Credit Card Terminology Guide

Credit Card Terminology Guide

Credit Card Terminology Guide

If you are searching for a new credit card, you should familiarise yourself with some of the terms that credit card providers use in their promotions.

Common Terms Used By Credit Card Providers

Our credit card technology guide seeks to explain the most common terms.

Annual Fee

This refers to the amount of money that the charges you annually to use their credit card. Most credit cards do not have an annual fee except those offering high incomes or exceptional rewards.

APR (Annual Percentage Rate)

The annual percentage rate is the rate of interest that normal use of your credit card will accrue. To compare credit cards, you should look for the lowest APR.

Balance Transfer

Balance transfer refers to the transfer of the balance of your existing credit card to a new one. You might be seeking to do this in order to secure a lower APR. If this is the case, make sure that the lower APR your new credit card is offering does not expire after a limited time period and that you will end up paying more on your credit.

Balance Transfer Credit Cards

A balance transfer credit card is one that provides an attractive APR rate to tempt you to transfer your balance to them. This normally expires after a few months, so you should make sure that the APR you refer to is not too much of the shock.

Cash Advances

Credit card provided usually charge whenever you withdraw cash from an ATM machine using your credit card. You should only withdraw cash using this method as a last resort as it is an expensive way of getting cash because you will be charged a higher rate of interest and, occasionally, additional charges or handling fees.

Cash back Credit Card

A cash back credit card is a form of reward card that pays you back a small percentage of the value of your transactions. These types of cards are not suitable for people who tend and not to repay their form balance every month. If this is the case, you should be looking for a credit card that offers a low APR.

Credit Rating

Your credit rating is an important factor when you apply for a new credit card. It is compiled from records stored by credit reference agencies who work on behalf of financial organisations to provide them with data about your potential credit-worthiness.

Credit Rebuild Cards

Credits rebuild cards are designed for people with bad credit ratings. Because the risk is higher than someone without a bad credit rating, the cards tend to have a high APR.

Foreign Exchange Commission

Foreign exchange commission is the commission that is added by your credit card provider whenever you make a foreign purchase that is converted to UK Sterling.

Foreign Currency Handling Charge

The foreign currency handling charge is applied by your credit card provider to each foreign currency transaction you make abroad.

Gold Or Platinum Cards

The gold or platinum credit cards are designed especially for people with a high income and often come with substantial reward benefits, fees and attentive customer service.

Handling Fee

A handling fee is the charge made by credit card provider whenever you carry out certain transactions such as using your credit card to withdraw cash from an ATM.

Introductory Interest Rate

The introductory interest rate is something that credit card providers use to attract you to their credit cards. It is a favourable interest rate that, when compared to conventional interest rates, is much lower. After a certain time period, usually a few months, the interest rate will revert to the normal APR and so you should check that this is acceptable to you.

Low Rate Credit Cards

Loan rates credit cards offer you a low APR for all transactions that you make. The appeal of this kind of card is that you do not have to move from one credit card provider to another in order to obtain the lowest APR.

Loyalty Credit Cards

Loyalty credit cards are commonly in use with some of the large retailing organizations such as Tesco that reward you with points or other incentives whenever you use their credit card to make a transaction.

Reward Credit Cards

Reward credit cards enable you to benefit from obtaining rewards for using the credit card to make your purchases.

Typical APR Rate

The typical APR rate is commonly used by the credit card providers to standardise the rates that you are likely to pay. The definition of typical APR is the rate that at least at least two-thirds of the credit card providers’ customers will be on.

Variable Rate

The variable rate refers to the interest rate that credit card providers charge you for using their cards. The rate of interest is variable, as opposed to fix, which means that the credit card provider is free to change the rate.

Make sure you are familiar with the terms that are used by credit card providers in order to select the best deal for you.

Prepaid Credit Cards

If you are unsure about whether or not a credit card is the right option for you, find out more about the advantages of prepaid credit cards.

P11D Cash Equivalent

Except where specific legislation provides otherwise, the ‘cash equivalent’ value for tax purposes of a benefit provided to a P11D employee is generally the cost to the employer of providing the benefit.

P11D employees are taxed on the cash equivalent of a benefit rather than on its second-hand value. The cash equivalent is broadly defined as the cost to the employer of providing the benefit. Any contribution made by the employee towards the cost is deducted from the cash equivalent.

Note that the basic definition of the cash equivalent of a benefit is overridden in many cases by specific legislation. For example, there are specific rules for calculating the cash equivalent of the benefit where the employee has the use of a company car or is provided with fuel for private use.

Poor Credit Rating

Poor Credit Rating? Here’s Why

If you have debt levels that are regarded as high (relative to your income or assets) then your credit rating is likely to be penalised by Credit Reference Agencies. A key indicator will be the amount of debt on your credit card and how often it is paid off. Remember that a credit limit is a limit – it`s the maximum you’re allowed to borrow.

Multiple Applications

Whenever you make an application for credit, your details will be registered with financial organisations that use Credit Reference Agencies that share data in order to make decisions about your credit-worthiness. Making a number of applications, especially if they are unsuccessful, is likely to have a negative effect on your credit score.

Making Payments When They Are Overdue

Failing to make payments on the date they are due is likely to have a negative effect on your credit rating. When you enter a financial contract, you undertake to make payments on a certain date (usually each month) and so, if you do not make the payment on time, this constitutes a break of contract and is likely to mean your credit rating is down-graded.

Failing To Make Repayments

If you miss the payment altogether, this is also regarded as a breach of contract and will lead to your credit score being penalised. The reason for being penalised is that financial organisation will realise that you financial circumstances have changed for the worse. If you find that you are unable to make the payments you agreed to when you took out your financial agreement, you should contact the financial organisation immediately in order to discuss your options.

Writing Off A Debt

In certain circumstances, financial organisations will write off a debt if they decide you are no longer capable of repaying it. This happens rarely and will incur a substantial fall in your credit worthiness. Subsequent applications for credit will be subject to credit ratings checks, and they are unlikely to be successful if potential future lenders see that you have a history that includes an unpaid loan.

Home Repossession

An inability to maintain mortgage repayments on your home is likely to lead to it being repossessed. The consequence of this is that your credit ranking will fall and it will be considerably harder for you to obtain a mortgage or loans in the future. If you find that you are struggling to make your mortgage payments, you should contact your lender immediately in order to discuss the options available to you.

Debt Solutions and Individual Voluntary Arrangements

The refinancing of debt, such as using smaller payments over a longer period of time, may have a negative impact on your credit rating because they demonstrate to financial organisations that you have been unable to maintain the payments you agreed to at the outset. This can apply to Individual Voluntary Arrangements (IVAs), even though you have taken steps to refinance the outstanding debt.

County Court Judgments

A County Court Judgment (CCJ) is made when a lender attempts to recover the money that is lent to an applicant. Details of the CCJ are made available to Credit Reference Agencies who assess the data in order to calculate your credit score. Even though a CCJ agreement may result in the provision of a payment plan, the CCJ will still have a negative impact on your credit rating.

1 2 3