Variable interst rates, secured credit cards, APR--oh my! If you're confused about all that credit card mumbo jumbo, just take a look at these simple terms to clear things up.
Credit Card - A credit card is a card issued by a financial company which gives the holder an option to borrow funds,
typically at the point of sale.
Typically used for short-term financing, these cards charge interest which begins one month after a purchase
is made, while borrowing limits are pre-set according to the credit rating of the individual.
Fixed Interest Rate - A fixed interest rate on a card can be changed with a notice of only fifteen days.
It is important to note that “fixed” in credit card language is not similar to that of mortgage loans.
If a card has multiple balances with varying interest rates, payment will generally be applied to the balance with the lower interest rate.
Therefore, payments on a card with a $100 balance at $19.99% and a $5,000 balance at 4.99% will apply to the $5,000 at $4.99%.
Secured – For approval, secured credit cards require collateral, which is typically a cash deposit with the issuing institution. These cards are ideal for consumers with no credit or poor credit.
Unfortunately, some secured card marketers load their cards with high fees and unfavorable terms, so as to take advantage of the often unsophisticated or desperate individuals seeking the card.
Unsecured - Unsecured credit cards are not secured by collateral.
These are the most common type of credit cards and are not directly linked to property that a lender can seize if the consumer defaults.
In order to collect unpaid debts, issuers of unsecured cards must make use of the courts or garnishment.
Credit Score - A credit score is a three digit number that represents a summary of how well a person
or business has managed their debt. The higher your credit score, the better your debt management. A high score qualifies
you for larger loans at better rates; while low scores means you get poor terms, or turned down. (Read How to Improve Your Credit Card Score here.)
APR - APR stands for annual percentage rate, and refers to the interest rate that is charged on credit card
balances expressed in a standardized, annualized way. The APR is applied every month that a credit card features an outstanding balance.
Variable Interest Rates – The APR (annual percentage rate) can change on variable-rate cards.
This rate is normally tied to another rate referred to as an index or a floating rate.
In documents detailing credit card terms and conditions, the variable rate is often presented as an index plus a margin.
Credit History - Credit history is a debtor’s record of use of debt.
In the US, three credit bureaus - Experian, TransUnion and Equifax – track credit histories, which are compiled into credit reports.
Lenders use credit histories to determine whether to provide customers with credit, as well as on what terms.
Balance Transfers - A balance transfer is the movement of the outstanding balance of one credit card (or several credit cards)
to another credit card account. This is often done by borrowers seeking a lower interest rate.
Numerous credit card companies offer introductory balance transfer APRs lower than the standard rates. A balance transfer will typically incur a fee.
(Apply for one of our top rated Balance Transfer Cards.)