When it comes to credit cards, there are a number of confusing terms that appear in the fine print. Understanding some basic credit card agreement terms can make a big impact on your financial decisions and ability to manage credit card debt. Let us provide a little clarification on some commonly misunderstood terms to help you navigate the world of credit cards.
Need to Know Credit Card Agreement Terms
- APR – APR stands for annual percentage rate. It is the yearly rate of interest that you will pay on credit card purchases. They can change from year to year because issuers frequently offer special promotional or introductory rates. This is especially true for balance transfers (see below). APR will also increase as a result of missing or making late payments.
- FICO – FICO is a company that developed an algorithm to calculate consumer credit scores, known as FICO Scores. This is the credit score most frequently relied upon by lenders to assess creditworthiness, but it is not the only credit score there is. There are hundreds of credit scoring methods that each provide a different score and change constantly. FICO is the top brand of credit score and is the easiest for consumers to monitor themselves.
- Balance Transfer – A balance transfer only moves the outstanding balance of a credit account to a new card or lender. It does not pay the balance or provide any rewards points. Balance transfers are useful for reducing the amount of interest that will be charged, but they should not be relied upon for debt reduction.
- Minimum Payment – The credit card companies allow borrowers to make minimum payments on credit used. This does not mean that the payment amount is sufficient to get out of debt in a reasonable time frame. Minimum payments are designed to keep a balance high so that interest can be charged for as long as possible. Borrowers should pay as much as their budget will allow each month in order to efficiently pay off an outstanding debt.
Make Smart Choices
Knowing these credit card terms is a good start. Maintaining good credit is still a matter of making good decisions when it comes to using credit and opening new accounts. Be sure to research your options and understand the terms to avoid needing help getting out of debt.
If you’re struggling with credit card debt, contact American Consumer Credit Counseling. Call 800-769-3571 to speak with a certified credit counselor.