Credit card companies produce their fair share of jargon and semi-technical terms. Here is a list of the most common credit card terms explained.
Annual fee – Most credit cards these days do not charge an annual fee. However some exclusive top end cards still do but these tend only to be offered to those with very high incomes.
Annual Percentage Rate (APR) – this is annual rate of credit card interest that normal use of your card will attract. The figure is often additionally presented as a monthly amount.
Balance transfer – this is when you transfer a credit card debt (the balance) from one credit card to a balance transfer credit card – normally to secure a low or 0% rate of interest for a given period.
Balance transfer credit cards – these are credit cards that have an introductory rate of interest on balance transfers made to the card, normally within the first three months after taking the card out.
Cash advances – this is when you use your credit card at an ATM or in a bank to withdraw cash from your credit card account. This is the most expensive way to use a credit card as a cash advance will attract the highest rate of credit card interest and an additional charge or handling fee.
Cashback credit card – a type of reward credit card that pays you back a small percentage of spending made on the card. These cards are suitable for people who always pay off their entire credit card balance each month, for those who run a balance the interest rate is much more important than cashback.
Charity credit cards – these are credit cards that are linked to one or more charities. A percentage of your spending will be donated to the charity associated with the credit card. The Amex Red card is an example of a charity credit card.
Credit card charge – card companies levy an additional credit card charge on some types of transaction, including cash advances, using your card abroad and writing credit card cheques.
Credit card cheques – these are cheques issued by your card company that allow you write a credit card cheque to an organisation that does not accept credit cards or to make deposits into your bank account from your credit card. Using credit card cheques is very expensive as they attract a higher rate of interest and an additional credit card charge.
Credit card interest – Card companies levy different rates of interest on different types of transaction. The standard rate of credit card interest charged is the APR, this is the rate that will be applied to normal transactions like buying goods or services. Non-standard transactions will attract higher rates of interest. There may also be special lower promotional or introductory rates of interest.
Credit history – Your credit history is a file that contains a potted history of your borrowing to date. All the loans, mortgages, credit cards and store cards plus hire purchase agreements etc will be included, as well as the details of any missed payments, defaulted agreements and county court judgements against you. It is worth ordering a copy of your credit report if you have never done so as it can be eye-opener.
Credit rating – see credit history
Credit rebuild cards – These are credit cards with high or very high APRs which are designed for people with bad credit histories. The interest rate on balances on these cards is so high that paying the balance off each month is a must. Card companies offer these credit cards to people who they regard as a bad risk. If handled with self-discipline these cards can offer people a way to rehabilitate their credit history and act as a stepping stone to cheaper credit.
Credit reference agencies – These agencies assist credit card companies and lenders in assessing the risk you pose as a potential borrower. The information they supply helps lenders decide whether to lend you money and how much interest to charge you, based on the level of risk they believe you represent. The most well-known are Experian and Equifax.
Credit report – Your credit report is available to you for just a few pounds through one of the credit reference agencies. You will be able to see the same information as banks and credit card companies see when they access your credit history if you apply for one of their products. The best known credit reference agencies are Experian and Equifax.
Foreign exchange commission – this is a loading commission added by the credit card company when it is calculating the cost of purchases made abroad back into sterling. This is commonly around 2.75%.
Foreign currency handling charge – this is credit card charge applied to each foreign currency purchase or transaction that you make abroad. These charges range from 2-3%.
Gold & Platinum cards – these are smarter versions of normal credit cards. At the very top end these cards may have a steep income requirement and a monthly or annual fee to match but otherwise most people will be able to get a Gold or Platinum credit card these days.
Handling fee – this a credit card charge that card companies add to your balance when you carry out certain transactions with your credit card, e.g. using your card abroad, using a credit card cheque or drawing cash from your card.
Interest-free days – the period of time after you make a new purchase on your credit card before interest is charged on that purchase.
Introductory interest rate – this is a special rate of credit card interest that applies to one or more named types of transactions for a limited time. The most common transactions to have introductory rates of interest are balance transfers and new purchases.
Low rate credit cards – These are credit cards that offer a low APR on standard transactions for a given period of time. Low rate credit cards suit people who do not wish to keep doing balance transfers from one credit card to another.
Loyalty credit cards – These are reward credit cards that allow you to build up reward points as you spend, examples include the Tesco Clubcard credit card and the BA Amex Air Miles credit card.
New purchase – when you use your credit card to buy goods or services, say, in a shop or a restaurant, you are making a new purchase. New purchases will normally attract a different rate of credit card interest to other credit card transactions.
New purchases credit card – these are credit cards that have a special introductory interest rate on new purchases credit card spending for a limited time.
Reward credit cards – this is a type of credit card that includes cash back credit cards, charity credit cards, loyalty credit cards and affinity credit cards.
Typical rate – The APR that card companies quote is the normal interest rate that most people applying for a particular card will be offered. However, if you credit history is poor you may be offered a less attractive rate of interest. For a card company to describe an APR as typical at least two-thirds of its customers must receive that credit card interest rate.
Variable rate – Virtually all credit card interest rates are variable as opposed to fixed. This means that card companies are free to change them at their discretion.
