Many people enjoy using credit cards for shopping due to the various benefits they offer, such as cash back and discounts provided by credit card companies. To effectively manage your credit card usage, it is crucial to be familiar with relevant terminology.
Understanding key terms associated with credit cards, such as billing cycle, annual fee, credit score, grace period, and EMI, is essential for maximizing the benefits of your card and making informed financial decisions.
By knowing these terms, you can make wise choices and utilize your credit card responsibly. As per an ET report, here are 12 important credit card terms to help you navigate your credit card usage effectively.
1. Revolving credit
Revolving credit is simply an agreement to borrow money where you can choose to pay back all or part of what you owe. You can continue using the credit up to a set limit as long as you make timely payments and keep the account open. The available credit, minimum monthly payment, and total owed will vary based on your purchases and payments.
2. Credit limit
Your credit limit is the highest amount you can charge to your credit card each month. It may increase if you make timely payments, but may stay the same or decrease if you are late with payments.
3. Balance transfer
Balance transfer allows you to transfer your debt from one credit card to another to benefit from a lower interest rate.
ALSO READ | New RuPay credit card rules: Use UPI app to apply for EMIs, pay bills, increase limit & more
4. Billing cycle
A billing cycle or a billing period, is the duration between receiving your last credit card bill and receiving the next one. Although it is usually around a month, the length may vary due to the differing numbers of days in each month. To ensure fairness and consistency, there are guidelines in place.
5. Due date
The due date is the fixed monthly date by which all outstanding payments, including EMIs, must be paid. It is advisable to make payments before this date to avoid late fees and high interest charges.
6. Annual fee
An annual fee is an amount you pay each year for your credit card. It’s a common charge, typically ranging from Rs. 500 to Rs. 2,999 or higher. This fee can grant you benefits such as cash back, reward points, or airline miles. Sometimes, credit cards waive this fee for the first year, allowing you to postpone payment.
7. Credit score
Your credit score, ranging from 300 to 900, reflects your reliability in borrowing money. A higher score increases your chances of loan approval and better interest rates. Factors like your credit history, number of accounts, debt amount, and repayment consistency determine this score. Lenders use it to evaluate your creditworthiness and loan repayment likelihood.
8. Grace period
The grace period is a period of time after a payment due date, such as for a loan or insurance, during which you can still make the payment without facing penalties. It offers an extension beyond the due date without incurring any adverse effects.
9. Annual Percentage Rate (APR)
APR, or Annual Percentage Rate, is the term used in banking to describe the annualized interest applied if you don’t pay your full outstanding balance by the billing cycle’s due date. This interest is assessed monthly on any unpaid amount. To calculate the monthly interest, divide the APR by 12.
ALSO READ | Penal charge, interest on your loan? New RBI rules from April 1 – what borrowers should know
10. Interest rate
Interest rates on credit cards can differ based on the type of transaction. For instance, the interest rate for paying in installments (EMI) is typically lower than for extending payment. Rates also vary for cash advances or exceeding your credit limit. It’s important to understand these charges for different transactions and services before obtaining a card.
11. Chargeback/disputes
If you spot an error in your monthly credit card statement, you can dispute it by writing to the credit card company. They are required to respond within 30 days of receiving your letter. Understanding your card issuer’s dispute policies is important, as billing errors can occur unexpectedly.
12. Over limit charge
Exceeding your credit card limit set by the issuer may result in an over-limit fee. This fee is typically a fixed amount and can negatively impact your credit score as it is recorded on your credit report, which is detrimental to your credit health.
