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Credit Card Jargon Buster

If you take a look at the marketing material sent out by the different credit card providers, you’d be forgiven for thinking you were the only one who didn’t understand the jargon used.  But the fact is that many people don’t fully understand some of the terms the card companies use.

It’s incredibly important that you understand the jargon before signing up to a credit card.  That’s why we’ve put together a list of the key terms repeatedly used, with an explanation of what they mean.

Account Number: a unique number assigned to a customer. It can be found on your credit card.

Annual fee: Most credit cards these days don't charge an annual fee. However some exclusive top end cards still do.

APR: The APR, or Annual Percentage Rate, is the overall cost of borrowing if you owe money on your credit card.

Balance transfer: is when you shift a credit card balance to a new card. One credit card pays the balance of the other one, so you owe the new card the balance instead of the old.

Card Issuer
: Your card issuer is the bank, building society or store whose name is on your card (not to be confused with the card type).

Cash advances: when you use your credit card at an ATM or in a bank to take out cash from your credit card account. Cash advances usually attract a high interest rate and can incur a handling fee.

Cashback: when your credit card company pays you back a small percentage of your spending on the card.

Credit history:  your credit history is a record of your credit transactions and includes information on loans, mortgages, credit cards, hire purchases, records of any missed payments, CCJ and defaults.

Credit Limit: The maximum amount you may owe by spending on your credit card.  If you try to go over this limit, your card may be refused.  If you manage to go over this limit, you may also have to pay your card issuer extra charges.

Credit rating: an assessment of your credit worthiness that's based on your credit history.

Credit Scoring: The credit scoring system awards points to the information you provide on your application form, plus the information recorded on your credit report (which is held by a credit reference agency).  It is this system that your card issuer uses to decide whether to provide you with a card or not, and if so what to set your credit limit to.

Foreign exchange commission: this is a commission often added by the credit card company when it calculates the cost of purchases made abroad back into pounds sterling.

Handling fee: this a credit card charge that card companies add to your balance when you carry out certain transactions such as using your card abroad, using a credit card cheque or drawing cash from your card.

Interest: This is the amount you’ll pay on any money you still owe after the interest-free period on your card each month.

Interest-free Period: This is the time between when you buy something using your card, and the date that you need to pay your monthly credit card bill.  This period can be 50 days or more, and is interest-free if you settle your bill in full every month.

New purchases credit card: a type of credit card with an introductory interest rate on new purchases for a limited time.

Outstanding Balance: After making a payment from your monthly bill, this is any money you still owe on your card

Payment Protection Insurance (PPI): An extra fee that you can pay each month which acts as an insurance policy.  If you’re unable to pay your card due to illness or redundancy, this insurance can pay an agreed amount, and therefore help you keep up your payments to the card.

Statement: This is your monthly credit card bill, and shows what you’ve spent in the period, what you owe, the minimum amount you must pat, and the latest date you can pay it.

Transaction: any payment made (or cash withdrawn) by you or an additional cardholder using the card or card number.

Typical rate (aka. ‘representative rate’): the APR that banks quote is the interest rate offered to MOST people who apply for a card. The interest rate you will be offered will be based on your credit history and you won’t necessarily get the typical rate.

Variable rate: This is when  your Annual Percentage Rate (APR) can change based on market conditions.

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