Menu Menu

Glossary of Credit Card Terms

Definitions for the terms used in this section:

Annual Fee: A yearly charge for card membership. Most cards don't have annual fees. Charge cards and cards that offer airline miles are two notable exceptions.

APR (Annual Percentage Rate): The ongoing annual interest rate associated with the card offer. Often cards have an introductory APR on purchases or balance transfers which is different than the permanent APR. Interest rates can be fixed or variable.

Balance Transfer: The ability to move balances from one credit card to another.

Cash Advance: The ability to borrow cash against your credit line. Cash advances may take the form of an ATM withdrawal or perhaps a 'convenience' check that is provided by the credit card company for this purpose. Cash advances generally have no grace period, often have interest rates that are close to 20%, and usually come with an upfront fee. This is an extremely expensive way to borrow money, and is not recommended in most cases.

Charge Card: A type of card that does not extend credit beyond a single billing cycle: Payment in full is due each month.

Credit Card: A financial instrument that enables the user to buy goods and services today, for repayment at a later date. The card's terms and conditions, including interest rates and fees, dictate the rules for repayment.

Credit Line: The maximum amount of credit that the cardholder is approved to use.

Finance Charge: The interest cost of your credit. Finance charges are broken out separately on your card bill.

Fixed Interest Rate: An APR that does not vary due to changes in market interest rates.

Grace Period: A time period after the purchase of an item, usually 20-25 days, before which interest begins to accumulate on the credit extended for that item. Practically speaking, it means that users who pay their card balance in full each month can avoid interest payments. For these type of users, a credit card with no annual fee can be a convenient alternative to cash purchases.

Interest Rate: See APR

Late Fee: A charge assessed by the card company if payment is received after the due date of the bill. These fees are often as high as $35, so it is important to make at least the minimum payment before the monthly due date.

Minimum Finance Charge: The smallest finance charge assessed IF a finance charge is due in a given month. Usually it is 50 cents.

Minimum Payment: An amount, usually about 3% of the outstanding balance, that is the least that can be repaid each month. Paying less than the amount due will put your account past due, repeated instances of which can harm your credit rating.

Overlimit Fee: A charge assessed by the card company if you exceed your credit line during a billing cycle. You would think that the card would just be disallowed for the charge that would put you over the limit, but I guess the card companies consider it a courtesy to let you go over the limit--- a courtesy which they can profit from.

Variable Interest Rate: An APR that can change over time based on the change in an underlying index. The most common index is the prime rate. For example, if the prime rate was 6%, and the card rate is prime + 5.9%, your rate would be 11.9%. Variable interest rate cards can have lower rates than fixed cards during periods of low rates, but you should be aware that your rate, and thus your finance charges could increase should market interest rates increase.

see also Credit Card Disclosures