Credit Card Terminology

As the world becomes more technologically advanced, more and more terms, abbreviations and jargon are coming into our lives. With all this new language, it can be hard to make sense of things. This is as true of credit cards as it is of anything else. And it's important because it directly affects your life. Here are some of the terms you are likely to come up against when applying for a card.

Annual Percentage Rate

APR - This is your Annual Percentage Rate. The annual percentage rate is the amount of interest you must pay on your purchases. Of all the forms of credit available to people, credit cards tend to have some of the highest rates. You can avoid having to pay this APR if you make all of your payments in full and on time every month. The APR interest only begins to accrue if you carry a balance forward through the end of a payment period. There are usually a few different APR's on each card. There is the general APR that applies to purchases made with your card, but there is also usually a separate one for cash advances, balance transfers, or payments made late. These APR's tend to be higher than your general APR.

Prime Rate

Prime Rate - The Prime Rate is the magic number used by all lending agencies and associations throughout the country to determine their individual interest rates. The prime rate is published in The Wall Street Journal and changes monthly. If a credit card company gives you a variable APR they typically take the prime rate published from the previous month and add a percentage to it. This means that your APR changes month to month.

Minimum Finance Charge

Minimum Finance Charge - This is the minimum charge that will be imposed during a billing cycle. This typically only applies when you carry over a balance from month to month. Paying off your bill in full and on time can eliminate many charges such as this from your account.

Annual Fees and Other Fees

Annual Fees - This is exactly what it sounds like. This is the amount of money a credit card company charges you per year to use their card. Many companies are now offering cards with no annual fees in order to attract customers. It's always good to read the fine print on these offers, though. You will find that many companies reserve the right to begin charging annual fees to your card without notifying you. It's always good to keep an eye on your purchase record to check for such activity. Other Fees - There are other fees that are sometimes imposed by companies. Sometimes there is a transaction fee for cash advances, a balance-transfer fee, a late-payment fee, or an over credit limit fee. These are fees that are applied when you perform any of these actions. That means that if you take a cash advance (for example) on your credit card, not only are you subject to a higher APR on that cash advance, you may have to pay a fee right upfront just to get the cash. It's similar to the fee you are charged when you use an ATM that is not a part of your banking network. These are some of the major terms to be aware of when applying for credit cards. It's a good idea to get solid, working definitions in your head before doing anything else. The more you know, the better equipped you are to make a good decision.