Credit Card Terminology

Familiarize yourself with your credit card's terms and conditions.

Know the language

It is important to be familiar with all of the terms used in credit card offers and statements so you don't get into deep debt. Here's a list of commonly used credit card terms:

annual fee: The fee some issuers charge to manage your credit card account.
Annual Percentage Rate (APR): The interest rate used to calculate how much in finance charges will accumulate if the balance isn't paid in full by the due date.
balance: Total amount charged on the credit card.
balance transfer: The process of moving an unpaid credit card debt from one issuer to another.
credit history: A profile of your financial life. It tells credit issuers if you pay your bills on time and how much debt you carry. Credit card issuers use this information to decide whether to issue customers credit cards.
credit limit: The maximum amount of credit available on your card.
credit scoring: A method of determining whether or not you can be expected to pay your bills. Factors used to determine your credit score include total credit limit, number of credit cards, amounts owed, and promptness of payment.
finance charge: The interest charged on the amount that is owed.
introductory rate: Credit cards often offer a low introductory rate that switches to a higher variable or fixed rate in order to attract customers. Make sure that you know how long the introductory rate applies and what APR the card will carry after the introductory period elapses.
minimum payment: The minimum amount you can pay to keep the account from going into default. Usually you will be required to pay a minimum payment of two percent of the outstanding balance, but you should try to pay more.
principal: The principal is the amount of money that is borrowed before any interest is applied.
transaction fees and other charges: Many credit cards include other costs. Some issuers charge a fee if you use your card to get cash, make a late payment, or exceed your credit limit.
variable interest rate: With some cards, the APR changes when interest rates or other economic indicators change.