Credit Card Terms are Easy to Learn and Understand Anyone who does not understand how a credit card works - including purchasing items with it, reading the monthly billing statements, and knowing the rules for payments - should not own a credit card. However, credit card terms and details on how to responsibly own a credit card are easy to learn. There are several terms associated with credit cards that often appear on literature that come with credit card applications as well as monthly statements. Learning what these terms are and what they mean can be the difference between achieving and keeping a good credit score and getting into a large amount of debt that is hard to manage. Average Daily Balance The average daily balance on a credit card is the balance on a credit card divided by the number of days in that particular month. This number is then used to calculate the interest that will be charged to the credit card holder on each month's bill. Annual Percentage Rate This rate is often referred to as the "APY." This is the rate that credit card holders must pay as an interest rate in addition to the cost of purchases made with the credit card. Balance Transfer Transferring the balance on one credit card to another is one method many credit card holders use in order to achieve lower interest rates on balances. Cash-Advance Fee Most credit card companies will not allow credit card holders to use their card at an automated teller machine without charging them a fee. The rate of interest on a cash advance, or the flat fee a card holder must pay per cash advance is usually separate and higher than the rate of interest on purchases. Card Holder Agreement This is the agreement that gives all the descriptions about the credit card, the interest rate associated with the card, other fees, and every other detail related to the terms and conditions of the card. Finance Charge The finance charge is the amount of money that the card holder must pay in addition to the total due for purchases. The amount is calculated using the interest rate and the purchase balance on the card. Minimum Payment Each month, the card holder receives a bill. The bill will specify a minimum payment that must be sent to the credit card company by the due date. If there is a balance on the card, or if there have been purchases the previous month, there will be a minimum payment due. The minimum payment is usually a small percentage of the balance, or a minimum dollar amount - usually ten or twenty dollars. Pre-Approval Many people receive numerous "pre-approved" credit card applications in the mail every week. Many of these mailers have the words "Pre Approved" written on them. Pre-approved does not mean that a credit card is guaranteed. It only means that the person who receives the mail has a good chance of obtaining a card. Secured Card A secured credit card is one that is attached to the card holder's bank savings account. The credit card company uses the link between the credit card and the savings account to withdraw monthly payments. This type of account ensures that minimum monthly payments are never missed. Credit card companies often offer this type of credit card account to people who have low credit scores or a history of problems paying their monthly bills. Variable Interest Rate This is the percentage that the credit card holder must pay to hold a balance on their credit card. A variable rate is one that can fluctuate depending on the current national interest rate level. Other Terms There are many other terms associated with credit cards, statements and payments. Complete glossaries of them are located all over the internet, and just about every credit card company has them posted on their individual websites.
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