Do you have credit cards in your wallet? It is likely that you have more than one. American consumers obtain credit cards from department stores, gas companies, and the full spectrum of Visa, MasterCard, Discover, and American Express. But with all that plastic taking up space in your wallet, do you know and understand the legal responsibilities with each one?
With each credit card you obtain, you are given a full disclosure of the terms for the use of the card. Have you read it? When you do read the disclosure, there are certain terms and credit jargon with which you should be familiar. Here are the top 10:
- APR
Also known as the annual percentage rate, this is the interest rate that the credit card company will charge you each month on any remaining balance left on your card. Read this section carefully. You may find that your APR will increase after a certain amount of time, or even after a single late payment.
- Credit limit
Your credit limit is the maximum amount you may charge on your credit card. This limit is usually imposed by the issuing company based on your income and credit report. It is wise to charge only up to 30% of your credit limit, but if you charge more, be wary never to charge over the limit or you will face another term – the dreaded “over the limit fee,” which is usually about $40 or more.
- Finance charge
Most credit card companies will allow you to pay off any charges you make within the grace period without a finance charge. Should you leave a balance that transfers to the next statement, also known as revolving balance, that balance will be charged by APR and added to the total amount due.
- Grace period
The grace period is the amount of time that a credit card company grants you to pay your balance in full before applying a finance charge. The grace period usually starts on the date of billing and lasts until the payment due date, usually at least 21 days.
- Minimum payment
Your billing statement will disclose a minimum payment due based on your outstanding balance. That means you must pay the minimum payment by the due date or you will be in default of your credit card.
- Balance transfer
When you open a new credit card, many companies offer you the opportunity to transfer existing credit card balances onto your new card.
- Billing cycle
The billing cycles is simply the amount of time between each billing statement.
- Billing statement
Your billing statement is an important document that you should review thoroughly. A statement is sent to you each billing cycle, usually every month, and shows your total balance, including all the charges and payments you have made since the previous billing cycle. The statement will also disclose your current APR, any finance charges, minimum payment due, and the due date.
- Revolving credit
Revolving credit allows you to use the amount of credit repeatedly up to the credit limit. In contrast, a non-revolving credit is like a car loan in which you receive the loan only once and pay in full once.
- Default
Default is the dreaded credit term. Default can be easily achieved by failing to abide by your credit terms. A late payment, charging over your limit, and making less than the minimum payment all can result in a “default” of your agreement.
Write to Grace Carter at grace@creditdonkey.com
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