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APR? Transfer fees? Negative Balance? Cash advance? Grace Period?
Often, credit card lingo feels like coding that you have not yet cracked. The more you look at the statement, the harder it becomes to understand it.
Oh, how you wish for someone to elucidate the terms without making it seem like you're reading a Google translation from a foreign language.
Well, your wish is our command! ;)
Here are some A to I credit card terms and conditions defined that even a complete financial novice may understand.
1. APR (Annual Percentage Rate)
It’s the interest rate you have to pay if you fail to clear your full card balance every billing period.
Different companies charge various APRs like:
- Introductory APR
- Penalty APR
- Purchase APR
- Cash Advance APR
- Balance Transfer APR
Your APR will most likely depend on your perfect credit history and creditworthiness.
2. Annual (Maintenance) Fee
As the name suggests, it is an annual fee for maintaining the credit account.
Note: Not every card comes with an annual maintenance fee. It depends on the service provider.
3. Additional Cardholder
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It’s an authorized user added as a secondary account holder by the primary cardholder.
- Your fair credit score,
- Credit rewards and bonuses,
- And your good credit history.
The additional cardholder can enjoy the perks of your credit without being liable or responsible for negative reports.
4. Balance Transfer
It is a transfer of balance you initiate from one credit card (with debt) to another card (with probably 0% introductory APR).
- It is a smart option to pay off debt,
- The debtor can have an extended time to clear debt with a balance transfer.
Note: However, you might not be able to proceed with the transfer within the accounts from the same service provider.
5. Balance Transfer Fee
Every good thing has a cost, though!
As a result, banks or credit card providers charge a percentage (between 3% and 5%) for each transaction.
Alternatively, they can also charge a minimum ($5 to $10) balance transfer fee for each request.
6. Balance Transfer APR
It is the interest rate that is applied to the transfer. It might be of two types:
- Variable
- Fixed
Other times, the card might already have an introductory APR that applies to all your balance transfer transactions.
7. Billing Cycle
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It is the period between one closing statement to another.
Simply expressed, the company or bank will send you an invoice or bill requesting payment of the balance in advance of the due date.
The CARD act states that it must be at least 21 days. You can check your billing cycle and due date on your statement.
8. Business Credit Card
Except for the fact that the corporation, rather than an individual, applies for them, they are comparable to personal credit cards.
Business credit cards usually offer :
- Higher credit limit,
- Increased benefits,
- Detailed credit report.
It is ideal for small businesses to separate personal and corporate finances.
Here’s how it is different from a credit card:
9. Business Credit Score
A corporate credit score rates a business in terms of repayment, trust, and funding.
- A business credit score usually lies within a 0 to 100 scale.
- A higher (80 to 100) score lowers the risk level of your business.
- Whereas a lower (0 to 49) score increases your business’s risk level.
The top business score reporting agencies are Experian, Dun & Bradstreet, and Equifax.
10. Consumer Credit Score
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It is a number that decides the creditworthiness of the applicant.
- The consumer credit score usually lies within the 300 to 900 range.
- A higher score implies the buyer is likely to pay the bills and repay loans timely.
- A lower score gives a bad impression to the lenders that the buyer isn’t responsible enough.
Equifax, Experian, and TransUnion are Canada's top three credit reporting agencies.
11. Cash Advance
As the name suggests, it is the amount you can borrow on your card (up to the allowed credit limit).
Interest is incurred from the day you borrow the money because there is no interest-free period on a cash advance.
12. Cash Advance Fee
Yes, it does come with a price!
The withdrawn advanced cash will be subject to a service fee from the bank.
The credit cash advance fee may be charged per transaction or as a percentage of the amount borrowed.
13. Cash Advance APR
It is the interest rate charged on your cash advances.
However, it is usually higher than a standard interest charged on unpaid or outstanding balances.
14. Credit Limit
It is the maximum credit you can use on your credit card. However, a credit limit works more like a spending limit.
Toni Southam advises consumers to use only 30% of the total credit limit to keep their credit utilization low.
15. Credit Utilization
It is the credit you use as compared to the credit you have.
For instance, if your credit utilization ratio is 35%, it implies you’re using 35% of the available credit.
Ideally, the ratio should be below 30%.
16. Credit Report
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It summarizes your credit history, timely payments, creditworthiness, repayments, and overall credit profile.
You can get either an Experian, TransUnion, or Equifax credit report.
17. Co-Signer
A co-signer is someone who guarantees to repay the debt if you are unable to, such as a parent, close relative, or best friend.
18. Deposit (Secured)
In the world of credit, a deposit is a sum that a person must pay as collateral when applying for a secured credit card in Canada.
19. Dispute
A credit dispute occurs when you request that your service provider correct inaccurate information on your credit report or bill.
Related Article: 7 Credit Errors That Can Smash Your Good Credit History
20. Due Date
It is the exact date before/by which you must repay your credit card bill (the amount should be in the account).
21. Dormant Account
A dormant account is the credit account with no transaction activity for over a 24 month period.
22. Foreign Transaction
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The transaction initiated with a foriegn currency/US dollars. Or, a transaction made outside of the country where the merchant deals payments in a foreign currency.
23. Foreign Transaction Fee
As the name suggests, it is the fee charged for every foreign transaction you make.
24. Fixed APR
The APR that doesn’t fluctuate or changes with time or index.
- Home/Mortgage Loans
- Automobile Loans
- Credit Card Loans
And several other services provide fixed APR to clients.
25. Fraud Alert
It is a security alert sent to the customer telling him or her that their identity and credit information may have been stolen or are at risk of being stolen.
26. Grace Period
It is a period between the due date and the end of your card’s billing cycle. The majority of creditors don't typically charge interest fees during a grace period.
Note: The grace period doesn’t cover cash advances or balance transfers.
27. Hard Inquiry
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When a prospective lender looks up a consumer's whole credit report, a hard inquiry is initiated.
A single inquiry once in a while or several inquiries made over a short period can have very little to no effect on your credit score.
However, having a lot of hard inquiries over a short period of time will hurt your score.
28. Inactive Account
Your credit account which hasn’t been in use for more than a year can be termed as an inactive account.
29. Interest Rate
Interest rate is the charge fee on your credit for cash advances or other purchases.
30. Introductory APR
It is like a special time offer provided by the lenders for a set time.
For instance, you might get a 0% introductory APR for three months. However, once it ends, the standard rate will be applied.
31. Identity Theft
The stealing of one’s personal information or credit data for fraudulent purposes.
The hackers can steal your card number, login details, and other credit data to steal money from your account.
Related Article: Tips To Protect Your Money From Data Breaches
Final Thoughts
Credit terms can sometimes be quite overwhelming to understand.
Often it feels like you’re reading a glossary of credit in a foreign language. Not anymore!
After reading this guide, not only you can learn about several new terms but will also be able to fully comprehend their meanings.
Lastly, stay tuned for the “Credit Terminology part 2” with J to Z terms!
