Common Credit Card Terms You Should Know Before Diving In 2023

Just like any other things that require signing up, the normal thing to do before applying for a credit card is to be conversant with the basics. To avoid dramatic scenes or get shocked by any action taken by the credit card company. So, our advice? Study the credit card terms thoroughly to avoid 'stories that touch'. In this piece, we will be sharing with you some of the credit card terms. Let's dive into it.

Introduction to Common Credit Card Terms

First fall, what are credit card Ts and Cs (Terms and Conditions)? As you probably know, Terms and Conditions are formal statements of the companies' guidelines as well as rules that help govern the relationship between a company and its customer. In this case, between the credit card companies and the cardholders.

Basically, as far as terms and conditions owned by credit card company are concerned, the aim is to clearly state the interest and fees which are charged as a cardholder. The detailed document, in this case, spells out the detailed information about using the card. For instance, these terms and conditions yield the credit card's annual percentage rate (APR) which is meant for purchases, APR for balance transfers, there is also an APR designed for defaults (penalty), there's also an APR for advances. This conditions also clearly highlights the grace period, the minimum interest, cash advance, returned payment, foreign transaction fee, returned payment fee, and last but definitely not the least, the annual fee.

In a situation where the credit card company offer reward program for the cardholders, there is a different document drafted up separately. This separate document clearly explains the reward programs as well as the basic rules attached to the reward program. This also includes the different transactions that attract the reward. It also talks about the transactions that don't qualify as a reward-earning transaction - a perfect example of this is the balance transfers. in a situation where the credit card company is offering a promotional offer. A perfect example is signup bonuses and a low introductory rate. Lastly, these terms and conditions clearly explain how credit card holders can qualify for this reward.

Asides offering dollar amounts as well as percentages for interest rates and fees attached to the credit card, The Ts and Cs (terms and conditions) explains how the credit card companies will calculate the credit card holder's balance. What this simply means is that they'll use the daily balance which will have to include the recent transaction method which is still been used as well the current transaction.

That's not all, the Terms and Conditions also describe the actions perpetrated by the cardholder which are capable of triggering the penalty APR. For instance, if you miss the payment deadline. Also, it clearly explains the way credit card companies will deduct or apply payments to their cardholder's account. These applied payments also include options such as attaching certain payments to your credit cardholders' account which also include options like applying payments to lowest APR balance. This then grows up to the minimum payment due. Finally, it is then applied to the highest APR balance.

Certain Considerations for Card 'Ts and Cs'

There are usually special considerations placed on credit cards by the credit card companies. It is made available when the consumer signs up for the credit card. And as soon as the card is issued to the new card, the terms and conditions are mailed to the user.

As a cardholder, you've got to read these terms and conditions thoroughly to understand what and how to handle the transactions on this card. Also, when you receive the card, you need to look out and understand the fees as well as the interest charges that might be attracted by the transactions made with this card. Finally, cardholders should read the terms and conditions to know how they can qualify for the rewards and any other promotional programs placed on these cards by the credit card companies.

Some Credit Card Terms Everyone should know

1. Annual Fee

Just as the name implies, the annual fee is a term used for the fee charged to the cardholder for using the card and taking advantage of the benefits. Usually, this fee ranges from $25 - $500 yearly depending on the type of card as well as the credit card company in question. As a consumer, you want to look for a credit card company that offers the consumer a low annual fee.

2. Annual Percentage Rate (also known as APR)

Unlike the Annual Fee, the APR (Annual Percentage Rate) is the annual cost of borrowing money on that credit card. There are lots of APR attached to a credit card. Some of these APRs include APR on cash advances, purchases, penalties/defaults, and cash advances. Meanwhile, credit card companies charge the APR on purchases the same as the interest rate which is charged once the grace period was over. To avoid most of the fee attached to this term can be avoided by either staying off borrowing credit from the card or avoiding default.

3. Credit Score

The Credit score indicates how possible it is that cardholders can pay back the money that has been loaned to them. The credit score actually determines whether or not you will be given the loan in the first place. If you don't have a high credit score, the credit card company would probably avoid loaning you any amount of money. You need to understand that everything you do and every transaction you make with your credit card directly affects how high or low your credit score is. They look at your payment history, as well as other factors are known to be associated with your debt history. That is why we are reiterating that you use your credit card carefully. After all, the credit score directly affects other parts of your life as far as loan is concerned. For instance, a bad credit score means you might not be able to get a mortgage and/or a car loan.

4. Minimum Payment

Just as the name implies, cardholders have a limited amount they can transact with every month. What I mean in essence is that this term is used for the lowest amount consumers can transact monthly while trying to remain in a good stand with the credit card company. This amount is mostly between 1% to 3% of the outstanding amount you have on your card. Having a low balance won't stop you from being able to access a certain percentage of the balance on your credit card or $25 - whichever is seen as the highest. Did you know that credit card debt is undoubtedly the costliest debt you have, and if what a credit card holder can pay monthly is that minimum payment which we talked about, what that simply means is that it will take a long time to pay off the bill?

5. Security Code

Security code (CVV - card verification value) which is featured on the debit or credit card is used mainly for all "card-not-present" transactions like your regular online transactions. It's simply a way of securing the credit card even better. See it as a level of security to make sure that the cardholder is the one making the purchases. As you've probably noticed, this also protects you from credit card skimmers who might try to use your card to get something online without your permission.

6. Dispute

Next term we need to look at is known as "Dispute". In case you experienced wrong billing, or someone just hacked your card, what you need to do is write to the credit card company who issued the card to you. The address to forward the mail to is listed on your statement. Once you receive the first statement, you need to go through it to check for error. If you notice any error, you need to call the attention of the credit card company within 30 days after receiving the statement of account. These credit card companies will look into it and correct the errors if truly, there are any.

7. Late Payment Fee

If as a cardholder, you didn't pay for the minimum payment by the time it is due, you are given the late payment fee. This fee ranges between $15 and $37. It also based on the balance on your credit card. If you've got a low balance, what you'll have is a large percentage of the total balance. In a situation where one payment goes for 60 days without been paid, the APR which you will be charged will be flipped over to the Penalty Rate - This is usually between 27% to 30%.

8. Revolving Balance

This revolving balance on credit cards indicates the amount of your credit limit which you've used and haven't paid back. This is the part of your credit limit on which cardholders are required to pay interest daily because you are yet to pay the previous one. In case you pay your credit card balance completely every month, revolving balance won't exist on your card.