Understanding Credit Card Terms
- APR – APR stands for annual percentage rate. It is NOT the same as the interest rate. An interest rate is only a percentage of the principle of a loan amount. On the other hand, an APR takes into account broker fees, closing costs, or discount points. The interest rate determines monthly payments. APR calculates the total cost of a loan.
- FICO – FICO is a company that developed an algorithm to calculate consumers’ credit scores, known as FICO Scores. Lenders most often rely on this score 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 scores.
- Charge Card – A charge card is not the same as a credit card. First of all, there is no spending limit on a charge card. This is because cardholders pay the full balance at the end of each billing cycle. The cardholders incur significant late fees and penalty interest charges if they fail to do so.
- 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 offer any rewards points. Balance transfers are useful for reducing the interest that will be paid, but they should not be relied upon to manage debt.
- 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 amount of time. 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.
If you are looking for help getting out of debt, speak with a certified credit counselor at American Consumer Credit Counseling today by calling 800-769-3571.