Credit Card Jargon Buster
Getting a credit card should be an easy process, so to help we’ve put together a financial glossary filled with all the terms and phrases that may confuse you.
Understanding credit cards can be tricky, so we’ve put together a glossary of all the terms you might come across to make it a little easier.
Some credit cards will come with an annual fee, which is a charge you have to pay whilst the account is open. This fee is separate from any interest you might end up paying. Most fees are charged once a year and appear on your credit card statement. Details of any fees will be made clear before you apply.
APR stands for Annual Percentage Rate. It helps to compare the annual cost of borrowing money, including interest and any fees, between lenders and products. It is presented as a percentage of the amount borrowed. The higher your APR is, the more expensive it will be for you to borrow.
Credit Builder cards
These cards are designed for people with lower credit scores who may struggle to get accepted for standard credit cards.
If you have bad credit, by using one of these cards responsibly and making the required repayments, this could potentially improve your credit rating by proving you can manage your money. However, you may find the APR is higher than most other credit cards, which means you’ll pay more interest if you do not pay off your statement in full and on time each month. You may also be given a lower credit limit to help make sure you don’t overspend.
There are two different types of “balance” when it comes to credit cards – the statement balance and the credit card balance.
The statement balance is the total amount you owe on your credit card at the end of your billing cycle, and is shown on your monthly statement. Your credit card balance is the total amount of money you owe your credit card provider at any given time.
Balance transfer credit cards
A balance transfer allows you to pay off a balance on an existing credit card with another one, so the outstanding balance effectively moves to another card. Many people use them to move their debt from a higher interest-charging card to one with a lower interest rate, to reduce the cost of repayments and the overall amount of interest you pay back.
Some cards will offer a promotional balance transfer offer, where less interest is charged for an initial period following the transfer. Making a balance transfer will usually incur an initial fee which is a percentage of the amount you are transferring, which will be added to your balance on the new credit card.
Balance Transfer fee
If you take out a balance transfer credit card and wish to transfer your debt, you may need to pay a balance transfer fee.
This is generally a percentage of the total amount you intend to transfer and will vary by provider, and often depends on the length of any promotional periods
Cashback credit cards
Some credit cards offer cashback in return for your spending. This is generally a percentage of your spend, either at certain retailers or across everything, which is then taken off the balance you owe or may be exchanged for vouchers.
A cash withdrawal is when you take cash out of your credit card account using a cash machine or as cashback from a retailer.
In contrast to withdrawing money with a debit card, credit card cash withdrawals attract a fee and often higher interest, which is often charged from the date you take out the cash, rather than after your statement date.
Contactless credit cards
Contactless credit and debit cards use contactless technology. They allow you to pay for goods and services up to a certain amount by simply holding your credit or debit card close to or against the card payment reader.
There’s no chip and pin or signature required, but every so often you’ll need to enter your PIN number to verify it’s you.
Your credit limit is how much you are allowed to spend on your credit card. Higher credit limits are usually given to customers with good credit scores and customers who prove they can pay off their balance regularly. Customers with poor credit scores are likely to get lower credit limits if they are approved for a credit card.
Once you've reached your credit limit you may need to make a payment to bring down the balance before you can use it again. If you go over your credit limit, you may be charged a fee until you make a payment to bring the balance back under the limit. Some cards will not let you spend over your limit.
A credit report is essentially a record of your history when it comes to managing and repaying debt, held by a credit reference agency.
Lenders and other companies use this information to decide whether to approve your application for a credit card, mortgage, loan, or even a mobile phone contract.
Your credit score is a 3-digit number attributed to your credit report based on various factors and is used to show how reliable you are at borrowing and repaying money. The scores will range from “poor” to “excellent”, however, each different credit reference agency has its own way of calculating credit scores.
Your credit score is a good predictor of whether you are likely to be approved for different forms of credit including credit cards, broadband, mobile phone or TV contracts. The better your credit score, the more favourably you will be viewed by companies or credit card providers.
Your credit card account will “default” when the terms of the credit agreement are broken. For example, if you miss payments or don’t pay the right amount, you could be charged fees and it could show on your credit report. It usually takes around 30 days for a missed payment to show on your credit report, if you’re able to make the payment before this, your credit card provider may not report it to the credit reference agency.
A Direct Debit is an automated payment method you can set up, to give your credit card provider permission to take funds from your current account each month on your payment due date. You can set it to pay either the minimum payment, the full statement balance, or a set amount every month. As long as your Direct Debit is set up to pay at least the minimum payment each month, it’s a good way to make sure you never miss a payment.
Eligibility checkers show how likely you are to be approved for a specific credit card. Every card has minimum eligibility criteria, which include factors such as age, salary, and sometimes other details, depending on the credit card.
Foreign transaction fees
A foreign transaction fee is a fee that you may have to pay when you make a transaction in a foreign currency over the internet or use your credit card whilst abroad.
These are a percentage of the total spend. Some credit cards come with 0% foreign transaction fees and are designed specifically for use abroad.
Interest-free credit is a time-limited deal that allows you to either transfer a balance or purchase an item without paying any interest – although you'll still have to continue making regular monthly payments as usual to make sure you keep your interest free rate.
Interest-free rates are usually only for a set number of months, so always check how long the interest-free credit period is before applying.
Some credit cards include an introductory offer, such as bonus reward points, extra cashback, 0% on balance transfers, or 0% on purchases, for a limited period.
Low APR credit cards
A low APR or low-interest credit card is essentially a card that offers a low rate on purchases and/or balance transfers.
Minimum monthly repayment
Every credit card has a minimum monthly repayment amount set out in its terms, which is usually a percentage of the total amount, plus any interest or fees charged. It is calculated based on your latest statement balance.
Your credit card bill will usually state the "minimum amount due" each month, which you will have to pay. Make sure you pay at least this amount by the due date, otherwise you may impact your credit rating and/or incur additional fees.
A credit card money transfer allows you to transfer funds from your credit card to your bank account to spend. You’ll generally pay a fee on the amount you transfer, and you may also pay interest until the balance is paid off.
Purchase credit cards
Some cards offer promotional rates on your spending for an introductory period – such as 0% on spending in your first 6 months. This means you won’t pay any interest during this period even if you choose not to pay off your balance in full each month, so you might choose to use your card to make a big purchase and pay it off over a few months. Many of these offers will require you to stay within your credit limit, and not miss making at least your minimum payment each month, or risk losing the promotional offer.
Rewards credit cards
A rewards credit card offers rewards such as cashback, air miles, or loyalty points. Generally, the more you spend, the more you can earn – and some cards may also give you access to exclusive deals.
All credit cards have a summary box, which explains all of the interest charges and features of the credit card. It is an “at-a-glance” view of the key information such as APR, interest rates, minimum repayment, and any charges, designed to help you compare different products from different providers before you apply.