10 Important Credit Card Terms Explained - CCCU
Thursday, January 9 CCCU
Credit Card Education: Credit Card Terms You Need to Know
What’s APR and what’s a grace period? Whether you’re a seasoned card holder or applying for the first time, it’s important to know a few key terms when opening a new account.
When it comes to your personal finances
, responsible credit card use is a critical component of your overall monetary health. Whether you already have a credit card or are considering applying for one, you might be scratching your head as you try to figure out what everything means.
What’s an APR, and is it any different than interest? What’s a grace period, and what does it have to do with an interest rate? What are all the different fees? Find answers to these common questions and more around the fundamentals of using a credit card.
10 Credit Card Terms Explained
It’s important to have a thorough understanding of what you’re signing up for. So, we always discuss the following credit card terms with our Portland credit union members before you open a line of credit so they feel secure and are aware of how their cards will work. Here ten credit card terms explained by CCCU experts.
1. Credit Score
Before you apply for a credit card, you should know what a credit score is, which is determined by your loan payment history, your debt-to-credit ratio, and the age of your accounts as well as other factors. This is an important term to know because lenders will base your interest rate on your credit score and credit history
. A score between 640 and 699 is average, 700 and above is good, and any score above 740 is excellent. Credit scores below 640 are generally considered risky for lenders. If you have a low score, you may get approved for a line of credit, but there’s a good chance you’ll get a higher APR.
2. Credit Limit
Your credit limit is the amount you’re approved for when you apply for a credit card. In other words, it’s the maximum balance you can spend. Cards with high credit limits are usually offered to people with very good credit scores. Sometimes, you can request a credit limit increase from your lender after a period of responsible use. In other instances, a lender may automatically raise your credit limit if it’s in good standing.
APR stands for annual percentage rate. It’s the amount of interest you will accrue on a credit card within a year if you don’t pay your balance
in full each month. In terms of credit cards, APR and interest are the same things. After the grace period, the rate is applied to purchases, cash advances, and any penalty fees. Our Portland credit union offers below average rates to help our members succeed financially.
4. Grace Period
A credit card grace period
is the time in which interest won’t be applied to purchases and cash advances. Grace periods are at least 21 days and typically not much longer than 30 days. You don’t have to pay your balance in full before the end of the grace period, but if you don’t, you’ll begin to accumulate interest on what you haven’t paid off.
5. Annual Fee
Some credit cards have annual fees
. These are charged once a year and can range from $20 to $500. Some credit accounts have monthly maintenance fees as well. Many lenders, including Consolidated Community Credit Union, offer credit cards with no annual or monthly fees.
6. Balance Transfer
A balance transfer
involves moving debt from a high-interest account into a low-interest account, which is beneficial for those with substantial debt who aren’t able to pay their balances in full. If you carry debt from multiple personal loans or lines of credit, you may want to consider transferring your balances to a credit card with a low APR. Some lenders charge for transfers, but at CCCU, balance transfers are free.
7. Revolving Balance
Your revolving balance is the portion of your total credit card limit that you’ve spent and have yet to pay back. Unless you pay off your entire balance every month, you will accrue interest on your revolving balance. If your credit card is paid in full, you won’t have a revolving balance unless your account has an annual fee or other maintenance charges attached to it.
8. Minimum Payment Due
The minimum payment due on your credit card statement is the lowest amount you’re allowed to pay toward your revolving balance. If you pay less than the minimum due or don’t pay at all, your line of credit will be delinquent –– essentially meaning you’re in the red until you make a sufficient payment. The minimum amount ranges among credit cards, but in most cases, it will be between 1% and 6% of the total balance.
9. Due Date
The due date on your credit card statement is the latest day you can make a payment. You can pay the minimum amount due, the balance in full, or another amount in between the two. To make sure your payment processes in time and you don’t incur late fees, we recommend scheduling it at least a day before it’s due. Most lenders will also allow you to set up automatic monthly payments.
10. Late Payment Fee
A late payment fee will be added to your credit card balance if you don’t pay at least the minimum amount owed by the specified due date. Late fees are usually around $35. When you make your payment after the due date, you’ll owe the minimum due plus the late fee.
Visa credit cards from Consolidated Community Credit Union
At CCCU, we offer both personal and business lines of credit
. With a Visa credit card from our Portland credit union, you’ll get a low APR and earn airline miles, cash back, and gift cards as you spend. Our credit cards have no annual fees, and balance transfers are always free. Apply today