Important Credit Card Terminology

Credit cards are used by everyone in today’s day and age. However, they only seem understood by a surprisingly few. Many people even find them necessary to perform many ‘everyday’ tasks. Life in many ways has become easier with the growth of credit cards. Online purchases, car reservations and traveling internationally without currency exchange are all possible through the expansion of credit cards.

But, with the new ease come new risks, as the use of this new credit often could be described as reckless. America as a whole now carries far more personal debt than ever before, and has seen a rise in personal bankruptcies. However, with a little prior knowledge, credit cards can be a welcomed addition to a person’s personal finances.

With that said, it’s important to understand some basic terminology when comparing credit cards to apply for.

Common Terms

Annual Fee – this is a flat fee charged on some cards somewhat like a membership fee. There are many ‘no-fee’ options these days, as well as other times this fee is waived.

Annual Percentage Rate (APR) – the yearly rate of the financing charges. This can be fixed (non-changing) or variable (changes with the Treasury bill rate or other published rate).

Introductory Rate – a temporary, low APR used to attract new customers that typically last for about six to eighteen months before converting to the normal fixed or variable rate.

Finance Charge – the cost paid to the bank for lending the money. The amount depends on the outstanding balance and APR.

Grace Period – a set number of days given to the consumer to pay the balance before the credit card company charges interest, typically 20-30 days.

Cash Advance – instant cash loan from a card’s available credit. It often includes additional cash advance fees.

Balance Transfer – often used by consumers to consolidate balances, credit card companies will usually offer teaser rates to entice people to switch credit cards. These teasers usually last between 6 months and 1 year. The rationale is then, even if customer pays off balance, they have a new customer.

Minimum Payment- lowest amount of money required to avoid defaulting on your agreement. Usually a minimum percentage or set dollar amount.

These are just some of the most common general credit card terms to look for when applying for a new credit card. If you looking for a more advanced term, here’s a complete glossary of terms broken down to specific categories.

Next we cover the different credit card types…