30 Credit Card Terms Everyone Should Know
Aside from credit unions, many traditional banks and neobanks offer credit card accounts for individuals and businesses. However, if you want to enjoy cards with a wide range of features and benefits, choose a neobank over a traditional bank. For example, many neobanks offer low-interest credit cards, travel credit cards with airline rewards and miles, credit cards that give you cashback for your purchases, and those that are easy to get even with a poor credit score.
Nevertheless, some neobanks do not offer loans but instead provide excellent terms for making daily payments. They are common in the FinTech industry. You may take advantage of their tempting and lucrative bonuses when you open an account with them and fund it. Some also offer the best prepaid cards, debit cards, virtual cards, and crypto cards in the industry.
Generally, to get a card from a bank or FinTech company, you must sign a credit contract or agree to some terms and conditions. In the process, you are likely to encounter some terminology that may be new to you. Hence, we have prepared this dictionary to help you familiarise yourself with frequently used credit card terms.
An annual fee is a cost paid by the cardholder each year to use the card and benefit from its features. The annual fees on credit cards vary depending on the card. This fee is added to the client's statement by the credit card company.
Most customers look for a credit card with the features they need but without yearly fee requirements. Hence, some credit card issuers waive this fee for the first year. An example of a credit card with no annual fee is CapitalOne.
Annual Percentage Rate (APR)
The annual percentage rate is the amount of interest you are charged for not paying off the whole balance on your card each billing cycle. It is also known as APR. In other words, the APR on a credit card is the rate of interest charged annually on the outstanding debt of the cardholder.
The balance on a credit card is the money the user owes the issuing traditional bank, neobank, credit union, or financial institution. It is similar to the balance on a personal loan. What your balance will be each month is determined by whether you make timely full or part payments on your card. Your charges, interest, late payments, international transaction fees, yearly fees, cash advances, and balance transfers are all included in the amount.
A balance transfer is when a credit card user moves the debt on an old card to a new one that comes with a 0% introductory APR. Aside from allowing you to have extra time to pay off your debt, balance transfers can help you avoid paying hundreds of euros in interest. Note that you cannot make a balance transfer between credit cards issued by the same bank or financial institution.
Balance transfer APR
A balance transfer APR is a fixed or variable interest rate charge on the amount you transfer from an old credit card to a new one. It is the cost you pay for making a balance transfer. The rate depends on the issuing company and the card – it can range from 3% to 5%.
Balance transfer fee
A balance transfer fee is much like a balance transfer APR. However, while a balance transfer APR is always expressed as a percentage of the debt balance on the old card, a balance transfer fee can be a fixed or variable amount of money, such as €5 to €10, or both a rate and an amount.
The interval between one statement closure date and the next is known as a billing cycle. In the United States, the Credit Card Accountability Responsibility and Disclosure (CARD) Act states that billing cycles must be at least 21 days long.
A cash advance is when you make a withdrawal from your credit card account. Cash advances are expensive since card issuers sometimes impose high-interest rates and fees on withdrawals and restrict the amount you may take to a part of your overall credit limit.
Cash advance APR
A cash advance APR is an interest rate that applies if you take out a cash advance. It is typically among the most expensive APRs. The interest on cash advances is charged instantly — no grace period.
Cash advance fee
A cash advance fee is a service charge from the company that issued your credit card. It may be a percentage of the cash advance sum or a flat fee, depending on the issuer. When you receive the cash advance, the fee may be deducted from it, or it may be added to your credit card bill.
A credit bureau is a company that compiles data on your credit history and sends it to banks and other lending institutions as well as businesses like real estate and auto dealers. Examples of credit bureaus are Experian, Equifax, and TransUnion.
A credit limit on a credit card is the maximum amount of money that your card issuer allows you to spend. It is also referred to as a credit line.
Your credit profile, which includes your payment history and credit use, and your yearly gross income are some of the criteria credit card issuers consider when deciding your credit limit.
Your credit history is collected in a credit report. Credit reports provide full details about credit accounts, including payment history, balances, the date the account was opened, and more.
A credit score is a summary of the data from a credit report. It is a number used to indicate the creditworthiness of a credit card user. For example, a credit score according to FICO rating ranges from 300 to 850, while that of Experian ranges from 0 to 999.
Credit utilisation rate
A credit utilisation rate is a percentage of your current credit card balance to the total amount of credit you have available. It is also known as the credit utilisation ratio. For example, your credit utilisation rate would be 20% if you had a €200 credit card balance on a card with a €1,000 credit limit.
Your minimum payment is payable to the credit card company on the date specified on your credit card. Credit card providers have different due dates and times.
You will be charged a late fee if you do not make your payment by the due date. Your APR will increase, and you risk having your credit history reported and your credit score might be reduced.
A fixed APR is a rate that does not change over time. Credit cards, home loans, and auto loans are a few of the types of loans that are often granted with a fixed APR. Fixed APRs are determined by the market conditions in effect at the time the loan is obtained, and they remain constant for the duration of the loan. However, whenever a card issuer needs to change your APR, they need to send you a notice in advance.
Foreign transaction fee
A foreign transaction fee on a credit card is the extra cost of using it for payments abroad. If your credit card was issued in the United Kingdom, you may be charged a fee for using it to make purchases in the United States. For this reason, it is better to get a travel credit card that comes with no foreign transaction fee and allows you to enjoy other perks. For example, you can open a credit card to manage your wedding and honeymoon expenses locally and internationally. Also, there are credit cards with many travel benefits.
The time frame between the conclusion of a billing cycle and the date on which your payment is due. Although it is not legally necessary, the majority of credit card firms do provide a grace period. Regardless of how long the grace period is, it must be at least 21 days from the day your bill was received or delivered. Generally speaking, cash advances and balance transfers are not covered by the grace period; only new purchases are.
The interest rate on a credit card is the price your card issuer requires you to pay for borrowing money. It is usually a yearly rate called the annual percentage rate (APR). The best way to avoid paying interest on a credit card is to pay your monthly balance in full by every due date.
When you open an account, you receive an annual percentage rate (APR) that is lower than usual for a specified period. It can be 0%, which may be applied to a balance transfer, purchase, or both, depending on the offer from your card issuer. Consumers like to receive introductory APRs because they help them to save on interest charges and pay off their debts faster.
A late payment fee is a cost of not paying your balance on time. If you pay your credit card statement after the due date, you might be charged a fine of up to €29 for the first offence and up to €40 for consecutive offences within six billing cycles.
The minimum payment is the smallest amount of money, or percentage of your outstanding debt, that you must pay each month to maintain your credit card account. Different minimum payments are calculated and established by various card issuers.
This is one of the highest APRs you are likely to find on your credit card. When you miss a regular contribution or make a late payment, your credit card issuer might charge you an interest rate for that. Since it is a punishment for doing something wrong, this rate is called a penalty APR. It can be an increase in your interest rate.
The best interest rate lenders charge customers is called the prime rate, sometimes called the prime lending rate. Your credit card's actual interest rate might be higher than the prime rate. Note that your variable APR will frequently vary if the prime rate changes.
When you carry a balance on your credit card, you are charged an interest rate on purchases, which is known as a purchase annual percentage rate (APR). The APR for a credit card is applied on a monthly basis.
A credit card's revolving debt is the portion of your credit limit that has been spent but not paid back. It is part of your credit limit that is subject to daily interest (APR) payments since it was not fully paid off at the end of the previous month. You will not have revolving debt if you pay off the entire balance on your credit card each month.
Security code / Card Verification Value (CVV)
Your credit or debit card's security code, which is also known as the card verification value (CVV), is typically used for "card-not-present" transactions like online purchases. It is only an additional measure of security to confirm your ownership of the credit card.
Additionally, the security code on your credit card shields you from credit card skimmers like those found at petrol pumps. A skimmer cannot read the CVV code since it is not printed on the card's magnetic stripe. It is printed to the right of the magnetic strip on the majority of credit cards.
Your account balance at the end of a payment cycle is represented by your credit card statement balance. It is the sum of all of the charges, fees, interest, and outstanding amounts minus any expenses or credits since your last statement. Your current balance, which is often what you will see when you check your account balance online, is a real-time representation of your account balance and will consider any recent charges that were made to your account after the closing date of your statement.
A variable APR can change at any moment due to economically induced fluctuations in the market rate or prime rate. It can go up or down in line with changes in the prime rate. If the prime rate increases, your variable APR will also rise, and vice versa.
The terms of a credit card are the rules of the agreement between the issuer of the card and the cardholder. Examples of them are annual fees, annual percentage rates (APR) or interest rates, the balance transfer APR, minimum balance, credit limit, late payment fee, and grace period.
The 15/3 credit card rule refers to paying the bill on your credit card in two instalments. The first one is to be paid 15 days before the closing date of your balance statement, and the other 3 days before it is due.
A credit card comes with a variety of features. Five common features you may find on credit cards are annual fees, cash withdrawal fees, foreign transaction fees, annual percentage rates (APRs), rewards and perks.
When searching for a credit card, look for the following three important features: zero annual fee, sign-up bonus, and low-interest rates.
Credit card terminology refers to a collection of terms or words often used in credit card and loan agreements between two parties: a card-issuing company and an applicant or cardholder.
SP means “secondary purchase.” When you see it on your credit card statement, it means that your credit card company charged you for a transaction you made.
Toast manages electronic transactions between clients and companies as a payment processor. When Toast signs that it worked on your transaction, you will see TST on your credit card statement, just before the name of a business or retailer.
The Bottom Line
It is good to become familiar with the terms defined in this article. Knowing the meaning of each of them will help you avoid typical fees and maintain excellent credit. As you become more experienced in using credit cards, you will be able to maximise your card while paying the lowest cost possible.