Although everyone knows what a credit card is, recent studies show that almost thirty per cent of credit card users asked didn’t know the meaning of several terms related to credit cards.
This small glossary aims to reduce this percentage by trying to clarify the meanings of some of this terminology, at least the most important words.
APR (Annual percentage rate): As with loans and mortgages, the APR is a number that measures the annual cost of the credit. Depending on the issuer and the type of credit card, it can be a fixed APR or a variable APR. As the name states, a fixed APR does not change through time, as opposed to a variable APR, which varies according to a certain index (an economic indicator calculated on several factors, including inflation). Credit card issuers often show a periodic rate”, which is a reflection of the APR but measured for each billing period.
Transaction fee: Some cards often charge a certain fee for each transaction, that is, every time you pay using your card, a fee is added to the total amount charged.
Annual fees: Most issuers will charge a fixed yearly fee, called participation fee”.
Previous balance: This is the total amount of money that remains unpaid at the end of the previous billing period. Of course, most credit cards issuers will charge a fee over unpaid money.
Credit limit: The highest amount of money your credit card allows you to owe.
Other costs: Some issuers may charge several different fees on several different situations. For example, some of the creditors will charge a fixed amount of money each period even if you do not use the card, and some will charge you if you want to terminate the service.
Of course, there is much more to know about credit cards; but hopefully this small glossary will help you understand the basics.