Understanding credit card terms is a good way to stay one step ahead. If you
can read a credit card application and understand the terms of agreement on your
card. Here's a glossary of the most common credit card terms to help you with
your credit card education:
Adjusted Balance method – this is a formula used by many card issuers
to calculate the amount of your monthly payment. Payments you made to the
credit card account during the month is subtracted from the balance, and finance
charges are added on to get the adjusted balance.
Annual fee – some credit card companies charge cardholders a once-per-year
fee to use the card. It may mean the card offers great rewards or travel benefits,
or it may mean you've got a credit card for people with poor credit.
APR - the annual percentage rate is the amount of interest a credit
card balance is charged, annually. If there is no balance on the card, then
there is no interest charge.
Billing Cycle - the length of time between billing statements,
which can vary from one month to the next. The fluctuations in billing cycles
can change due dates.
Charge back – a transaction that gets returned due to a consumer
disputing a purchase made from a merchant; or due to the purchase being noncompliant
with the merchant account rules.
Credit line – sometimes referred to as your available credit, the
credit line is the amount your credit card company gives you to borrow. When
you spend all of it, you've reached your total available credit and can't use your
credit card until you pay down the balance.
Finance charges – the total cost of using your credit card, expressed
in dollars instead of percentages, including the interest and other fees.
Fixed interest rate – credit cards with fixed interest rates don't
fluctuate based on economic conditions. The rate CAN be changed by the credit
card company however, if they provide 15 days notice to the cardholder of the change.
Grace period – a specific period of time when you could repay your
credit card balance without having to pay interest or other charges. Not all
credit cards offer a grace period.
Minimum payment – shown on your credit card statement, the minimum
payment is the least amount of money you can send to your credit card company before
the due date, to avoid having to pay a late fee for not making the payment.
Monthly periodic rate - part of the formula used to compute someone's
credit card bill. It's multiplied by the amount of the outstanding credit
card balance to get the interest rate charge for the billing cycle.
Secured credit cards – require the cardholder to give up collateral
in exchange for receiving and using the secured credit card. Usually a secured
credit card requires a deposit in the amount of the credit limit.
Universal default – a clause that states if a cardholder makes
their payment late to a creditor, that credit card company can raise the interest
rate on that credit card – and any other credit card accounts the individual has
that participates under the universal default, can increase interest rates, too.
So one late payment can result in all of your credit card accounts getting
interest rate hikes.
Variable interest rate – some credit cards have variable interest
rates. Which means they change when economic indicators change. Sometimes
this is called a floating rate.