Credit cards have become part of our daily lives. They have become more common than a saving or checking bank account. Everyone is using them but very few really understand the credit card business terms and conditions. If you intend to use credit cards, It is important to be comfortable with the credit card terms otherwise it could lead you to deep debt and financial trouble. If you’ve always wonder about terms and conditions  “fine print”, here's what these frequently used credit card terms mean.

Annual percentage rate (APR) – This is probably the most important term that you should be well aware of. On an average loan, APR is a yearly rate of interest that includes fees and costs paid to acquire the loan. However, this is far different on a credit card balance. Lenders are required by law to disclose the APR. APR on credit card balances is calculated on a daily basis with fees and finance charges included in the original balance. So if you have a credit card with $1,000 balance with a interest rate of 20% and late fee of $50 and you’re late on a single payment, your APR calculations will add $50 to balance before calculations. So in real world, your APR could end up lot higher than disclosed by the lender. Also remember that APR could very well be different for cash advances, purchases and balance transfers.

Balance transfer – This is also known as card hopping. The process of moving an unpaid credit card debt from one issuer to another is known as balance transfer.  Card issuers sometimes offer an introductory  rates to encourage balance transfers. If you carry balances on high interest credit cards, it might make sense to transfer them to new cards with introductory rates. Please remember that introductory rates usually expires within 12 months so you’ll have to either pay them off in 12 months of transfer to another card in order to avoid paying hefty finance charges again.

Average daily balance - This is the method by which most credit cards calculate your payment due. An average daily balance is determined by adding each day's balance and then dividing that total by the number of days in a billing cycle. Number of days in the billing cycle will depend on your card member agreement. The average daily balance is then multiplied by a card's monthly periodic rate, which is calculated by dividing the annual percentage rate by 12. A card with an annual rate of 24% would have a monthly periodic rate of 2%. If that card had a $2,000 average daily balance it would yield a monthly finance charge of $40. Average daily balance can sometimes get you in the trouble even if you have paid your card balance. Here is how that could happen. Let’s say you have $1,000 balance on your card with 24% APR at the start of the billing cycle(let’s say July 1st), if you’re billing cycle ends on July 31st , and you paid this card off on July 30th, technically balance is zero on July 31st  and you may not realize that balance on August 1st is not zero but it is $24 due to average Daily balance calculations. You may not make any payment in August assuming that balance is paid off but this $24 balance will get you a $40 late fee on your due date in August.   

Cash-advance fee - A charge by the bank for using credit cards to obtain cash. This fee can be stated in terms of a flat per-transaction fee or a percentage of the amount of the cash advance. In recent years, credit card companies have moved to a percentage structure instead of a fixed fee. You should also remember that you don’t have to got to an ATM and use your card pin to get penalized with cash advance fees. Credit card companies have another trick up their sleeves. They mail cash advance checks to customer offering them instant cash for anything by using those checks. What most people don’t realize is whether you get this cash from an ATM or write this check, you’ll pay exactly the same amount of cash advance fee. You also need to realize that the cost of a cash advance is lot higher because there generally is no grace period. Interest accrues from the moment the money is withdrawn or check is posted to your account.

Cardholder agreement – If you are a credit card customer, you have an written agreement with the issuer. This written statement gives the terms and conditions of a credit card account. The cardholder agreement is required by Federal Reserve regulations. It must include the Annual Percentage Rate, the monthly minimum payment formula, annual fee if applicable, and the cardholder's rights in billing disputes. Changes in the cardholder agreement may be made, with written advance notice, at any time by the issuer. A simple letter to cardholder is enough to change the agreement. These letters are mass produced and are not printed for individual customer. You may see it in the mail but not pay much attention thinking it’s another junk mail you usually get. But pay close attention to these changes. It might affect you annual APR and how much grace period you get. Also remember that rules for imposing changes are the rules that apply in the home state of the issuing bank, not the home state of the cardholder.

Finance charge - The charge for using a credit card, comprised of interest costs and other fees. These fees include cash advance fees, balance transfer fees and late fees. Another fee that most people don’t pay attention is annual fee. There are thousands of credit cards with no annual fee but that doesn't mean that there aren’t any credit cards with annual fee. Some cards offer rewards but you have to pay an annual fee to sign up for these cards. Annual fee could be as high as $110 for some cards.

Pre-approved or Pre-qualified - A credit card offer with "pre-approved" only means that a potential customer has passed a preliminary credit-information screening. A credit card company can spurn the customers it invited with "pre-approved" junk mail if it doesn't like the applicant's credit rating. Pre-approved doesn’t mean anything and they would still run credit checks when you fill out the application. “Pre-approved” invitations are a easy way to catch your attention and tempt you to apply for the card. Pre-qualified is no different than pre-approved invitation but it offers you a more realistic picture of the offer. You might think that a pre-approved is 100% guarantee for a card while pre-qualified is less than that.

Grace period - If the credit card user does not carry a balance, the grace period is the interest-free time a lender allows between the transaction date and the billing date. The standard grace period is usually between 15 and 25 days. If there is no grace period, finance charges will accrue the moment a purchase is made with the credit card. People who carry a balance on their credit cards have no grace period. So make sure if you carry balances on a card, you do not use it for standard purchases. Grace period is

Over-the-limit fee – If you exceed the credit limit on your card, you have to pay over the limit fee. Most people know their credit limits it should not happen that often but here is a good example that can often to people who transfer balances. Let’s say you’re applying for a new credit card to transfer balances at a lower interest rate. Since you can put the balance transfer request at the time of application, usually card issuer sets your credit limit close to that amount. Now if you miss a payment, late fee would put you over the limit and then over-the- limit fee would kick in. Here is an example:
Balance transfer request = $12,000
New APR = $5
Late Fee = $45
Over-the-limit fee = $55

When you apply for this new card, chances are that your credit limit is going to be $12,000. So you have a new card with $12,000 balance and max out for any other purchases. If you fail to make your first payment, even with a 0% introductory APR, a late fee of $40 will put your balance at $12,040.  This is obviously over the limit of $12,000 so you pay and additional $55 for over-the-limit fee and your new balance becomes $12,090. On top of that your introductory interest rate of 0% expires immediately since you have defaulted under the cardholder’s agreement and you new rate could be as high as 29%.  So you see the picture. Be very careful with the balance transfer cards with credit limit close to the balance transfer amount.

Minimum payment - The minimum amount a cardholder can pay to keep the account from going into default. Some card issuers will set a high minimum if they are uncertain of the cardholder's ability to pay. Most card issuers require a minimum payment of two percent of the outstanding balance. Card issuers also make offers to allow cardholder to pay a even lower amount for a mo nth of two. For example, if you carry $10,000 balance on a card, you’re minimum payment is going to be around $250 - $350, but card issuer can make an offer to you to pay only $15 for a month or two. Don’t get sucked into these offers. If you have a balance outstanding, you’ve to pay it regardless of your monthly payment. So paying $15 for a month is not going to change anything in the big picture.

Secured or Prepay card - A credit card that is secured by your deposit. This is usually offered to people who have no credit history or who are starting out after a financial disaster. Also, if your credit rating or FICO score is poor, this might be the only way to get a credit card..

Our goal is to make you an educated and smart consumer who is very comfortable with the intricate details of credit business and makes best use of this knowledge by getting best rates and deals.