Cut through the jargon: YourMoney.com’s credit card glossary
Additional card holder
Some credit card companies allow you to add more people to the credit card account, usually close family who live at the same address as you. You’re essentially authorising them to make purchases on your credit card. This isn’t the same as a joint account as the main cardholder is responsible for spending and for any debt. If you have a reward or cashback card (see below), by adding an additional card holder you may be able to accrue benefits faster.
Some companies charge an annual fee if you hold a credit card account with them. This fee will apply no matter how much, or how little, you use the card.
This tends to apply to credit cards that require a minimum income level.
Not all companies charge an annual fee and those which do may not charge an annual fee on every credit card they offer.
APR stands for Annual Percentage Rate. This is the charge you will have to pay for credit taken over the course of a year. It is expressed as a percentage of the total amount borrowed.
It takes into account not only the basic interest rate, but any monthly or annual charges. In the UK APR is used throughout the financial industry, allowing you to compare a range of different financial products and services.
A balance transfer is when you transfer the money owed on one credit card or store card to another credit card where the new lender pays off the debt for you. You then pay the new lender back, usually at a lower rate.
In recent times a balance transfer credit card war has exploded, with many providers offering 41 month and even 42-months 0% interest on balance transfers, allowing customers a much longer period to pay off the debt.
Often there’s a balance transfer fee or handling fee attached to a balance transfer. This is expressed as a percentage of the total amount transferred.
If a balance transfer credit card offer comes with a 4% balance transfer fee, moving over £1,000 means your new balance would be £1,040.
Many credit cards allow you to withdraw cash. This can often be done at an ATM machine using your PIN, just as you would with your debit card. Generally, the APR on a cash advance may be higher than that charged when you put purchases on your card.
Also it’s important to note that free periods don’t normally apply to cash that you take out from a cash machine. Interest is normally charged from the minute you take out the cash, and as credit card payments are due a month in arrears, you could be stung with high interest charges until you repay the amount in full.
Some cards called ‘reward’ cards offer a cashback scheme as an added incentive. Normally it works that for every pound you spend, you receive a proportion of that money back.
If, for example, you spent £300 on a card with a 1% cashback, you would receive £3 back.
Other credit cards could offer you loyalty points such as with supermarkets or for flights.
A number of credit cards now support contactless technology. This feature lets people pay for items, typically less than £30, by simply holding your card near a contactless reader.
The card has to be held for a short time in close proximity to the reader, so just walking past a contactless pay reader won’t trigger off a payment.
Your credit limit is the maximum amount you can borrow on your card at any one time, whether through purchases, cash advances or balance transfers.
Your card will normally be declined if you try to spend over the credit limit threshold. You may even be charged extra if you go over the limit.
Your credit limit will be set when you apply for your card and depends on your personal circumstances and the type of card you’re applying for. The credit limit may be revised at a later date, but you will need to talk to your credit card issuer first.
Credit rating or credit score
Your credit rating or credit score is a number lenders use to help them decide how likely they are to be repaid on time if they give you a loan or credit card. Your individual score is based on your credit history.
The higher your score, the greater chance you have of getting better credit deals.
If you’re new to borrowing or have had a few late payments, you could find yourself with a less than perfect credit score, making it more difficult to obtain credit in the future.
Dual credit cards
This is where one card offers a long 0% period on balance transfers and purchases. For example, the AA is currently offering 26 months 0% on purchases (18.9% p.a) and balance transfers (18.9% APR rep variable).
Foreign exchange fees, or FX charge
When you use your credit card to pay for goods and services abroad you may incur an admin fee.
This is an unavoidable consequence of using your card while overseas, but it is worth noting these charges will vary from one credit card company to another and on the type of transaction you make, such as withdrawing cash. You should contact your issuer to find out the costs before you head abroad.
Interest free period
Most credit cards allow an interest free period on purchases. This is a set period of time following the date on which you receive your monthly statement.
As long as you pay your balance in full before the end of this period, you will not be charged interest on your purchases.
Most importantly this allows you to use your credit card for free if you pay the full balance each month and there are no annual fees.
Note that the interest free period doesn’t usually apply to cash advances.
Many credit card companies offer an introductory rate to new customers. This may be as low as 0% and will apply for a set period of time.
After this period ends your outstanding balance will revert to the issuer’s normal rates, so make sure you keep an eye on it to stay on top of your extra fees.
The minimum payment is the lowest amount you must pay off your credit card balance that month.
It is usually a percentage of the total amount owed. You can pay more than the minimum payment but remember that if you fail to pay the minimum payment, you are likely to incur an extra charge, known as a late payment fee.
Repeatedly missing your minimum payment can damage your credit rating and may eventually result in legal action, so at least pay off the minimum amount every month.
PIN stands for Personal Identification Number and is the four-figure digit you use to make payments with your card.
It is more secure than providing a signature, which can be forged. You shouldn’t share your PIN with anyone else and make sure you destroy any paperwork where it’s written down.
Purchase credit card
With 0% purchase credit cards you can buy items and spread the cost without paying any interest. There is no transfer fee as with balance transfer card,s but as with all 0% deals you do have to pay at least the minimum statement balance each month, usually 2% to 5% of the balance outstanding. Again the 0% deal is only available for the length of the introductory period after which time the rate soars.
Section 75 protection
When using a credit card on purchases between £100 and £30,000, you are protected under section 75 of the Consumer Credit Act 1974. If your goods are faulty or don’t arrive, the credit card company is jointly liable with the retailer which means you can claim a full refund from your card provider if you’re unable to get it from the retailer.