When the need to obtain the credit card appears, there are a few things that a person needs to consider before deciding on a particular credit card type. Apart from that, one would also have to get acquainted with the most common terminology associated with the usage and terms of the credit card, mostly because it is the only way to maintain the control over your financial situations. If you invest some additional time and research, you will gain insight of the entire process and the overall result will be a safe and effective credit card manipulation.
In order to achieve that, the knowledge of some basic terms related to the credit card regulations and conditions are imperative. One of the phrases likely to appear when talking about credit cards is annual fee. It is actually the amount of money that the bank or other issuing institution is taking from the credit card holder to maintain the account. That price can be different and there are also cards that do not charge any fee whatsoever.
APR or annual percentage rate is the cost of the credit and this amount is usually expressed through percentages. There are two types of APR; fixed percentage rate which is not dependable of the market changes and variable rate which is different every time since it is dependable of the market fluctuations.
Balance transfer is a charge or a fee incurred by transferring unsettled debts from different accounts.
Grace period is a period of time that can pass before the any extra charges (apart from the dept itself) are introduced. This period is set by the issuer and it usually last for 21 to 30 days and during all that time you will have no interest on you dept. Once the period of time expires, the interest starts to accumulate. Some issuing institutions do not allow any grace period at all.
Minimum monthly payment is the smallest amount that a holder needs to pay to prevent the credit card from defaulting. The amount necessary is calculated as 2 to 4% of the entire outstanding balance.
Penalty charges are, as the name implies, the extra fees taken from the holder if one or more than one payment amount is late. The most frequent sanction is annual percentage rate increase.
Prime rate is the percentage designed especially for the creditworthy clients and it implies different, more customer oriented calculating method.
All of the details of the credit card usage and potential will be disclosed in a document called Cardholder agreement, which is a legally binding agreement between the issuer and the client. Since placing a signature on this document places you responsible for all the credit card activities, the wise thing to do is to carefully read the fine print, especially since the most important regulations are located on that part of the document.
Understanding what you are actually agreeing on will have an immense influence on how you will use the credit card and control your finances.