Credit Card Terms

Like any specialized industry, credit card jargon reads like a foreign language. Below are some common terms to help with the translation to English. 

Affinity card. This is a credit card that donates money to a charity based on what you spend. Generally, you want to avoid these cards, as they usually have high interest rates. Though you may feel guilted into using one, always know you can donate the money you save on interest when you opt not to use them.

PAR. (Annual Percentage Rate). This is your overall interest rate, calculated yearly, and given as a percentage of your balance.

ATM. (Automated Teller Machine). These are the cash machines you can use to get bills by charging your card. Be careful, as they may charge extra fees.

Balance transfer. This is the act of transferring your debt (‘balance) from one credit card to another. Often, this is done to put transfer balances with high interest rates to cards with lower interest rates.

Credit limit. A credit limit is the maximum amount you can spend or withdraw from your card in a given period, usually a month. Going over your credit limit will result in your card no longer being accepted, and you being charged an over-limit fee.  You're doubly scarred because it messes up your credit report.

Fixed rate. A fixed rate card is one where you are given an interest rate when you sign up for the card and that rate (theoretically) stays the same for the whole time you have the card. In practice, however, interest rates can be changed for almost any reason.

Grace period. The grace period is the amount of time between money being spent and interest being charged. Good cards can have a grace period of up to two months, while bad ones might not have one at all.

Minimum payment. A minimum payment is the absolute lowest amount you can pay back to the credit card company each month. Minimum payments are usually around 2% of your balance. This is poor practice, and often results in heavy debt and interest.

Sub-prime. This is a phrase used in the industry to describe customers who are a bad credit risk, but are seen as worth lending to anyway. If you are identified as sub-prime, you'll start getting offers for loans secured on your property. Thus, they know that if you end up not paying, they'll have collateral they can take.

Teaser rate. A "special offer" low rate used as a sales tactic. You will see many offers with “LOW 4.9% APR” in inch-high letters, followed by “for first six months, 21.9% thereafter” in microscopic ones. Teaser offers can occasionally be worth taking if they don't tie you in for longer than the period of the offer and you know you can avoid the charges and heavier interest later.

Variable rate. A variable rate is one which takes a base interest rate, then adds a certain percentage based on current national interest rates. If interest rates fall nationally, this will benefit you, but this may be risky as any rise in rates will hurt.

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