Financial Literacy 2007 - Credit cards
credit cards
13 credit card terms found on contracts

6. Credit limit -- The maximum amount the card allows you to borrow.

7. Finance charge -- The charge for using a credit card, comprised of interest costs and other fees.

Read the fine print. You may have different finance charges for cash advances and balance transfers. You may also discover that if you pay off your balance each month, you will escape the finance charge.

Most credit card issuers use the single-cycle average daily balance method to calculate finance charges. Some, however, may use the double-billing cycle.

8. Grace period -- If the credit card user does not carry a balance, the grace period is the interest-free time a lender allows between the transaction date and the billing date. The standard grace period is usually between 20 and 30 days. If no grace period exists, finance charges will accrue the moment a purchase is made with the credit card. People who carry a balance on their credit cards have no grace period.

9. Introductory rate -- Often called the teaser rate, it is the below-market interest rate offered to entice customers to switch credit cards or lenders.

Make sure to pay more attention to the regular APR, which is the interest rate you'll be stuck with after the introductory rate expires.

10. Preapproved -- A credit card offer proclaiming a potential customer is "preapproved" only means that that person passed a preliminary credit screening. A credit card company can still reject the same customer if it doesn't like the applicant's credit rating.

To pay down your debt, you'll want to pay as much of the balance as you can, if not all of it.

11. Secured card -- A credit card that a cardholder secures with a savings deposit to ensure payment of the outstanding balance if the cardholder defaults on payments. It is used by people new to credit or people trying to rebuild their poor credit ratings.

The interest rate on secured cards tend to be high -- between 13 percent and 24 percent -- so shop around if it's your only card option.

12. Universal default -- A policy some lenders apply to credit card users who pay any creditor at least 30 days late. The clause allows the issuer to impose a dramatically higher interest rate. Read the fine print of your contract to see if your lender reserves that right.

13. Variable interest rate -- Percentage that a borrower pays for the use of money, and which fluctuates periodically based on changes in an interest rate index.

Make sure to read the fine print for mentions of other miscellaneous fees. For a complete list of credit card terms, check out our glossary. Here are 17 most-common credit card terms.


Editorial Disclaimer: The editorial content is not provided or commissioned by the credit card issuers. Opinions expressed here are author’s alone, not those of the credit card issuers, and have not been reviewed, approved or otherwise endorsed by the credit card issuers.

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