Defining Common Credit Card Terms
As important as credit cards are in the modern world, you might
be surprised how many people don't know as much about them and
how they operate. This isn't necessarily because of any
shortcomings of the individuals, but instead because of the ease
of using credit cards without having to understand all of their
subtleties.
Should you wish to learn more about how credit cards work and
the terminology associated with them, read on... the information
contained below doesn't cover the entire subject of credit cards
and how they work, but it should provide you with some
additional information and help you to understand a little bit
more about these common cards that seem so essential and so
mysterious at the same time.
Periodic Rate
The periodic rate of a credit card is the amount of interest
that is charged for a single period of the year, usually the
span of a single payment. The periodic rate can fluctuate from
month to month, particularly in times of economic turmoil or
when national interest rates are changing rapidly.
Annual Percentage Rate (APR)
The annual percentage rate (APR) is an average of the rates that
are charged over the course of a year, and is usually based upon
national interest rates with an additional percentage added
which may vary from one card provider to another. By looking at
the annual percentage rate (APR), individuals can estimate
approximately how much they will have to pay in interest on the
balance that they carry throughout the year.
Rewards Programs
A variety of different credit card rewards programs exist, which
are additional incentives that are designed to convince
individuals to apply for a specific card instead of those that
are offered by rival banks or companies. The rewards offered can
be just about anything, though the most common types of rewards
programs involve receiving cash back from purchases (either
instantly or once per year), receiving free airline miles that
can be exchanged for airline tickets, instant discounts on
purchases (especially large purchases), and even specialized
services related to travel, hotel stays, or automotive rentals.
Grace Period
The "grace period" on a credit card is a brief window of
opportunity that a cardholder has to allow them to pay off the
card balance before interest is applied. Generally, the grace
period on most cards is between 25 and 30 days... some cards
offer slightly longer or shorter periods, however, and others
offer very little in the way of a grace period at all. Any
balance remaining on the card after the grace period expires
will be charged interest at the current rate.
Introductory Rates
Introductory rates on credit cards serve much the same function
as rewards programs, offering a much lower interest rate on the
card for a period of a few months so as to get people to take
out one company's card over another. Once the introductory term
expires, the interest rate of the card returns to the card's
standard rate.
Preset Credit Limits
Most but not all cards have preset credit limits, meaning that
when an individual receives the card they already have a limit
on how much money they can charge to the card before the credit
card server declines the transaction. For cards that do not have
a preset credit limit, a limit is usually given to the card
within a few months of the card being issued. Unlimited cards
also tend to require the entire balance to be paid at the end of
each month, not allowing a larger and larger balance to be built
up over time.
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