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Common Credit Card Terms Explained

Apr 17, 2008
The key to achieving a long and outstanding credit history is by understanding how credit cards work. Credit card terms can often be confusing or hard to define- which leads many consumers to give up altogether. But learning such terms will improve chances of a consumer to stay on top in the credit world- not to mention their own finances.

Any item bought on credit will be subject to the APR- or annual percentage rate. This is just a term used to describe the interest that credit card companies charge from consumers who buy on credit. Likewise, it is good to get the lowest percentage rate possible so that less money is spent paying the credit companies.

The finance charge is a constantly updated number that serves to give the final total of what a credit card holder owes the credit company in question. The finance charge is the annual percentage rate combined with the purchases the consumer made, which finally gives the total in which is to be paid.

It's hard for those with poor credit to obtain a credit card. If they still truly have the need to buy on credit, there is the option of obtaining what is called a secured card. A secured card is linked to card owner's bank account, which will be used as a last resort of the credit card company to recover any debts that have no been paid.

If you've ever gotten a letter in the mail from a credit card company, you've probably seen the term pre-approval. Pre-approval is a term that would imply that the recipient is automatically qualified for a credit card. This can be misleading, however, because this is not the case. In fact, this only means that the recipient has a good chance of obtaining a credit card. This term is one of the most confused terms as a result.

It's important to grasp the concept of a variable interest rate. A variable interest rate is an interest rate that changes based on market conditions. It may fluctuate up and down at will- depending on the economy and the health of finances the industry is currently observing.

Credit card companies also use the term minimum payment. This is a term that is used to describe the absolute lowest payment that a credit card holder can pay without getting into more serious financial problems. This amount is calculated by applying a certain percent to the total of the debt owed by the consumer.

All the previously mentioned terms can be considered as the tip of the iceberg. There is much to learn about the credit world and its terms. It's recommended that education of the subject be taken further to better understand the processes and workings of credit companies. Doing just that can help ensure proper education, which will in turn give consumers more of a chance to have financial freedom that comes with more knowledge.
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