Credit cards are a convenient way to make purchases both in person and online—and indeed, more than three-quarters of American households own at least one.But if you pay more attention to what you're shopping for than to the fine print involved in your credit card agreement, it might be time to take a closer look.
Understanding credit card terminology is an important part of managing your finances and ensuring you're getting the best deal possible on the credit cards you use regularly. Not sure you'd pass this vocab quiz? Review our list of credit card terms and you'll be on the right track.
1. Annual fee
Some credit cards charge a fee each year for use of the card. This cost is in addition to any interest charged on balances carried beyond the due date. Cards that charge annual fees typically offer more generous rewards than cards without annual fees, like cash back on purchases, airline tickets or other perks (like travel insurance).
2. Annual percentage rate (APR)
The yearly interest rate charged on money borrowed for purchases made is called the APR. You pay this interest rate on any balances held after the due date—in other words, if you don't pay your bill in full when it's due, the amount you owe is subject to interest.
To calculate the amount of interest you owe per day, multiply the balance by the APR and then divide by the number of days in the year (that's 365, except in leap years). Each day, the amount you owe increases as the interest is added to your balance.
It's important to note that your credit card may have more than one APR: One rate for purchases, another for balance transfers and yet another for cash advances.
3. Authorized user
You can authorize another person to use your credit card. Typically, they'll get their own card tied to the same account. However, they are not liable for paying the bill. That means you're on the hook for anything they charge to your card.
4. Available credit
Your card has a credit limit (see below), and available credit is simply how much of this limit is left for you to use, once previous purchases have been taken into account.
5. Balance
Your balance is the amount of money you owe on your credit card at any given time. It might include purchases, interest, late payment fees, foreign transaction fees, annual fees, cash advances or balance transfers.
6. Balance transfers
If you want to move your balance—aka the money you owe—from one credit card to another, this is called a balance transfer. Many people do this to take advantage of lower interest rates on new cards. Balance transfers may help you manage your debt more effectively by limiting late fees and lowering your interest rates.
7. Billing cycle
This is the period of time between monthly credit card statements. A billing cycle may run from the beginning to the end of the month, or from mid-month to mid-month on specific dates. (Your credit card statement will outline the billing cycle and terms.) The schedule is important to remember, so you can time payments to avoid late fees or monthly interest charges.
8. Cash advance
In a pinch and need cash? A cash advance works essentially like taking out money from your bank account, but with one key difference: You're borrowing the money, and it will cost you. Many credit cards charge higher interest rates for cash advances, and there is often no grace period—meaning you start paying interest from the day you take out the money, even if you plan to pay your bill before the due date. You may also have to pay a fee for a cash advance.
Look on your credit card statement for your cash advance limit, which is a portion of your total credit limit. If your credit card has a PIN, you can withdraw cash from an ATM, just like using a debit card.
9. Cash back
Many credit cards offer rewards programs, typically either points or cash back. With a cash back credit card, you receive a percentage of every dollar you spend back as cash. Depending on the card, you might get this as a credit against your balance, as a direct deposit or as a check in the mail. Sometimes, cash back rewards are only applicable in certain categories, such as gas or groceries.
10. Credit bureau
Credit bureaus, also known as credit reporting agencies, gather and organize information for credit reports and credit scores.Your credit report outlines your history of borrowing money and paying off debt, and lenders (like credit card companies) use it to decide how much credit to give you.
11. Credit limit
Each credit card comes with a maximum dollar amount you can charge to it. This credit limit is determined by numerous factors, including your employment history, your credit score and the overall amount of debt you have.
12. Credit score
As part of your credit report, a credit bureau will give you a credit score. This number tells creditors how safe it is to lend you money—or, how likely you are to pay your bills. It's based on your history of borrowing money, which might include credit cards, mortgages, personal loans or bankruptcies. The better your credit score, the more likely you are to get good interest rates and higher credit limits.
Note that people usually have more than one credit score, depending on who is doing the math. If you want to find out your credit score, there are ways to request it for free.
READ MORE: Credit Scores 101
13. Deferred interest
Usually, if you don't want to pay interest on your credit card, you need to pay the full balance each month by the due date. But in some cases, you might have access to deferred interest, which means you have longer than normal to pay your bill before interest is due.Make sure to read the conditions carefully to understand exactly by when you must pay the balance and what will happen if you don't.
14. Dispute
One of the advantages of having a credit card is you can dispute any unauthorized charges on your account with the credit card issuer. If you notice an unfamiliar transaction on your statement, contact your credit card issuer and report it; they will investigate your claim and decide whether to reverse that charge.
15. Due date
The due date is the date when your monthly credit card payment is due. Typically, if you pay your balance in full by the due date, you won't have to pay any interest on purchases. You are usually required to make at least the minimum payment (an amount specified on your statement) by the due date.
16. EMV
EMV stands for Europay, Mastercard and Visa, and it's a term used to describe the computer chips that are used for authentication on modern credit and debit cards instead of the old-school swipeable strips. It's named after those companies because they're the ones who developed the secure technology.
17. Finance charges
Any fee charged for the use of a credit card is called a finance charge. This includes interest, late fees or fees charged if you didn't make the minimum payment on time. Your credit card statement will list the finance charges you owe each month.
18. Fixed-rate APR
A fixed-rate APR (or fixed APR) sets an interest rate that doesn't fluctuate with changes to an index, such as the prime rate.(Remember that APR stands for annual percentage rate.) This doesn't mean the interest rate on your credit will never change, but that the credit card issuer must notify you before the change occurs.
19. Fraud
If an unauthorized person uses a credit card, that's fraud. This might happen because your physical credit card was stolen, or because someone managed to get a hold of your credit card information. It's a good idea to read your statement carefully every month to check for fraudulent charges. If you see any, report them to your credit card issuer.
20. Grace period
A grace period is a period of time when no interest is charged. This usually falls between the end of your credit card's billing cycle and the payment due date. Usually, if you pay off the balance of your credit card in full on or before the due date, you won't have to pay any interest on purchases.
21. Interest rate
The interest rate is the percentage that is charged to you on outstanding credit card balances. Often, a credit card will have several interest rates. For instance, one for purchases, one for cash advances and one for balance transfers.
22. Introductory rate
When you sign up for a new credit card, it often comes with perks. One of these might be an introductory interest rate, a low—even zero—rate on purchases or balance transfers for a limited time. Usually, introductory rates last for a specific amount of time, after which standard interest rates apply.
23. Late fee
When you don't pay at least the minimum payment by the due date, many credit cards will charge a late fee—a penalty that is added to your balance.
24. Minimum payment
When you receive your monthly credit card statement, it will list your total balance as well as a specific minimum payment. You have to pay at least this amount by the due date every month to avoid late fees.
25. Over-limit fee
An over-limit fee is a penalty you may have to pay if you use your credit card to spend more than your credit limit.
26. Payment history
Your payment history is a record of the payments you've made on your credit card throughout the time you've had it. Payment histories are one of the things credit bureaus use to determine your credit score.
27. Penalty APR
If you pay your credit card bill after the due date, you may be subject to a penalty APR, or penalty annual percentage rate. A penalty APR will be higher than your usual APR.
28. Periodic rate
The periodic rate is your APR divided by the number of days in a year. This is important because credit card interest is typically charged on a daily basis.
29. Personal identification number (PIN)
Your PIN is the numeric code you use to authorize purchases on your chip-enabled credit card. Don't share your PIN, and if you think someone else might know what it is, it's a good idea to change it to something new.
30. Prepaid card
A prepaid card works in a similar way to a traditional credit card. The difference is that you load it with funds in advance, then draw down from that amount as you use it. Prepaid cards are a helpful solution if you want the convenience of shopping with a credit card without credit checks or the risk of missing payments.
31. Principal
When you make purchases on or withdraw cash from a credit card, the principal is the initial amount you borrowed. Should you need to pay interest, it will be calculated as a percentage of the principal.
32. Purchase APR
On a credit card with multiple interest rates, the purchase APR is the rate that applies to purchases. It differs from the cash advance APR, penalty APR or introductory rate that you might also see in your agreement.
33. Residual interest
Just because you pay off your credit card balance doesn't make you debt-free. This charge represents any interest that accrues between when your statement is issued and when you pay the bill. To make sure you pay your balance off completely, call your lender and request the exact “payoff amount."
34. Rewards card
Many providers offer rewards points to encourage you to use their card. Savvy consumers shop for the rewards card that suits their needs and rack up points that they can redeem for cash, merchandise or travel. Travel rewards cards are an extremely popular category. This perk is a smart way to maximize your spending power—especially when you pay off your balance every month.
35. Rewards program
This is the program that is connected to a specific rewards card or group of cards. For instance, a credit card issuer might offer several cards linked to a specific rewards program that lets you exchange points for merchandise or gift cards.
36. Secured credit card
Secured credit cards require a cash deposit as collateral. They are a useful option for people who have no credit history or can't get approved for an unsecured credit card. Using a secured credit card responsibly can help you build up your credit score.
37. Statement
When you use your credit card, you'll receive a statement every month. This document lists all transactions and fees and gives information on your balance, payment due date and minimum payment.
38. Unauthorized transaction
If a purchase or withdrawal that you or another cardholder did not make appears on your credit card statement, that was an unauthorized transaction.
39. Unsecured credit card
An unsecured credit card is one that you are able to apply for and use without a cash deposit. Receiving approval for an unsecured credit card usually depends on having a good credit rating.
40. Variable rate APR/variable interest rate
A variable-rate APR (or variable APR) changes with the index interest rate, such as the prime rate.The cardholder agreement provides details of how a card's APR can change over time, sometimes without the user being notified.
41. Zero percent APR
A zero percent APR means that no interest is being applied to transactions. This is often a promotional offer for new cardholders and it typically has an expiry date.
42. Zero liability policy
If your credit card has a zero liability policy, that means that you are not liable for any fraudulent charges that might be made to your account.
READ MORE: Ready for a Credit Card? First Learn These Basics
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*Disclosures:
ANNUAL PERCENTAGE YIELD (APY): All APYs are accurate as of 7/1/2024.
APYs are subject to change at any time without notice. Offers applies to personal accounts only. Fees may reduce earnings. For Money Market and High Yield Savings Accounts, the rate may change after the account is opened. For CD accounts, a penalty may be imposed for early withdrawals. After maturity, if your CD rolls over, you will earn the offered rate of interest for your CD type in effect at that time. See all CD rates and terms offered here.
The information, opinions and recommendations expressed in the article are for informational purposes only. Information has been obtained from sources generally believed to be reliable. However, because of the possibility of human or mechanical error by our sources, or any other, Synchrony does not provide any warranty as to the accuracy, adequacy or completeness of any information for its intended purpose or any results obtained from the use of such information. The data presented in the article was current as of the time of writing. Please consult with your individual advisors with respect to any information presented.
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