. It is not necessarily the lowest or best rate at which loans are made.
Purchases: A purchase is just any sort of charge made on your credit card. Some cards offer special interest rates for new cardholders on their purchases.
Secured Credit Card: A credit card that a cardholder secures with a savings deposit to ensure payment of the outstanding balance if the cardholder defaults on payments. In other words, this is the type of card that requires a security deposit. A Secured Credit Card is a great tool to use to build your credit, especially if you have had credit issues in the past.
Total Finance Charge: The sum of the Monthly Finance Charge and any Cash Advance Transaction Finance Charges (or the Minimum Finance Charge, if applicable).
Unsecured Credit Card: A credit card that is not secured with collateral or does not require a security deposit. A customer qualifies for an unsecured credit card based on their credit history. The better your credit and the better chance you will have to qualify for this type of card.
Variable Interest Rate: Percentage that a borrower pays for the use of money, and which moves up or down periodically based on changes in other interest rates.