A credit card may seem like a small piece of plastic but it is much more than that. Credit cards are serious business and if you want to master their use, you should be familiar with their terminology. Here are some of the most common terms mentioned in the fine print (that long text which most people gloss over). Know what you’re getting into before you sign up!
APR stands for the annual percentage rate. This translates to how much interest would accumulate over a one year period. If you carry a balance on your credit card account you will be charged interest fees on that balance at whatever APR you qualify for when you are approved. Generally, the higher your credit score the lower your APR.
2) Authorized User
Primary credit cardholders can usually add one or more authorized users to their account if they wish to. An authorized user receives a credit card with the same account number but only the primary cardholder is responsible for the charges. Authorized users cannot make changes to an account or redeem any rewards. Purchases made by an authorized user, however, do normally earn rewards.
3) EMV Smart Chip
This smart chip technology is currently being transitioned into the U.S. credit card market. EMV stands for Europay, MasterCard and Visa. These chip embedded credit cards have been used throughout the rest of the world for quite some time and usually work as a “chip and pin” system. Smart chip enabled cards provide greater security by adding various layers of encryption during the transaction process.
4) Grace Period
It’s important to understand the grace period if you want to avoid paying interest charges. Most credit cards have a grace period which normally extends from the statement closing date until the payment due date. Cardholders who pay the balance in full during this time will not incur any interest charges.
5) Prime Rate
The prime rate is the interest rate that banks charge their best customers and is typically 3% higher than the federal funds rate. Most credit cards offer variable APRs which are tied to the prime rate. This means if the prime rate rises or falls, your credit card APR will change accordingly.
6) Statement Period
Credit card members receive 12 statements per year. This month-long period begins on the statement opening date and ends on the statement closing date. The payment due date must fall on the same date each month and must be at least 21 days past the statement closing date.