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What Are the Key Terms in a Credit Card Agreement?


A Guide to Understanding Key Terms to Credit Card Accounts

It is always wise to pay close attention to the key terms within any credit card agreement. Understanding these terms can and will eliminate any big financial surprises later down the road.  Not everyone is familiar with the key terms often used for account holders.  Make sure you understand what the key terms for your next credit card mean.

Annual fee

This is the amount billed to your account each year for owning the credit card.  This key term will be listed with all credit cards even if there are no annual fees.

Annual Percentage Rate (APR)

The key term annual percentage rate (APR) is important to your spending.  This term refers to the interest rate you will pay when there is a balance on your card.  This is calculated at a yearly rate.  To figure out what percentage rate you will be paying each month divide the APR by 12 months.

Interest rate may change due to certain circumstances of use.  If you are more than 60 days late in paying your monthly bill, then your current rate will increase.  Check the key terms for balance transfers because these usually involve a separate interest rate or fee for card members.

Introductory rates are only temporary rates for the first 6 months of a card.  May sure you are aware of the APR increase after the introductory period.

Variable or Non-Variable APR

These key terms will tell you if your cards APR will fluctuate or not.  If you are applying for a card with a variable interest rate, then your rate will increase and decrease.  A non-variable interest rate will remain more predictable in terms.  However, a non-variable rate can still increase after one year of membership.

Credit Limit

This is the most widely understood key term on credit card agreements.  The credit card company allows the card member to charge a set limit to the card.  This amount varies based on credit history and the type of credit card you are applying for.

Overdraft Protection

This key terms refers to exceeding credit limits.  If you choose to opt in to overdraft protection, then you are allowing transactions to exceed your credit limit.  However, this protection will be entitled to a onetime fee for each billing cycle your transactions exceed their limit.  If you choose to opt out of this protection, then your card will be denied in any transaction placing you over your current limit.

Credit Protection

This key term is a voluntary selection of an insurance service.  If you enter into a financial difficulty due to job loss or a disability, then this added protection will assist you during the hard times.  However, this added insurance has a lot of hoops to jump if ever needed.  Also, it may offer little benefit to your situation.  Make sure to review the terms of this protection before investing.

Foreign Exchange

Not all cards will include a foreign exchange fee.  This key term will be addressed in all credit card applications and card holder information.  If you have selected a card with a foreign transaction fee, then you will be charged for purchases made outside of the United States.  Some card companies will waive all foreign transaction fees.


Related Links:

Which of the Dumbest Credit Card Mistakes Are You Making?

Credit Card Terms to Look Out For

What are Reward Credit Cards?

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