Looking to apply for a credit card but struggling to understand the terminology? To the rescue, Econnex decodes the 15 key terms that every cardholder must know.
Published on 26/06/2024
By Prachi Singh
Credit Cards Comparison
The world is going cashless and the shift that we have witnessed towards credit cards serves as the best proof of that.
However, let’s admit it- all of us are not as fluent in Credit Card Jargon. That, in turn, becomes a whole new issue when we think of signing up for a credit card and are bombarded with all these terminologies that, at times, sound nothing short of gibberish to us.
Well, not anymore! We’re here to help you wrap your head around all the key Credit Card terms that you must know as a cardholder. Read them below (over and over again, if you please) and get a step closer to making well-informed credit choices.
Wave goodbye to years of confusion and complexities with our one stop guide to Credit Card Glossary:
This is the lump sum amount that you pay every once a year for owning or signing up for a credit card. It is typically charged on the same date when the card was issued to you.
As per market research (which is always subject to variation depending on the type of card you own), you can expect to pay an average annual fee of $152 for Credit card.
However, don’t let the annual fee scare you- it is meant to be offset by the many perks like airline miles, cashback opportunities, and other exclusive rewards that you get to avail while using credit cards.
Annual percentage rate refers to the interest rate or any additional fee that you’re charged on your outstanding credit card balance. So, the good part is that if you choose to settle your dues in time, you can avoid paying any interest. APR is expressed as a yearly rate, allowing consumers to compare the true cost of borrowing across different loan products.
Typically, a rate below the national average qualifies as a ‘good APR’ but do you know what’s the key to it? Well, simply maintaining your credit score, paying your bills on time, and lowering your credit utilization among many other financially wise acts could lead you to a good APR.
Please note that if you wish to work out your monthly interest, simply divide your APR by 12.
Check - Credit Card Tips for Beginners
True to what the name itself suggests, balance transfer refers to the transfer or moving of an existing balance of one credit card to another. It is usually done with the aim of enjoying a lower APR or better terms.
Typically, you’ll be offered a tempting introductory rate that only usually lasts for a fixed period of time, say 6 months to 21 months . However, before leaping hastily into a decision, make sure to be calculative about it.
Chances are that if you don’t settle the balance before the agreed due date and the standard interest rate of the new card is even higher, making the transfer might end up being of no good use.
A Credit Card Number is a unique numeric identifier assigned to a credit card account. It's typically a 16-digit number, although some credit cards may have fewer or more digits. The entire purpose of this number is to serve as a way to uniquely identify your account whenever you’re making any purchases.
You’ll find it printed on the front of the card and encoded on the magnetic stripe or chip for card-present transactions. Always remember to only share this number with trusted merchants or individuals to prevent any unauthorized use.
A CVC, short for Card Verification Value, is nothing but a three digital Security verification code, printed on your card (typically on the back). Quite evidently, it is used by merchants to verify that the person making the purchase actually has the card in possession.
The CVV isn’t stored on the magnetic stripe or chip, making it harder for someone to make a fraudulent transaction without physically having the card. FYI, it is also referred to as CVV2, CVC, or CSC.
A Credit Bureau is an agency responsible for collecting and maintaining information about the financial history of a cardholder. With this very information, the credit score and in turn, the credit report of the borrower is calculated.
So all in all, the downright purpose of a Credit Bureau is to help credit lenders make informed decisions about whether to lend money to a borrower based on their past credit behavior.
In Australia, the main credit reporting agencies are Equifax, Experian, and Illion.
Giving complete justice to its name, a Billing cycle or statement cycle is defined as the time period between two statement dates. If we speak in a more precise manner, it is the time interval between the end of one statement/billing date to the next one.
Typically, the billing cycle is set at one month but is always subject to some variation here and there (depending on the credit provider). If you see, the accrued charges during this period are recorded and subsequently invoiced on the statement date.
A credit limit is the maximum amount of credit that a financial institution extends to client (or maximum amount he allows you to borrow) through a credit card. The lenders set this limit after closely assessing your financial status, in and out.
Hence, before you’re assigned a credit limit, your creditworthiness is closely examined using parameters such as credit score, history, and income. You also have the option to increase or decrease your credit limit as you please.
The term that you’re always probably hearing, Credit Score is like a report card of your creditworthiness. The credit reporting agencies like Equifax, Experian, and Illion evaluate the borrowers’ financial behavior across various parameters such as payment history, credit utilization, length of credit history, types of credit in use, and frequency of new credit accounts.
After close assessment, they assign the individual a credit score that best reflects his/her creditworthiness and in turn, helps the lenders evaluate the risk of extending credit or lending money.
Explore Benfits of Credit Card Comparison
When you fail to repay your credit card dues (or minimum payment) on time, the fee that you’re charged as penalty is called a late payment fee. Not just that, it can also end up taking a toll on your credit score.
Moreover, chances are that if you forget to repay your dues by more than 30 days, the issue could even be reported to a credit bureau.
In case you’re wondering, a late payment fee can never be more in value than the minimum payment due.
Minimum payment, quite literally, is the minimum/smallest amount that must be paid within a specific time frame (typically at the end of the month) to keep an account in good standing.
It is recommended to make your minimum payment by the due date to steer clear of paying any late payment fee.
A grace period is a set amount of time during which you can pay your bill without facing any penalties, such as late fees or service interruptions, after the official due date has passed.
Typically, you’ll come across credit cards that offer a grace period between the end of the billing cycle and the payment due date. If you pay your balance in full within this time, you won’t incur any interest charges on purchases made during the billing cycle.
A credit report, in complete justice to its name, is a detailed report/summary of an individual’s credit history, prepared by a credit bureau.
It helps lenders and financial institutions assess an individual’s creditworthiness when they apply for credit. So, if we keep the long story short, maintaining a good financial shape (reflected by a credit report) opens the doors to availing desired credit for you.
The closing balance on a credit card defines the total amount you owe at the end of a billing cycle or statement period. It typically includes all purchases, cash advances, fees, interest charges, and payments made during the billing period.
Wish to avoid paying interest on purchases made during the billing cycle? Pay off your closing balance by the due date and you won’t have to worry about it.
An additional cardholder is someone authorized to use a credit card account but not the primary account holder.
This person receives a separate card linked to the main account, and can make purchases on that account. However, the primary account holder remains responsible for paying off the entire balance, including any spending by the additional cardholder.
It might be convenient to manage family finances by adding an additional cardholder but be cautious- the primary account holder is the one legally responsible for all debts accrued.
Now that you know all the key terms that you’re likely to hear when signing a card-member agreement, we’re sure you’re in a much better position to make confident credit decisions. Or maybe, even get a credit card issued for yourself (if that’s something which has been on your list for a while).
Econnex is committed to making finding the right credit card a matter of a few clicks for you. You can compare a vast variety of low-rate credit cards available on our panel at ease, apply for the best available fit as per your spending needs, and receive your new card at the earliest. Sign up to enjoy a new sense of financial freedom with Econnex!
