Understand Basic Credit Card Terminology

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Credit Card

Whether you are new to the financial world or have stayed fairly oblivious over the years to various mailers, invitations, guides or write-ups concerning your credit cards, simply understanding the terminology associated with credit and credit cards can actually lead to a better standard of living entirely. Although that might sound like a bit of an illogical reach, there is a good explanation for that claim. In most cases, when people better understand any act or system, they naturally get better at the process. And, considering credit cards are not really competitive, the only way someone could actually be considered “good” at them is to manage them well.

Annual Percentage Rate

More often referred to as “APR” than the full name, the Annual Percentage Rate that a credit card uses to make cardholders pay extra for any balance that is left on the card at the end of the month. For most intents and purposes, this is merely the credit card’s interest rate.

Credit Line

The credit line of a credit card refers to how much money can be used before the card stops working for the cardholder. When the credit line has been reached, the card will reactivate after the cardholder pays off some of the balance.

Credit Score

Using details from a credit report, a credit score offers a quick and easy figure to look at and efficiently determine whether one’s credit standing is poor, fair, good or excellent.

Credit Report

A collection of an individual’s financial history that covers his or her various lines of credit like credit cards, car payments, apartment leases, store credit and more.

Finance Charge

This is the amount that it will cost to use a credit card. The final figure for the finance charge will include both fees and the interest accrued.

Over-the-limit Fee

Also called an “Overdrawn Fee,” the over-the-limit fee gets charged to your credit card when the amount of money you haven’t paid back yet is larger than your credit line.

Schumer Box

This is the large box you see printed in the middle of credit card offer pages and was designed to give people an easy way to see the various important pieces of information like the annual percentage rate, finance charges, credit line details and more.

Secured Credit Card

Instead of the credit card company fronting the money themselves, a secured credit card has the cardholder deposit his or her money as the card’s collateral. That being the case, these cards are very easy to qualify for and are a good choice to build or rebuild one’s credit history and score.

Unsecured Credit Cards

A credit card that uses money from the issuing financial institution for purchases. This kind of credit card is what most cards you ever have will be.

Utilization Ratio

A comparison of how much money you have built up in your balances versus your credit line. This can be done for a singular card or borrowing account, or it can be applied to your entire credit report.

Variable Interest Rate

This refers to your credit card’s annual percentage rate and it is the allowing of the credit card’s APR to be modified to follow the current prime rate. On a side note, these should be avoided like the plague, no matter how easily you might qualify for one.

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