Credit Card Terminology

If you’re new to the world of plastic, you might want to do some research first before agreeing on the first credit card offer you receive. All credit card companies have a jargon that, fortunately, is universal. They use certain terms on certain features that they attach to their credit cards. It might do you good to learn some basic credit card terminology.

Annual Percentage Rate (APR) is the first credit card terminology that you should understand the most. Technically, “APR is a measure of the cost of credit, expressed as a yearly interest rate”. The average APR in the United States is around 18%. This is not something that credit card companies just decide to impose on a whim. There are federal guidelines issued by the government that companies follow to decide on the APR they will impose on a certain card.

Balance Transfer is another important credit card terminology for newbies. This feature allows the cardholder to “use the available credit on one credit card and pay off another, ideally with a lower cost”. This is crucial in maintaining or improving credit score since transferring balances or closing them out will reflect badly on your credit rating.

Index, on the other hand, is the standard rate (e.g. prime rate), to which a company applies a margin amount to calculate a variable interest rate. For consumers that pay off their balances at the end of each month, a variable rate is easier to get.

Another important credit card terminology is interest. This is also called the finance charge and is the fee that cardholders pay for borrowing money. You see the interest on your credit card statement as the Monthly Finance Charge.

A credit card terminology that is not to be mistaken for interest is the interest rate. This is the percentage, usually per month, that a bank or credit card company charges a customer for borrowing money. For those who carry out a balance each month, a card with lower interest rates is the most ideal.

What about fees? How will you know that the company is not ripping you off with non-existent fees that appear differently on your monthly statement? The following are the basic fees that you should understand.

Annual Fee is credit card terminology that refers to the fee that companies charge to manage your credit card account. Cash Advance Transaction Finance Charge, on the other hand, is the fee that you pay every time a new cash advance transaction is posted to your account. Another credit card terminology is the Minimum Finance Charge, which is usually around $0.50 and is only applied to statements that are subject to a finance charge. Another important credit card terminology to fully understand is the Monthly Finance Charge. This is the fee that is issued for not paying your credit card balance in full each month.

There are other fees that you need to learn before saying yes to a credit card company. Make sure you are certain about all credit card terminology before getting your own credit card. Below, you will find some articles on other credit card terminology that will assist you in being well-versed in the credit card arena.



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