Every credit card is unique. Many of them have small little features that change the way the agreement works. It is important to understand the terms of your credit card agreement before using it, otherwise it may end up in a lengthy headache-inducing call to the issuers’ customer service representatives.
Below are some of the most common terms used in credit card agreements. Remember, this is a starter kit and should not be the end of your research (each credit card, because of the Truth in Lending Act must display all the Terms & Conditions clearly and in plain English (and, by proxy, Spanish and many other languages) on the application before being able to legally offer credit.
This one is simple. This is the date that your payment must be received by the lender. Missing this date often triggers a penalty APR and a late fee (although some banks will waive this for first-time offenders).
A card’s credit limit refers to the total amount of money that a bank is willing to lend you until they are uncomfortable lending more money. This number varies wildly by your credit score, the issuing bank and the card.
Triggering an overdraft occurs when you attempt to make a purchase that would push your outstanding balance above your credit limit. Some cards offer overdraft protection that will grant the purchase for a small fee (and often at a higher APR). This author refuses all overdraft protections.
The overdraft fee is the fee that is charged for approving a purchase that goes over the limit (within a small amount of cushion, often, from your total credit limit).
If you do not pay the full statement balance by the due date, the bank will calculate interest charges on your balance. The issuers take your average daily balance (the average posted balance on your account over the statement period) and multiply it by the purchase APR in your agreement to get your interest charge.
If a payment in the amount of at least the minimum payment is not received by the due date, the banks will often charge a late fee. If you are a first time offenders, banks will often waive the fee as a sign of good faith but your mileage may vary.
After missing a payment, banks will often charge a higher interest rate on purchases made on the card to account for their view of a higher risk of lending.
Average daily balance refers to the average balance of transactions that have posted on your account over the statement period.
Oustanding balance refers to the total amount of purchases that have posted to your account and is the total amount that you owe to the day.
Statement balance is the balance at the point of time of the most recent statement. This is a very important number because this is the only amount of money that is owed by the due date. Often, the outstanding balance is higher than the statement balanace and you are able to pay the smaller statement balance to avoid interest charges.
Banks usually charge ~2% of statement balance plus your interest charge in minimum payment. Remember, the minimum payment here is a suggestion banks make in order to entice consumers to pay more in interest. It is highly encourage to pay down debt at high interest rates faster than the minimum payment to avoid expensive interest charges.
Remaining credit refers to the total amount of credit left on the credit card. It is credit limit minus outstanding balance minus transactions that have been authorized but not posted yet.
Many credit cards offer rewards based off of behavior, such as purchasing hotels, everyday purchases, making payments. Each card is different but a boilerplate agreement is to receive 1% back on every purchase. Think of it like the world is now at a 1% discount!