Anyone who uses a credit card or who is considering getting one must be savvy with the important terms that make you a responsible consumer. Know what credit card companies are talking about so you can be in charge and manage your account:
The Basics:
1. Annual Percentage Rate- A yearly rate of interest including fees and costs paid to acquire the loan.
2. Average Daily Balance- Determined by adding each day's balance and dividing it by the number of days in the billing cycle. It is then multiplied by the monthly periodic rate, and determines the monthly finance charge.
3. Cardholder Agreement- The written statement giving the terms and conditions of the credit card account. It must include the Annual Percentage Rate, the monthly minimum payment formula, annual fee if applicable, and the cardholder's rights in billing disputes.
4. Pre-approved- This simply means that a person passed the initial credit-information screening.
Activities/Actions:
1. Balance Transfer- The process of moving an unpaid credit card debt from one issuer to another.
2. Grace Period- If you do not carry a balance, then the grace period refers to the interest free time between the transaction date and the billing date (usually lasting around 20 or 30 days). People carrying a balance do not have a grace period.
3. Minimum Payment- Refers to the minimum amount a cardholder must pay to avoid going into default. Most minimum payments are 2% of the outstanding balance.
4. Teaser Rate- Also referred to as an introductory rate, it's a below-the-market rate used to entice new customers to use that lender.
5. Variable Interest Rate- The percentage that a borrower pays for the use of money, which may move up or down depending on changes in other interest rates.
Trouble:
1. Forbearance- The lender "stops the clock" in a way. You still owe the full balance and already accrued fees which you will have to resume paying when the clock starts again. This is a temporary arrangement made under specific circumstances such as a loss of employment.
2. Workout- Similar to a Debt Management Program, the bank may eliminate fees and cut your interest rate to get your finances under control. It may result in a lower credit limit and you may have to agree to stop using the card.
3. Settlement- The lender agrees to take less than your full balance as payment. However, your credit score will take a huge hit as if you were filing for bankruptcy. Usually you would make three lump-sum payments.
4. Bankruptcy- It's the last step and an arduous, expensive process that will severely impact your credit score. Sometimes, however, it is the only option left.
Do your own research and ask questions when something confuses you so you don't end up in trouble because of something you didn't understand.
Read the fine print!
Savvy Student
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The Basics:
1. Annual Percentage Rate- A yearly rate of interest including fees and costs paid to acquire the loan.
2. Average Daily Balance- Determined by adding each day's balance and dividing it by the number of days in the billing cycle. It is then multiplied by the monthly periodic rate, and determines the monthly finance charge.
3. Cardholder Agreement- The written statement giving the terms and conditions of the credit card account. It must include the Annual Percentage Rate, the monthly minimum payment formula, annual fee if applicable, and the cardholder's rights in billing disputes.
4. Pre-approved- This simply means that a person passed the initial credit-information screening.
Activities/Actions:
1. Balance Transfer- The process of moving an unpaid credit card debt from one issuer to another.
2. Grace Period- If you do not carry a balance, then the grace period refers to the interest free time between the transaction date and the billing date (usually lasting around 20 or 30 days). People carrying a balance do not have a grace period.
3. Minimum Payment- Refers to the minimum amount a cardholder must pay to avoid going into default. Most minimum payments are 2% of the outstanding balance.
4. Teaser Rate- Also referred to as an introductory rate, it's a below-the-market rate used to entice new customers to use that lender.
5. Variable Interest Rate- The percentage that a borrower pays for the use of money, which may move up or down depending on changes in other interest rates.
Trouble:
1. Forbearance- The lender "stops the clock" in a way. You still owe the full balance and already accrued fees which you will have to resume paying when the clock starts again. This is a temporary arrangement made under specific circumstances such as a loss of employment.
2. Workout- Similar to a Debt Management Program, the bank may eliminate fees and cut your interest rate to get your finances under control. It may result in a lower credit limit and you may have to agree to stop using the card.
3. Settlement- The lender agrees to take less than your full balance as payment. However, your credit score will take a huge hit as if you were filing for bankruptcy. Usually you would make three lump-sum payments.
4. Bankruptcy- It's the last step and an arduous, expensive process that will severely impact your credit score. Sometimes, however, it is the only option left.
Do your own research and ask questions when something confuses you so you don't end up in trouble because of something you didn't understand.
Read the fine print!
Savvy Student
