Credit cards are a popular choice for shopping due to their numerous benefits, including rewards, cashback, and discounts. However, to maximize these benefits and manage your finances effectively, it’s crucial to understand the key terminologies associated with credit cards. Let’s explore some essential credit card terms to help you make informed decisions.
Revolving Credit
Revolving credit is a flexible borrowing agreement where you can choose to repay the borrowed amount in full or partially. You can continue using the credit up to a predetermined limit, provided you make timely payments and keep the account active.
Credit Limit
Your credit limit is the maximum amount you can spend using your credit card within a billing cycle. This limit can change based on your card usage and payment history. Timely payments may lead to an increased credit limit, while late payments can result in a decrease or no change.
Balance Transfer
A balance transfer allows you to move your outstanding balance from one credit card to another, usually to benefit from a lower interest rate.
Billing Cycle
A billing cycle, as defined by Kotak Mahindra Bank, is the period between two billing statements, typically about a month long. The duration can vary slightly due to the differing number of days in each month.
Due Date
The due date is the fixed monthly date by which all outstanding payments, including EMIs, must be made to avoid late fees and high-interest charges.
Annual Fee
An annual fee is a yearly charge for using your credit card, ranging from Rs. 500 to Rs. 2,999 or more. Paying this fee often comes with benefits like cashback, reward points, or airline miles. Some cards waive this fee for the first year.
Credit Score
A credit score, ranging from 300 to 900, indicates your creditworthiness. A higher score improves your chances of loan approval and better interest rates. Your score is determined by your credit history, including the number of accounts, total debt, repayment consistency.
Grace Period
The grace period is an additional time after the due date during which you can make a payment without incurring penalties. This period allows for some flexibility in payment without negative consequences.
Annual Percentage Rate (APR)
APR is the annualized interest rate charged if you do not pay off your billing cycle’s outstanding dues in full by the due date.
Interest Rate
The interest rate on a credit card varies based on its usage, such as installment payments (EMI), cash advances, or exceeding the credit limit. It’s essential to understand these rates for different transactions to manage costs effectively.
Over-Limit Charge
Spending beyond your credit limit can result in an over-limit fee. This fee is usually a fixed amount and can negatively impact your credit score as it gets recorded on your credit report.
ADDITIONAL KEY TERMS
- Account or Card Number: The number on the front of your credit card representing your account.
- APIN: A Personal Identification Number used for card authentication.
- Auto Debit: An instruction to automatically transfer payments from your savings account to your credit card account.
- Cash Advance: The cash withdrawn using your credit card, which accrues interest from the day of withdrawal.
- Card Verification Value (CVV): A three-digit security code on the back of your card for secure online, mail, or phone purchases.
- Collateral: Assets pledged as security for loan repayment.
- Default: Failure to make timely payments.
- EMI: Equated Monthly Installments for large purchases or loans.
- Fraudulent Transaction/User: Unauthorized use of your account or card.
- Lender: The financial institution providing credit.
- Late Payment Charges (LPC): Penalty for missing the payment due date.
- Minimum Amount Due (MAD): The minimum payment required each month to keep your account in good standing.
- Payment Due Date: The monthly date when payments are due.
- Phishing: Email fraud attempting to steal personal information.
- Principal: The base amount of money lent, excluding interest and charges.
- Secured Credit Cards: Cards requiring collateral.
- Supplementary Card Member: An additional authorized user of the card.
- Swiping Machine: Device used to process card transactions.
- Total Amount Due (TAD): The total outstanding amount on your credit card.
Understanding these terminologies will help you use your credit card more effectively and make smart financial decisions. Stay informed and manage your credit responsibly to maximize benefits and maintain good credit health.
Consider Reading – 10 REASONS TO CONSIDER GETTING A CREDIT CARD