The world of money is filled with complex financial terms that are hard for the average consumer to understand. However, many of these terms are important to know. With credit cards, not understanding the terminology credit card companies use can end up costing you thousands in interest.
We compiled a list of 5 top credit card terms you must know in order to be an informed consumer:
Most credit cards charge an annual fee. This fee is a yearly charge that the credit card company charges you for having access to their credit cards. Thankfully, there are many credit cards that offer no annual fee throughout the life of the credit card
APR (Annual Percentage Rate)
APR is simply the interest rate lenders charge. The APR includes all fees and costs (except for the annual fee) that must be paid by a consumer for borrowing money. The APR can be different for balance transfers or other special offers.
A cash advance with a credit card is when you use your card to withdraw money from an ATM. Typically, lenders will only allow you to withdraw a fraction of your credit limit with a cash advance. With cash advances, you will typically see 2 fees. A base fee for withdrawing money from the ATM, along with an interest fee which can be calculated on a daily basis in some cases.
The minimum payment is the amount you must pay to your lender in order to prevent you from defaulting. Making the minimum payment will keep your credit card in good standing with the lender. Instead of avoiding making payments altogether, try to pay the minimum each in order to avoid overly expensive interest.
It is important to watch out for your credit limit. Although ideally, you should only use 30% of your credit at any given time, there might be a time when you need to use your credit card for an important purchase. If you spend above your limit, your credit card company may charge you a fee of $25-$40.
As a consumer, it’s important to understand some of the technical terms lenders and credit based companies use. By educating yourself and being vigilant about your credit card, you can save yourself from large headaches down the road.