Credit Card FAQ

How to Understand Credit Card Technology?

20 June 2012 by CreditCardsCo™

In order to understand what you're getting yourself into when you open a new credit card, you really need to understand credit card terminology. Many people feel overwhelmed and confused at the many terms used when it comes to credit. This leads them to give up and just do what the creditor asks them to do.

Learning to understand credit card terminology might take a bit of an investment in time at first, but it will pay off when your statements come and you understand exactly what is going on. Understanding what the terms actually mean when you read them could, in fact, change the way you view and use your card.

Why Does It Matter?

It's important to know what the words mean when you're working with a creditor to understand what you're obligating yourself to. Ignorance of the rules will not get you out of paying when the time comes. Reading the fine print is important to help you find out exactly what the creditor expects and will help you to be prepared for what's in store when the bills come due. Knowing what to expect might even change the way you decide to spend money using the credit card.

Many people charge things on credit cards without really realizing the details of what will happen when the bill comes. Since credit cards make it easy to make purchases by being so readily available in our wallets, many of us don't take the time to calculate what our monthly payments will be before we make a large purchase. Reading the fine print and beginning to understand credit card terminology will help you to learn the lingo and be prepared for what's coming on your next bill.

Credit Card Terms

You may find yourself needing to read over your credit card statement with a dictionary nearby. While it's still recommended to have a good reliable source to give you up to date information on the meanings of certain terms and how they affect you, it's also good to become familiar with what a few basic, commonly used credit card terms mean. This will help you in general to understand credit card terminology.

APR is probably the very first term you need to become familiar with. APR, or annual percentage rate, is the yearly interest rate charged on your outstanding balance. Your APR determines what you will be paying. Choose a credit card with the lowest APR you can find, but be sure to watch out for hidden fees, or a potential increase in interest rate after a given time period. This is called an introductory rate, meaning you're getting a very low rate for a certain time period and then the rate increases afterwards. The creditor can tell you up front what the new rate will be.

A variable interest rate is a rate that changes depending on the market. Rates are usually tied to the prime interest rate, and when that rate changes, yours will follow suit, for better or for worse. You should avoid these types of rates when trends are showing a steady increase, and if you do get one, be prepared that the rate can change periodically. If you have a variable interest rate, be sure you find out what the rate floor is (lowest amount it can go) as well as what the ceiling (highest the rate is allowed to go) is from the creditor. Having a variable interest rate makes it even more important to understand credit card terminology.

The annual fee is the amount the creditor will charge you for using their card each year. Some cards do not have an annual fee, so be sure to shop around before you settle on one that requires it.

These are just a few of the more important terms to become familiar with because they directly impact your payment. Be sure to do your research on all the creditors available to you before settling on one, and before signing on the dotted line, be sure you understand credit card terminology.

Other Readings

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