Many sectors have their own special terms. The financial sector and the world of credit cards are no exception.
Credit cards should be very simple: Get card; buy product; pay off balance; repeat. But then you see terms thrown in like 'grace period' and 'default' and the whole picture becomes much murkier.
The word jargon derives from the Middle English terms twittering and chattering, which later evolved into the word gibberish. So to avoid getting lost in the chattering gibberish of credit card fine print, here are some terms to be aware of.
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Refers to the person that the card is issued to, and therefore is authorized to use the card for transactions.
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Credit cards are commonly used to purchase goods and services. However, a credit card also offers the additional flexibility to get cash directly, that then of course can be used for any purpose, with the ultimate in flexibility and acceptance. This getting of cash through your credit card is referred to as a cash withdrawal.
Also realize the nuances as a cash withdrawal can have an associated fee, and interest accrues right away starting with the day the money is obtained. So better to check the Ts&Cs of your credit card provider before you start drawing out cash with your credit card.
For decades, credit cards provided their information to a merchant via a magnetic strip on the back of the card, via what gets called a ‘Swipe.’ As this method got breached time and again through the years, the magnetic strip is being phased out in favor of a chip.
The chip contains the credit card info in an encrypted fashion, thereby replacing the swipe of a magnetic card reader with the card being inserted into a chip reader. When obtaining a new credit card, be sure to get one with the newer, and safer chip technology which many merchants are transitioning towards.
With a credit card, there is a limit to the amount of money that the lender will extend to you - which gets termed a credit limit - and you cannot charge more than that amount. In general, using your credit card close to the credit limit can hurt your credit score as it can be a red flag to the bank that the card member may be financially weak, and in danger of not making their payments.
Also be aware that there a few exclusive credit cards out there that have no preset credit limit. These tend to be very few and far between, reserved for people with the best credit scores and history of large expenditure.
Payments need to be made on the card in a timely fashion. After a certain number of payments get missed, often from three to six depending on the credit card provider, the account goes into default. The bank then sends a ‘default notice’ requesting a payment on the account within a specified time period, typically two weeks or so.
This is to be avoided at all costs, as then no additional charges can be made on the card, your credit score drops precipitously, and legal action against you could ensue.
This is the time period from when a charge gets made, until the bill needs to get paid. If you don’t carry a balance on the card, then this time is interest free. The actual time period can vary, up to 30 days, so be sure to choose a card with an adequate grace period to give more time before a payment needs to be made.
Many credit cards will allow you to transfer the balance from one card to another card, often for a lower interest rate. In order to do this, you get charged a transfer fee, which is generally 1 to 3% of the amount transferred, so be sure to crunch the numbers and see if this makes sense for your situation.
One of the main reasons people often get credit cards is to build up travel points and perks to get big savings on flights and hotels. We have a dedicated guide on credit cards for travel that will tell you all you need to know.
Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.
- Read more: TechRadar's run-down of the best credit cards you can get