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Credit Card Usage Explained

Understanding Credit Card Terms (Glossary)

by: Debbie Dragon

Understanding credit card terms is a good way to stay one step ahead. If you can read a credit card application and understand the terms of agreement on your card – you'll be in better shape to use your cards responsibly and avoid falling into the credit card debt trap. Here's a glossary of the most common credit card terms to help you with your credit card education:

Adjusted Balance method – this is a formula used by many card issuers to calculate the amount of your monthly payment. Payments you made to the credit card account during the month is subtracted from the balance, and finance charges are added on to get the adjusted balance.

Annual fee – some credit card companies charge cardholders a once-per-year fee to use the card. It may mean the card offers great rewards or travel benefits, or it may mean you've got a credit card for people with poor credit.

APR - the annual percentage rate is the amount of interest a credit card balance is charged, annually. If there is no balance on the card, then there is no interest charge.

Billing Cycle - the length of time between billing statements, which can vary from one month to the next. The fluctuations in billing cycles can change due dates.

Charge back – a transaction that gets returned due to a consumer disputing a purchase made from a merchant; or due to the purchase being noncompliant with the merchant account rules.

Credit line – sometimes referred to as your available credit, the credit line is the amount your credit card company gives you to borrow. When you spend all of it, you've reached your total available credit and can't use your credit card until you pay down the balance.

Finance charges – the total cost of using your credit card, expressed in dollars instead of percentages, including the interest and other fees.

Fixed interest ratecredit cards with fixed interest rates don't fluctuate based on economic conditions. The rate CAN be changed by the credit card company however, if they provide 15 days notice to the cardholder of the change.

Grace period – a specific period of time when you could repay your credit card balance without having to pay interest or other charges. Not all credit cards offer a grace period.

Minimum payment – shown on your credit card statement, the minimum payment is the least amount of money you can send to your credit card company before the due date, to avoid having to pay a late fee for not making the payment.

Monthly periodic rate - part of the formula used to compute someone's credit card bill. It's multiplied by the amount of the outstanding credit card balance to get the interest rate charge for the billing cycle.

Secured credit cards – require the cardholder to give up collateral in exchange for receiving and using the secured credit card. Usually a secured credit card requires a deposit in the amount of the credit limit.

Universal default – a clause that states if a cardholder makes their payment late to a creditor, that credit card company can raise the interest rate on that credit card – and any other credit card accounts the individual has that participates under the universal default, can increase interest rates, too. So one late payment can result in all of your credit card accounts getting interest rate hikes.

Variable interest rate – some credit cards have variable interest rates. Which means they change when economic indicators change. Sometimes this is called a floating rate.
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