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Glossary

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  • APR (Annual Percentage Rate)
    The annual percentage rate is the rate of interest that the credit company will charge you on your unpaid balance per year. Though the APR is stated as an annual fee, it is charged to you each month that you have an unpaid balance on your credit card.

    The annual percentage rate also comes into effect when you get a cash advance or transfer a balance from another credit card. But the rates charged on each of these transactions may vary even on a single credit card. For instance, the credit card may have one APR for cash advances, another for balance transfers, and yet another for unpaid balances. Often, the highest APR on a credit card is the one that applies to cash advances.

    Here is an example of how the APR works: if your credit card offers an APR of 15% on cash advances, you can expect to be charged the daily equivalent of $.15 per year on every dollar you withdraw each day that you don't pay it back.
  • Average Daily Balance
    The average daily balance is used by credit card companies to figure out how much interest to charge you on what you owe them. Each credit card company has a billing cycle, typically around 25 days. The average daily balance is arrived at by adding up how much you owe on the credit card each of those 25 days, then dividing that total by 25, the number of days in the billing cycle.

    The average daily balance is then multiplied by a card's periodic rate, which is calculated by dividing the annual percentage rate by 12. For example, a card with an annual rate of 18 percent would have a monthly periodic rate of 1.5 percent. If that card had a $500 average daily balance, it would yield a monthly finance charge of $7.50.
  • Bad Credit
    When you use credit cards and/or borrow money in other ways, you generate a credit score. Bad credit means you have a poor credit score. There are multiple ways of ending up with bad credit. Perhaps the most common of these is being late with payments or missing payments all together. You can also damage your credit rating by charging purchases that exceed your credit card limit, or by declaring bankruptcy.

    Your credit score matters. Lending organizations use your credit scores to determine whether or not to lend you money. They also use them to determine what rate of interest to charge you in lending that money. If your score is poor, you may be denied, or approved but at a high rate of interest.
  • Balance Transfer
    A balance transfer consists of your moving your unpaid balance from one credit card to another. The point of doing this is to lower the fees you are paying on your unpaid balance. To make this work, you need to transfer the balance to a card with a lower APR. But here's where you need to beware: many credit card companies offer a low introductory APR to attract new customers. That APR will go up, and it is important for the customer to know before-hand what the regular APR will be and when it will go into effect.

    Credit card companies offer APRs as low as 0% for a fixed period of time. But APRs can be different for balance transfers, so be sure to find out the APR that applies to balance transfers specifically, and when they expire.
  • Billing Period
    The billing period is the time period between the last statement date and the current statement date. During the billing period, which is typically about 28 days, the purchases, cash advances and other debits to your credit card account accumulate. Once the billing period ends, a statement is issued and payment is due. If you do not pay your balance in full or on time, interest begins to accrue, along with possible fines. It is important to keep an eye on billing period dates, as credit card companies may change their billing periods which can cause unexpected financial charges.
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