Credit cards play a significant role in this modern era of finances. Credit cards offer convenience, financial freedom, and several benefits when we make payments or purchases via cards. However, going through the complex terminology associated with credit cards can be overwhelming for individuals. Below we have created a comprehensive glossary that you can go through to understand everything important about credit cards.
This detailed guide will provide an understanding of complex credit card terms and everything you need to make informed decisions and manage your credit effectively.
Common Credit Card Terms
- Annual Fee
The Annual Fee is a yearly charge the credit card issuer imposes for maintaining the card account. This fee is often associated with premium credit cards that offer enhanced benefits and rewards. Considering the annual fee when choosing a credit card is important, as it can significantly impact the overall cost of card ownership.
- APR (Annual Percentage Rate)
APR or Annual Percentage Rate can be defined as the cost of borrowing on a credit card annually. It includes the interest rate and any additional charges associated with the card. The APR helps consumers compare the cost of different credit cards and understand the exact cost of carrying a balance. APR is one of the most important things to consider when looking for a new credit card as 0% APR credit cards can help users save lots of bucks when making payments or purchases.
- Balance Transfer
Credit card balance transfer is all about moving an existing credit card balance to another card, usually with a lower interest rate. This can benefit cardholders looking to consolidate their debts or take advantage of a 0% APR promotional period. However, knowing of any balance transfer fees or transfer limits associated with the new card is important. Some companies offer balance transfer credit cards that help users pay off credit card debt without paying interest.
- Credit Limit
The Credit Limit is the highest amount a user can use on a credit card to make payments or purchases. It is calculated by the credit card providers based on several factors, such as the credit score, payment history and income. Managing your credit card spending within the assigned credit limit is important to build good credit and enjoy better credit card terms.
- Grace Period
The Grace Period is the period of time during which a cardholder can pay their credit card bill in full without any interest charges. It typically starts from the end of the billing cycle and lasts for a particular number of days. Taking advantage of the grace period helps cardholders to avoid interest on their purchases if the full balance is paid before due date.
- Minimum Payment
The Minimum Payment is the smallest amount a cardholder must pay toward their monthly credit card balance to keep the account running. While making the minimum payment ensures that the cardholder avoids late payment fees and other charges, paying more than the minimum is advisable by experts to reduce the overall interest charges and pay off the credit card balance faster.
- Overlimit Fee
An Overlimit Fee is charged when a cardholder exceeds the assigned credit limit. Companies charge this fee to discourage excessive spending beyond the approved credit line. To avoid over limit fees, it is important to closely monitor your credit card balance and keep your spending within the assigned credit limit. Experts suggest use 30% of the available credit limit to build good credit and avoid other charges.
- Rewards Program
Credit card Rewards Program is a feature many credit card companies offer that allows cardholders to earn free points, miles, or cashback on particular purchases and payments highlighted by the company. These rewards can be redeemed for various benefits, such as travel, air ticket reservation, merchandise, or statement credits. Understanding a rewards program’s specific terms and conditions can help maximize the benefits of using a particular credit card.
- Credit Card Statement
Credit card statement is a monthly summary of a cardholder’s credit card activity, including date, time, purchases, payments, fees, and interest charges. It provides a detailed overview of the financial transactions made through a credit card during the billing cycle. Reviewing the statement regularly helps monitor spending, detect unauthorized activities, and reconcile balances to avoid bad credit issues.
- Late Payment Fee
A Late Payment Fee is charged when a cardholder fails to make the minimum payment or misses the due date for a credit card payment. Late payments can harm a user’s credit score and may also result in other penalties or increased interest rates. It is necessary to make monthly payments on time to maintain good credit score and avoid additional charges.
Ending Note
This comprehensive glossary is valuable for anyone seeking to enhance their understanding of credit card terms. By learning and understanding these common terms, you can confidently navigate the world of credit cards, make informed financial decisions, and leverage the benefits offered by different credit card products. Credit cards can be powerful financial tools when used responsibly. It is essential to read and understand the terms and conditions of any credit card before applying.
For more information and tips to help you choose the best credit card in NZ, visit our website Credit Cards Compare.
