Your Money’s credit card jargon buster
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, store card or loan to another credit card.
Many card providers offer attractive balance transfer rates, especially to new customers – you may have seen ‘0% balance tranfers for three months…’ on adverts.
These offers usually last for a set period of time, just like an introductory offer (see below). Often there is a handling fee attached to a balance transfer. This is expressed as a percentage of the total amount transferred.
So say you transfer a balance of £1,000 with a 4% handling fee, 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 – 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.
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.
Some credit cards now support contactless technology. This feature lets people pay for items, typically less than £20, 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. Some buses across the country also have contactless pay technology.
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. Sometimes you might 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.
Foreign Exchange fees, or FX charge
With some credit cards, if you use them 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 that these charges will vary from one credit card company to another, so you should contact your issuer 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 does not usually apply to cash advances, balance transfers (which often tend to have their own special rates) or on cheques drawn against your credit card account.
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.
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. Tell no one your PIN and make sure you destroy any paperwork that may have it written down on.