Introduction to Credit Cards Terminology

Introduction to Credit Cards Terminology

Ever since Stacey Smith got her credit card, she has been trying to decode the alien credit card terms that the credit card companies use.

Deciphering credit card terms is a task in itself! The credit card companies use fancy language, which we don’t use in our everyday use.

So much so that even filling the application form is a pain. What is needed is a good credit card glossary to enable mortals like us to understand credit card terms.

We have complied a simple to understand credit card glossary. In simple words, it is card which can be used to obtain cash, goods or services up to a stipulated credit limit. The glossary covers some of the most commonly used credit card terms.

Lets begin with the most basic “account number”. It refers to a unique number that is assigned to every credit card.

Next in the credit card terms come “annual fees”. Some of the credit card holders are charged annually for holding the card.

This is known as annual fees. Another credit card term that would be used frequently is “APR”. It is the rate at which card companies charge you every year for your account.

No credit card terms dictionary is complete without the term “balance transfer”. It simply means moving your credit balance from one credit account to another.

It helps in saving your interest payments. A credit card term that most people are afraid to come across in credit card terms is “bad credit”.

It means poor or bad credit rating. It can be caused by late payments, exceeding card limits etc.

In credit card terms, the next word would be, “cash advance”. Cash advance means a loan taken through your credit card, using an ATM.

Then in credit card glossary comes “credit report”. It is a record of your credit history that is usually consulted by lenders in order to decide whether they should lend you money or not, and how much.

In credit card terms, you will also find the term “debit card”. Debit card allows you to spend money on the balance available in your account – usually from a current or savings account.

Next in our list of credit card terms is “grace period”. It is the time period between the transaction date and billing date when the payment can be made without incurring any interest rate.

If you are going through a money crunch then this credit card term is essential for you to understand – the “minimum payment”. Minimum payment is the smallest payment that you can pay to keep your account in good standing.

Another very important credit card term to understand is “PIN number”. It is the security code that you need for authorization while making money transaction through your credit card.

Next credit card term is “pre approved”. This means a customer who has already passed the initial credit bureau evaluation.

Here’s to hoping that you would now feel more confident about using your credit cards with at least the credit card terms making some sense to you!

The Idiot’s Guide to Selecting a Credit Card

There are literally hundreds – possibly thousands – of credit card offers available to consumers these days. So how do you choose the best one?

What should you look for in a credit card? How can you be sure that you won’t get stuck with high interest rates or a rewards program that doesn’t exactly live up to your expectations?

In this article, we’ll take your through the major elements of a credit card so that you know what to look for and can make an informed decision about which credit card to choose.

Interest Rate

The first thing that most people look for is the interest rate. Also known as APR (annual percentage rate), this is essentially a percentage that is charged to you, the consumer, if you do not pay your credit card bills on time.

APRs change frequently, but once you apply for and receive a credit card you will have that rate for the life of the card.

If you can, it’s always best to pay your credit card bills in full every month – this way, the interest rate becomes a moot point and you only pay for what you charged on your card, nothing extra.

Watch out! Interest rates on credit cards can cause severe debt problems if you don’t manage your bills and pay them on time.

Some credit cards will charge you interest on your entire monthly balance, even if some or most of it was paid off. Make sure to pay your credit card bills on time every month if you are able to avoid going into credit card debt.

Introductory Rates

While we’re on the subject of interest rates – one thing to look for is the introductory rate of a credit card offer. A large percentage of credit card issuers will offer incentives to apply for their cards – which is great news for consumers.

You’ll usually see introductory offers of between 6 and 12 months of either low or even 0% interest rates. This means that for the first 6-12 months of the life of your card,

if you don’t pay off your credit card bill every month, you will not get charged interest for any outstanding balances.

Who would this be particularly beneficial to? If you are making a large purchase, having a credit card that offers 0% interest for 6-12 months would allow you to manage payments on that item without paying extra.

Balance Transfers

Credit cards allow you to transfer balances from other cards or accounts onto your new card. This can be especially beneficial to consumers if you have an existing credit card with a large balance and are paying high interest rates on it.

By choosing a new credit card with an introductory offer of 0% interest, you can buy yourself time to pay off that balance without paying interest on it anymore.

When you’re comparing credit card offers, though, make sure you read the fine print regarding balance transfers.

Look for any rates, minimum or maximum amounts and also time frames that might apply to using this technique to lower your payments.

Default Interest Rates

On your credit card application, you might notice a different (usually higher) rate of interest called the default rate. This is the rate of interest charged when you default on your loan – meaning you do not pay back the balance on your credit card.

Credit cards are essentially loans that you take out each time you use your card. You are borrowing money from your credit card issuer to purchase goods and services.

If you do not pay them back this money, you’ve defaulted, and will be charged higher interest rates until you do.

Cash Advances

Some credit cards will allow you to take cash out of your credit account for spending instead of using the card as your purchasing medium.

There are usually limits to how much cash you can take out and you should watch out for the rates that credit cards charge to take this cash out (through a bank, ATM, or by check). When you can, it’s best to just use your credit card to make purchases.

Other Fees

You’ll want to make sure to read the fine print in any credit card that you apply for, but we’ll clue you in on some of the typical fees that you’ll likely be confronted with in choosing a credit card.

Application Fee – some credit cards charge you a one time fee for applying and receiving their credit card.

Late Fees – there is usually a fee that the credit card company will charge you if you are late in your payments. This can be in addition to the interest rate that you are charged on outstanding balances.

Annual Fees – some credit cards, often times rewards credit cards – have an annual fee that is automatically collected (I.e. charged to your credit card) every year.

When you’re applying for a credit card, make sure that the fees associated with the card are either low or manageable within your own personal financial budget.

Grace Period

The grace period offered by a credit card issuer is the time that they allow you to pay back your balance. You’ll typically find grace periods of 20-25 days.

This means that once your monthly billing cycle has ended, you have 20-25 days to pay your credit card bill. Due dates are always noted on your statements.

Credit Limits

When you apply for a credit card, you’ll be given a credit limit. This is a ceiling, or a maximum amount of money that your credit card issuer will allow you to spend using that credit card.

Your credit limit is usually based on your personal credit history, so it’s always a good idea to check out your credit before you apply to make sure you don’t have any mistakes on your credit report.

After having a credit card for a longer period of time, your credit limit may be adjusted (either automatically or by request) depending on your history of paying that credit card off.

Conclusion

The terms discussed here are the main things that consumers will want to watch for when selecting a credit card.

Credit card debt has soared over the course of time and consumers find themselves owing much more money than they had intended – but that can be avoided by simply reading the fine print with each credit card application.

More importantly, if you pay your credit card bill every month in full, you shouldn’t have to worry about credit card debt at all.

Secured Credit Cards

When deciding upon what credit card is the best for you, don’t rule out secured credit cards. In fact, many people are finding secured credit cards to be the best option.

Some people choose a secured credit card when they have had credit problems in the past, and obtaining a traditional credit card would be difficult if not impossible.

Secured credit cards are great options for teaching your teenagers and college students about responsible financial spending.

Secured credit cards help control your spending, since you must have the money before you can make a purchase, unlike a traditional credit card that you don’t have to have the money to back up your purchases.

So, you may be asking why bother with a credit card at all, if you have to have the cash available to fund your secured credit card. In our modern times, it is becoming increasingly difficult to do certain things without having access to a credit card.

Have you ever tried renting a car or purchasing an airplane ticket without a credit card? Ever tried booking a hotel room without a credit card?

Secured credit cards work in the same manner as a checking account debit card, however, there is no actual checking or savings account associated with the card. You make a deposit to the company that issues the secured credit card, and that becomes your spending limit.

When you have made purchases that reach the amount of money you deposited, you have to deposit more money in order to continue using the card.

Advantages of using a secured credit card, other than the obvious advantage of not spending more money than you actually have,

include the fact that almost anyone is eligible to obtain a secured credit card. Regardless of your personal financial history and credit score, you can make a deposit with a secured card distributor and obtain a credit card.

The only actual requirement to be approved for a secured card is you must be of legal age and have money to deposit on the card.

Other advantages of a secured credit card versus a traditional credit card are that you are not charged an annual percentage rate on the amount that you deposit, and you can have your paycheck deposited directly onto a secured credit card in many instances.

A traditional credit card will smother you with interest rates, late fees and finance charges over time, and you’ll end up paying two to three times what you’ve actually charged to the card!

With a secured card, you know exactly how much you’re paying for an item. Secured cards allow you to make purchases online when you would not be able to if you didn’t have a traditional credit card.

The main disadvantage to using a secured credit card in place of a traditional credit card is the fact that you have to have the money in advance for any purchase you want to make.

While this is an advantage when considering your credit score and the perfect way to avoid getting into debt too deep for you to handle, it is also a disadvantage in the event of an emergency situation.

If your car breaks, or your home’s furnace dies and you don’t have the cash available, a traditional credit card would come in handy.

Perhaps without ever using traditional credit cards however, you will be able to save enough money to cover emergency instances and not need to rely on credit to bail yourself out of the emergency situation.

Secured credit cards may be the best option for your credit card needs. They allow you to travel conveniently, make purchases by phone or the internet, and without the dangers of falling into financial desperation!

Step By Step Debt Reduction

First of all, you can take comfort in the fact that you are not the only one fighting the credit card debt problem.

There are hordes of people who might have an even worse credit card debt problem compared to you; all of them seeking to eliminate the credit card debt problem. So what is the solution to credit card debt problem?

Well, the solution really is to smash the credit card debt problem with full force and eliminate it completely. Now how do you do that?

There are many ways in which you can tackle credit card debt problem. Different people suggest different ways of tackling credit card debt problem. However, here is a simple step by step account of what you can do to get rid of credit card debt problem.

1. Take stock of the situation i.e. draw up a table with the following fields – Credit card name, balance, payment due day

(the day of the month by which you are required to make payment of your credit card bill), APR, reward points earned, redemption offers applicable for your reward points balance, remarks.

2. Fill the table up with data from your various credit cards.

3. Figure out which credit card is contributing the most to the credit card debt problem i.e. highest APR and highest balance.

4. Check if reward points can be used to make partial payments or cover any kind of fees or if the points can be bartered for something you need (spending less means preventing the credit card debt problem from getting worse).

5. Draw a comparison table of offers available for eliminating credit card debt problem (i.e. consolidating credit card debt).

6. First eliminate debt on the credit card that is contributing the most to the credit card debt problem.

7. Practice controlled and healthy spending habits(after all you are looking to get rid of credit card debt problem and not aggravate the credit card debt problem).

8. Look for alternative means of adding to your income (more money means earlier termination of credit card debt problem)

9. See your debt reduce with time and celebrate the day when you finally put an end to your credit card debt problem.

Remember this is just one of the ways of tackling credit card debt problem; you might devise your approach for doing away with credit card debt problem. Any and every approach is good if it fulfils the objective i.e. eliminates credit card debt problem.

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