Glossary of Credit Card Terms #
Understanding credit card terms is essential for managing your credit effectively. This glossary covers some of the most important terms you’ll encounter in your credit card journey.
Annual Fee #
- A yearly charge by the credit card issuer for the use of a credit card. Some cards offer benefits and rewards that can offset this fee.
APR (Annual Percentage Rate) #
- The yearly interest rate charged on outstanding balances. Includes any fees or additional costs associated with the transaction.
Balance Transfer #
- The process of transferring debt from one credit card to another, usually to take advantage of a lower interest rate.
Cash Advance #
- A loan taken from your credit card account, often subject to higher interest rates and additional fees.
Credit Limit #
- The maximum amount of credit a card issuer allows you to borrow on a single credit card.
Credit Utilization Ratio #
- The percentage of your credit limit that you’re currently using. It’s calculated by dividing your total credit card balances by your total credit limits.
Fixed APR #
- An APR that does not change throughout the year, unlike a variable APR which can fluctuate with the market interest rate.
Grace Period #
- The time between the end of your billing cycle and the date your payment is due. If you pay your balance in full during this period, you won’t be charged interest on purchases.
Minimum Payment #
- The smallest amount you can pay by the due date to keep your account in good standing. Paying only the minimum can result in more interest paid over time.
Reward Points #
- Points earned for making purchases with your credit card, which can be redeemed for rewards such as travel, merchandise, or cash back.
Secured Credit Card #
- A type of credit card that requires a security deposit as collateral before you can use it. Often used by individuals looking to build or rebuild their credit.
Variable APR #
- An APR that can change over time based on the prime rate or another interest rate benchmark.
This glossary is not all-encompassing but provides a solid foundation of terms that will help you navigate the world of credit cards more confidently. Understanding these terms will empower you to make informed decisions about your credit and manage your accounts more effectively.