When it comes to obtaining a credit card, it’s imperative that one knows the definitions and has a basic understanding of the terms associated with that credit card. The credit card companies are constantly creating new terminology and tweaking the rules of the old terminology to keep the consumer off balance. Here is a look at some basic credit card terms that are associated with using plastic.
The annual fee is an amount of money that must be paid by the card holder each year to the issuing bank of the card. Annual fees are most often associated with cards that have “rewards” attached to them. Try to seek out credit cards without an annual fee, or if there is an associated annual fee, make sure the rewards make the cost worth it.
Annual Percentage Rate (APR)
This is the interest rate that is charged to the credit card holder by the bank on the balance that is owed to the bank. It behooves the card holder to find the lowest annual percentage rate on any outstanding balance so that they may pay less for the money they are borrowing.
The credit line is the amount of money that is offered to the card holder by the bank with which to make purchases. Credit lines can usually be increased or decreased by the bank at any time. A card holder may also apply for an increase or ask for a decrease in available credit. Applying for more credit does not necessarily mean it will be granted.
A finance charge is the amount of money that the bank charges the card holder for the outstanding balance on the credit card. The finance charge is based on the annual percentage rate. The higher the annual percentage rate, the more money will be assessed for the finance charge. The finance charge will appear as a separate line item on a credit card bill.
A late fee is a penalty that is assessed by the bank to the card holder for not making the minimum payment by the agreed upon date. It should be noted that late fees may also trigger higher interest rates on the credit card balance as well. Some banks will waive one late fee as a courtesy.
An overcharge fee is a fee assessed by the bank to the card holder if more than the available credit limit was charged. Some banks will allow the transaction to process that crosses the credit limit before credit is declined on the next transaction. It should also be noted that an overcharge fee may also trigger higher interest rates as well.