Credit cards: the essential Key terms finally explained

Whether you’re shopping for a new card or getting a handle on an existing one, here are the key terms you need to know to manage your credit cards.

APR – Annual percentage rate

The APR, or annual percentage rate, is the way to compare how much loans cost. It lets you compare the cost of loan products on an “apples-to-apples” basis. Your credit card company must disclose the APR before you agree to the use the card.

To calculate the APR, the interest rate and fees are compared to the amount you borrow and calculated over a one-year period. This allows you to compare the costs of a credit card to a six-month installment loan. It is also why APRs are often different from simple interest rates.

Balance transfer

A balance transfer lets you move an outstanding balance from one credit card to another, sometimes for a fee. The fee normally is a fixed amount or a certain percentage of the amount you transfer.

Credit card companies may offer zero-percent or low-interest balance transfers – for a limited time – to invite you to consolidate your debt on one credit card.

After that, the interest rate on your new credit card may rise, increasing your payment amount.

Credit balance

A credit balance is an amount that the card issuer owes you.

Each time you make a payment, credits are added to your account. It may also be added when you return something you bought with a credit card or because of rewards you have earned or a mistake in a prior bill. When the total of the credits exceeds the amount you owe, your statement shows a credit balance.

Credit card interest rate

A credit card’s interest rate is the price paid for borrowing money.

Daily periodic rate

Some card issuers calculate interest on the account using a daily periodic interest rate, which is used to calculate interest.

Grace period

A grace period is the period between the end of a billing cycle and the date your payment is due. During this time, you may not be charged interest as long as you pay your balance in full by the due date.

Interest rate

A credit card’s interest rate is the price paid for borrowing money. Interest rates are typically stated as a yearly rate, the annual percentage rate (APR). On most cards, you can avoid paying interest on purchases if you pay your balance in full each month by the due date.

Prescreened credit card offer

A prescreened credit card offer is when credit card companies use information from credit reporting companies to make firm offers of credit to you, if your credit history meets the criteria selected by the card company.

Unauthorized use

Generally, unauthorized use is the use of a credit card by a person who does not have the right to use the card.