Credit Card Glossary

There are a lot of terms that get thrown at you when you are dealing with the fine print on your credit card statement or the cardholder agreement. You have a lot better chance of protecting yourself from errors, and making the right credit decisions, if you understand what these terms mean. Here is a Glossary of the most common credit card terms:

Annual fee - An annual charge for the "privilege" of using the credit card.
Look for companies that offer "no annual fee" cards if possible. If your card issuer charges an annual fee you may be able to get it waived by telling them that you want to close your account and move to a company that is offering a fee-free card. Be prepared to close the account if they take you up on your offer!

Finance charge - The interest amount that you pay if you carry a balance on your card.

This may also include other fees such as ATM withdrawal fees and cash-advance fees if you use the charge card to withdraw money These fees can be very high, so be sure you know what your true costs are before you borrow any money in this way.

Grace period - A time period, usually about 25 days to 30 days, during which you can have charges appear on your card without paying any finance charge.

Be careful, some cards no longer offer any grace period at all. Also, grace periods to not apply if you already have a balance on your card. Also, the grace period does not apply to cash advances.
Prime Interest Rate - The lending rate that commercial banks charge the most creditworthy business customers, usually other banks, to borrow money..
According to the The Wall Street Journal, the prime interest rate is the rate charged by 75 percent of the largest 30 banks in the United States. Although not set by the Government, the prime is influenced by certain economic factors that are controlled by the government.
Annual percentage rate (APR) - The yearly percentage rate of the finance charge.

Interest rates on credit-card plans change over time. While some changes are tied to changes in the financial market, such as the Prime Interest Rate, or the T-Bill rate, you can also have your rate changed if you are late with a payment by even one day, or if you go over your credit limit by even one penny!
T-Bills - Treasury bills (or T-Bills) are short-term securities that mature in one year or less from their issue date. You buy T-bills for a price less than their par (face) value, and when they mature we pay you their par value. Your interest is the difference between the purchase price of the security and what they pay you at maturity (or what you get if you sell the bill before it matures). For example, if you bought a $10,000 26-week Treasury bill for $9,750 and held it until maturity, your interest would be $250. This interest rate is often used by lenders as a way to establish interest rates for loans. The formula is usually the current T-Bill rate plus some fixed add-on percentage.
Fixed rate - A fixed annual percentage rate of the finance charge
Variable rate - Prime Interest Rate (variable) plus an added percentage such as Prime + 3.9%.
Introductory rate - A temporary low APR that lasts for some predetermined time and then goes up to a usually much higher rate.

Hopefully these terms will help you have a better understanding the next time you have to read any communications from your card issuer, or when you go shopping for a new credit card.