Basic Credit Card Terms You Should Know

Credit card terms you should know

Sometimes credit card agreements contain terms that you aren’t familiar with. However, in order to get the most out of your credit card, it’s important to know how they work. Here are some general terms you should know. 

Balance

When you make purchases, the amount you spend becomes your balance. The balance is the total amount you owe at any given time. 

APR (Annual Percentage Rate)

If you don't pay off your entire balance in full every month, you'll pay interest. The APR (annual percentage rate) is the amount that you will be charged based on your balance annually. 

Annual Fee

Some credit cards charge an annual fee that's separate from any interest you may pay. It is the fee that you pay annually just for the privilege of having the card whether you use it frequently or not. 

Average Daily Balance

Your average daily balance is used to help calculate your monthly interest charges. If you add the balance you owe each day in a billing cycle and then divide that total by the number of days in the cycle, you can calculate your average daily balance. That number, multiplied by the interest rate, determines how much interest you pay each month.

Due Date

The date on which the card issuer or creditor expects you to make a payment is the payment due date. Many card issuers or creditors will allow you to request a specific date of the month as your payment due date.

Minimum Balance

Credit cards allow you to carry a balance from month to month. When you carry a balance, a minimum payment will be due every month. This is the least amount you can pay on the balance to keep the account in good standing. Typically, the minimum payment is 2% of the total balance. Be careful with only making a minimum payment; interest will continue to add up and the amount you owe will increase the longer you wait to pay off a balance. It is also convenient to add a scheduled payment that automatically pays your minimum balance each month to ensure you don’t miss any payments.

Grace Period

When you charge something on your credit card, you have a certain number of days in which to repay the debt without incurring interest charges. This is called the "grace period." Federal law dictates grace periods must be at least 21 days, and many card issuers allow 30-45 days.


Information from Southland's partner Experian.