The ABC’s of Understanding Credit Card Terms

Now, more than ever, it is important that you read every piece of collateral mail sent to you by your credit card company. Each time you feel you are getting stumped on a term, review this quick list for a full understanding of the terms that you have agreed to for the luxury of using your credit card. Some basic tips to assist you are:

  • Average Daily Balance – Used for interest calculation, the average daily balance is the total balance being carried on a credit card divided by the number of days in that billing month
  • Annual Percentage Rate – Aside from the cost of the purchases the APY is the interest rate you must pay
  • Balance Transfer – The act of moving the balance from one credit to another that consumers may do to consolidate their debts or lower their interest payments
  • Cash-Advance Fee – The rate you are charged for using your credit card to obtain cash
  • Card Holder Agreement – The terms of agreement including interest rates, annual fees, and other details that you agree to abide by  for the luxury of securing a credit car
  • Finance Charge – The amount that you must pay in addition to the original cost of the purchases, the finance charge is computed from the purchase balance on the card and the interest rate
  • Grace Period – The amount of time you have to make a credit card payment before you are considered “late”
  • Minimum Payment – The smallest amount you need to pay off your balances monthly to keep your credit card in good standing
  • Pre-Approval – Is a promotional offer used to entice new customers to apply for a new credit card, although the changes of getting a card that has been “pre-approved” is good, it is not guaranteed
  • Principal Amount – The actual amount of debt you incurred for purchases on your credit card
  • Secured Card – Credit cards generally used by those who have bad credit histories as the credit card company establishes a link directly to the card holder’s savings account and withdrawals the monthly payments automatically
  • Variable Interest Rate – A fluctuating percentage expressed in yearly terms that the credit card holder must pay regularly to stay active

The world of finances, including credit cards, tend to have their own glossary of terms to describe certain nuances and behaviors of the industry. If you are trying to get a hold of your credit, it is climacteric that you gain a full knowledge of the language used by the credit card industry. Once you understand the credit card terms, your monthly statement will not seem as mysterious and confusing, thus allowing you to “tame the beast.”


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