Now that you’re ready to apply for your first credit card, you need to spend time considering your choices. One crucial step in searching for the right student credit cards is to read the fine print. But since this will be your first credit card, you may find that some of the terms are quite vague.
First Credit Card Terminologies
This article presents some of the basic credit card terminologies that you need to understand before signing up your application. Familiarizing yourself with these terms can help you in determining which credit card would be your best choice:
Annual Percentage Rate. The APR is the rate of interest applied to your charges expressed in an annual percentage. For example, if your credit card APR is 15%, divide into 12 months and you get 1.25%. That means, an additional 1.25% will be added to your monthly balance if you cannot pay it in full on or before your due date of payment.
Interestingly, some credit card companies impose three kinds of APRs: the first APR applies to new purchases; the second, to balance transfers; and the third APR for cash advances. Make sure that you are clear about the exact rate applicable to each transaction.
Variable Rate. If the interest rate is a Variable or Adjustable one, your current APR can change or increase depending on the Prime Rate. Presently, the New Law does not impose a cap limit on Variable Rates so your initial low APR can still double or triple, depending on your Issuer.
Annual Fee. This is the fee that you must submit on a yearly basis to keep your account active. Some credit cards carry no annual fees but secured credit cards usually do since these cards are especially offered to people with no credit or bad credit history.
Credit limit. The credit limit or credit line defines the maximum amount of charges a cardholder can charge to his/her credit card. The size of the credit limit and the usage can significantly affect a person’s credit score. Ideally, cardholders must keep their credit limit usage minimal (no more than 30% – 40% of available credit) to get a high score.
Due Date. This is the date that you are expected to submit your payment. Failing to submit your payment on your due date means paying late penalty and interest rate charges. Remember that late fees can badly pull down your final credit score.
Balance Transfer. These are charges from another credit card that have been transferred over. Some cardholders may choose to transfer balances to enjoy the lower interest rate or 0% APR that the other credit card offers.
Cash Advance. When you use your credit card to borrow or withdraw cash from an ATM, it is called a cash advance transaction. Keep in mind that cash advance transactions have no grace period so you automatically incur the cash advance APR the moment you make the withdrawal. Aside from the APR, you may also be charged with the cash advance transaction fee.
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