Applying for a credit card? Watch out for this jargon

Applying for a credit card? Watch out for this jargon
Now that you’ve got a piece of plastic in your new credit card, you want to maximize it, don’t you? However, before you do that, it’s well worth knowing the terms and conditions under which it operates. Really, you should have done this before you applied for the card. Still, all is not lost even now. In fact, here are some often bandied about terms relating to your credit card that you should be alert to:

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Balance transfer: Often, credit card companies offer new applicants the option of transferring their balance from another card to theirs. But it would be unwise to do this since not all credit cards come with identical APRs (Annual Percentage Rates). What if you’re moving from a high APR credit card to one that’s low? If you do this, you could save a lot of money that would otherwise be spent in paying interest.

But the reverse is also true and you must beware of that. If you do take up this offer, you will be given a fixed time period during which no interest will be charged on your balance. You need to be aware of the duration of this offer and pay the balance amount during this period and save money you would pay as interest.

Annual percentage rate: This refers to the interest you will pay on your credit card outstandings. This is an annual rate and, if you’re lucky, it will also be a low interest rate. However, if your credit card company offers a reward program, this could jack up your APR. You need to think whether you really want to carry this burden with you through the year or not.

Grace period: This is the free period during which your credit card company allows you to pay off your balance amount without charging you interest. This could range between 20 and 30 days. If you incur a bill on your card and pay for it during the grace period, you will be exempt from paying interest. However, if there is no mention of a grace period on your card, it means that you are liable to pay interest the moment you incur an expense on your card.

Great introductory offer: When you sign up with any credit card company, they will give you an additional bonus just for signing up. This usually means an initial period of about six to 12 months during which you are free of interest. If you’re smart, you will use this period to pay off any outstandings on your card. However, don’t blindly go in for any card offer you receive: check it out with a fine toothcomb and calculate the eventual interest rate. If eventually you pay the same amount of interest on your card, it’s well worth taking.

Variable rate or fixed rate: Usually, credit cards are accompanied by a variable interest rate which, in turn, is linked to the prime rate. This refers to the interest rate at which banks lend money to their most valued customers. The interest on your credit card fluctuates with the fluctuating prime rate. However, a fixed rate stays fixed. However, the credit card company is empowered to adjust the fixed rate, but only after giving you prior intimation.

Use the above jargon to choose your credit card and to get the best out of it. Read the terms on your application thoroughly and understand it completely. Only once you do this should you go ahead and apply for it and when you use it, do so carefully.

Article by: Mithi Chinoy

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