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. If you don't understand the language of credit card,
credit card offers and statements could lead you to deep debt -- or at least
furious frustration. You must know about
the following 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 interest rate used
to calculate how much in finance charges will accumulate if the balance isn't
paid in full by the due date.
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.
Credit
history
A profile of your financial life. It tells credit issuers if you
pay your bills on time and how much debt you carry. Credit card issuers use
this information to decide whether to issue customers credit cards.
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
The minimum amount you
can pay to keep the account from going into default. Usually you will be
required to pay a minimum payment of two percent of the outstanding balance,
but you should try to pay more.
Cash
Advance
Instant
cash loan from a card’s available credit. It often includes additional cash
advance fees.
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.
Credit
scoring
A method of determining
whether or not you can be expected to pay your bills. Factors used to determine
your credit score include total credit limit, number of credit cards, amounts
owed, and promptness of payment.
Average daily balance
This is the method by
which most credit cards calculate your payment due. An average daily balance is
determined by adding each day's balance and then dividing that total by the
number of days in a billing cycle. The average daily balance is then multiplied
by a card's monthly periodic rate, which is calculated by dividing the annual
percentage rate by 12. A card with an annual rate of 18 percent would have a
monthly periodic rate of 1.5 percent. If that card had a $500 average daily
balance it would yield a monthly finance charge of $7.50.
Principal
The principal is the
amount of money that is borrowed before any interest is applied.
Balance
Total amount charged on
the credit card.
Balance
transfer
The process of moving
an unpaid credit card debt from one issuer to another.
Cardholder agreement
The written statement
that gives the terms and conditions of a credit card account. The cardholder
agreement is required by Federal Reserve regulations. It must include the
Annual Percentage Rate, the monthly minimum payment formula, annual fee if
applicable, and the cardholder's rights in billing disputes. Changes in the
cardholder agreement may be made, with written advance notice, at any time by
the issuer. Rules for imposing changes vary from state to state, but the rules
that apply are those of the home state of the issuing bank, not the home state
of the cardholder.
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