Before applying for a credit card, it’s important to know the basics. Here are some of the most common credit card terms everyone should know, along with their definitions:
Annual Fee
The annual fee for a credit card is a yearly charge imposed on the consumer for using the credit card and benefiting from its features. Annual membership fees for credit cards range from about $25 to $500 per year, depending on the card. Most consumers try to find a credit card that has the benefits they want but without an annual fee.
Annual Percentage Rate (APR)
The annual percentage rate (APR) is the annual cost of borrowing money on your credit card. A credit card has several APRs, including the annual percentage rate for purchases, balance transfers, cash advances, and penalties/fees. The annual percentage rate for purchases is the interest rate applied after the grace period ends.
Credit Limit
The credit limit on a credit card is the maximum amount you can spend on your card without incurring a penalty. If you have a short credit history and few credit accounts, your credit card limit is likely to be low. If your credit history is longer and has no negative marks, your credit limit may be high. Credit card companies may automatically increase your credit limit over time, as long as you make your payments on time and use your credit responsibly. If you exceed the limit on your credit card, you may have to pay an over-limit fee. A penalty interest rate may be activated on your card. You can opt-in for over-limit fees and associated charges or opt-out of them.
Credit Score
A credit score is an indicator of how likely you are to repay the borrowed amount. Everything related to credit cards affects your credit score, including the number of cards you have (if any), your entire payment history, and other factors associated with your debt history. If you use credit cards, you should use them carefully because your credit score affects other areas of your life, such as getting a mortgage loan or an auto loan.
Due Date
The due date on your credit card is the date by which you need to make the minimum payment owed to the credit card company. The payment deadline is typically by 5 PM on the due date, but some credit card companies may have a slightly later deadline in the evening. If you do not make your payment by the due date, you will incur a late fee and a higher annual percentage rate, and you may be reported to credit bureaus.
Grace Period
The grace period on credit card purchases is the time during which interest is not charged after making a purchase. There may be a grace period only on purchases if you do not carry a balance on your credit card. According to the Credit Card Accountability Responsibility and Disclosure Act of 2009, the grace period must be at least 21 days.
Late Payment Fees
If you do not pay your minimum payment on your credit card by the due date, a late payment fee will be charged to you. Fees typically range from $15 to $37 and depend on the size of your balance. For small balances, they represent a significant percentage of your balance. If you are late on multiple payments or if one payment is more than 60 days late, a penalty interest rate will be activated, which ranges from 27% to 30%.
Payment
The Minimum Payment
The minimum payment on a credit card is the lowest amount you can pay each month while keeping a good standing with your card issuer. It is typically 1-3% of your credit card balance. If you have a relatively low balance on your credit card, you may be charged a payment based on a percentage of your balance or $25, whichever is higher.
Note: Paying only the minimum payment on credit cards negatively impacts your credit rating. Credit card debt is the most expensive debt you have, and if you are only paying the minimum each month, it will take a long time to pay off your bill.
Revolving Balance
The revolving balance on a credit card is the amount you have used from your credit limit and have not paid off. It is the portion of your credit limit that you pay interest on (annual percentage rate) daily because you did not pay it off at the end of the previous month. If you pay off your credit card balance in full each month, you will not have a revolving balance.
Security Code (CVV)
The security code – or card verification value (CVV) – on your credit or debit card is primarily used for “card-not-present” transactions such as online transactions. It is an additional level of security to ensure that you are the cardholder. It also protects you from credit card readers such as those used at gas pumps. Because the CVV code is not included on the magnetic strip on the card, the card reader cannot read it. On most credit cards, it is printed to the right of the magnetic strip. On American Express cards, it is printed on the front of the card.
Source: https://www.thebalancemoney.com/credit-card-terms-everyone-should-know-4687035
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