Annual percentage rate

The annual percentage rate or APR is the interest rate that’s charged on your credit card balance. The rate is stated as an annual rate, but typically applied to your balance as a daily rate. You can calculate your daily rate by dividing your APR by 365. The daily rate is the rate that’s usually used to calculate finance charges.

Balance transfer

A balance transfer is a type of credit card transaction that involves moving the balance of one credit card (or even multiple credit cards) to another. When you transfer a balance, you will likely have to pay a balance transfer fee, which can be a fixed amount or a percent of the balance transferred.

Unless you receive a promotional balance transfer offer, your interest rate on the balance transfer will likely be higher than the interest rate charged for purchases. There is no grace period for balance transfers. Interest begins accruing immediately.

Billing Statement

Each month your credit card company will send a statement listing the purchases, fees, credits, and interest charges made to your account. The statement will include your minimum payment due, the due date, and the payment mailing address.

Billing statements are usually mailed once a month and include all the transactions made to your account within a billing cycle – the period of time between each credit card bill.

Starting February 22, 2010, credit card companies must send your billing statement 21 days before your payment is due. If the balance has a grace period, you must receive your billing statement at least 21 days before finance charges will begin.

Cash advance

A cash advance is a cash loan on your credit card. You can take out a cash advance by withdrawing cash from an ATM or cashing a convenience check included with your credit card statement.

When you take out a cash advance, you’ll have to pay a cash advance fee. It might be a fixed fee or a percent of the cash advance. Interest rates on cash advances are usually higher than those rates applied to purchases. Cash advances don’t have a grace period, so interest begins accruing immediately.

Credit limit

Your credit limit is the maximum amount you can charge on your credit card without receiving a credit-limit fee.

It’s important to watch your credit card statement for changes in your credit limit because they are often unannounced. Your credit limit could be unexpectedly reduced, leaving you with less available credit.

Grace period

The credit card grace period is the amount of time you have to pay your balance in full without receiving a finance charge. Grace periods are typically between 21 and 25 days, but can be shorter or longer depending on the credit card issuer. Longer grace periods are better because they give you more time to pay your credit card balance and avoid interest charges.

Certain types of transactions, like balance transfers and cash advances, don’t have a grace period. Whenever you make one of these transactions, interest begins accruing on the balance right away. Similarly, if you carried a balance from the previous billing cycle, new purchases may not receive a grace period.

Finance charge

The finance charge is the cost of borrowing using a credit card. It’s calculated by multiplying your balance by the annual percentage rate (or some fraction of it). There are various methods of calculating your finance charge.

• The average daily balance method is most common and uses the average of your balance each day during the billing cycle.
• The adjusted balance method doesn’t include purchases made during the billing cycle. Instead, your balance subject to finance charge is calculated by subtracting payments and credits made during your billing cycle from your balance at the beginning of the billing cycle.
• The previous balance method uses only the balance on your credit card at the end of the previous billing cycle.
• The double billing cycle method uses the average daily balance from the current and previous billing cycles. This is the most expensive method of calculating finance charges because it forces you to pay interest on balances that have already been paid. Beginning February 22, 2010, credit card issuers can no longer calculate your finance charges using this method.

Many credit cards have a minimum finance charge that you will be charged if your calculated finance charge falls below a certain amount. For example, if your finance charge is calculated to be $0.15 and your credit card’s minimum finance charge is $1,00, you’ll be charged $1.00.

Minimum payment

The minimum payment is the lowest amount you can pay on your credit card balance each month to avoid a late payment fee. The late payment fee is assessed whenever your credit card issuer doesn’t receive your minimum credit card payment by the due date. The minimum payment may be a fixed amount like, $25, or it can be a percent of your balance, like 5%.

Related posts:

1. How Finance Charges Are Calculated and How You Can Avoid Them