Definitions of common Credit Card Terms
Below we have listed some common credit card terms which you may find useful. Understanding the meaning of these terms can help you to understand how your credit card works.
Annual Fees – Credit card annual fee refers to the amount charged each year to use the credit card. Annual fees can vary widely among providers. Some credit card providers charge no annual fee whilst others vary from as little as $15 to $300 or more. Most often credit cards which offer rewards tend to have a higher annual fee.
Annual Percentage Rate – Annual Percentage Rate or APR is an important number that credit card providers must disclose to consumers. The APR is simply how much interest consumers will pay in a year. This number is comprised of interest plus other fees and charges. This is an important number and should be considered when applying for a new credit card.
Cash Advance – A cash advance is when you withdrawal cash directly from your credit card. You can either withdraw cash at your branch or in most stores when making a purchase. Beware though that the interest charged on cash advances is usually much higher than the standard interest rate. Cash advances should be used only when absolutely necessary.
Cash Advance Rate – The cash advance rate is usually higher that the standard interest rate. Any cash withdrawal you make from your credit card is classed as a cash advance and is charged at the cash advance rate. This is something you should take into account if you are the type of credit card user who tends to withdrawal cash from their credit card.
Cardholder Agreement – The credit card providers written statement of terms and conditions relating to the use of your credit card. The Credit Card agreement is required by law. The agreement comprises many things including how interest is calculated, repayment options and any disputes will be resolved.
Credit Card Debt – This term hardly needs an explanation. It refers to the total of all unpaid balances owing on your credit cards.
Credit Limit – Credit Card limit is the maximum amount of money that the credit card provider will allow you to borrow on your card. A person’s credit limit is determined by their level of credit risk. Your credit risk depends on many factors, mainly your income, current and past employment status and your current level of debt. Lenders will estimate your level of risk based upon these factors and determine an appropriate credit limit. Whilst high credit limits may appear to be a positive thing (having available credit to call upon in an emergency), they can also adversely affect your ability to borrow in the future. All credit limits are seen as a potential debt and are taken into consideration when applying for a loan.
Debt Consolidation – Debt consolidation is a way of combining all your unpaid debts into one single account. If you have unpaid balances on several credit cards, combining them can simplify things and save you money. Debt consolidation aims to transfer several high interest credit card balances into one low rate credit card account or personal loan.
Interest Free Days – The number of interest free days on credit cards can vary widely. It refers to the number of days you have to pay off your balance before you will be charged interest on your purchases. Provided you pay your balance in full by the due date, you can avoid paying any interest on your purchases. However, be aware that the interest free period rarlely applies to cash advances. Any cash advances will start to attract interest immediately.
Minimum Payment – This is simply the minimum amount required to be paid each month to avoid defaulting on the agreement. The amount of the minimum payment varies depending on your balance and whether the credit card provider considers you to be a high risk or not.
Pre-approved – We have all seen this at one time or another. This is a clever way that credit card providers get the consumer’s attention to entice them into taking out a new credit card or increasing the credit limit of their current credit card.
