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Credit
Card Terms are Easy to Learn and Understand
Anyone who does not understand how a
credit card
works - including purchasing items with it,
reading the monthly billing statements,
and knowing the rules for payments - should not
own a credit card. However, credit card terms and
details on how to responsibly own a credit card
are easy to learn.
There
are several terms associated with
credit cards
that often appear on literature that come with
credit card applications as well as monthly
statements. Learning what these terms are and what
they mean can be the difference between achieving
and keeping a good credit score
and getting into a large amount of debt that is
hard to manage.
Average Daily Balance
The
average daily balance
on a credit card is the balance on a credit card
divided by the number of days in that particular
month. This number is then used to calculate the
interest that will be charged to the credit card
holder on each month's bill.
Annual Percentage Rate
This rate is often referred to as the "APY." This
is the rate that credit card holders must pay as
an
interest rate
in addition to the cost of purchases made with the
credit card.
Balance Transfer
Transferring the balance on one credit card to
another is one method many credit card holders use
in order to achieve lower
interest rates
on balances.
Cash-Advance Fee
Most credit card companies will not allow credit
card holders to use their card at an automated
teller machine without charging them a fee. The
rate of interest on a
cash advance,
or the flat fee a card holder must pay per cash
advance is usually separate and higher than the
rate of interest on purchases.
Card Holder Agreement
This is the agreement that gives all the
descriptions about the credit card, the interest
rate associated with the card, other fees, and
every other detail related to the terms and
conditions of the card.
Finance Charge
The
finance charge
is the amount of money that the card holder must
pay in addition to the total due for purchases.
The amount is calculated using the interest rate
and the purchase balance on the card.
Minimum Payment
Each month, the card holder receives a bill. The
bill will specify a
minimum payment
that must be sent to the credit card company by
the due date. If there is a balance on the card,
or if there have been purchases the previous
month, there will be a minimum payment due. The
minimum payment is usually a small percentage of
the balance, or a minimum dollar amount - usually
ten or twenty dollars.
Pre-Approval
Many people receive numerous "pre-approved" credit
card applications in the mail every week. Many of
these mailers have the words "Pre Approved"
written on them. Pre-approved does not mean that a
credit card is guaranteed. It only means that the
person who receives the mail has a good chance of
obtaining a card.
Secured Card
A
secured credit card
is one that is attached to the card holder's bank
savings account. The credit card company uses the
link between the credit card and the savings
account to withdraw monthly payments. This type of
account ensures that minimum monthly payments are
never missed. Credit card companies often offer
this type of credit card account to people who
have low credit scores
or a history of problems paying their monthly
bills.
Variable Interest Rate
This is the percentage that the credit card holder
must pay to hold a balance on their credit card. A
variable rate
is one that can fluctuate depending on the current
national interest rate level.
Other Terms
There are many other terms associated with credit
cards, statements and payments. Complete
glossaries of them are located all over the
internet, and just about every credit card company
has them posted on their individual websites.
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