Credit Cards Glossary

Annual fees
Some credit card companies would charge an annual fee for their services which was in addition to the interest you paid when you made a purchase. However, given the competition in the market, companies have now done away with the annual fees.

Annual Percentage Rate (APR)
The APR is the standard yardstick that enables people to compare the cost of credit cards offered by different companies. APR is a sum total of the interest and the other charges that the consumers have to pay when they are unable to make their payments within the grace period. In simple terms, an APR is the interest that you have to pay on your outstanding credit balances. It is a legal requirement and accordingly credit card issuers have to make it clear what the APR is on each of their cards.

Anti fraud guarantee
Given the high level of credit card frauds, some card issuer companies provide an anti fraud guarantee, which means that if someone fraudulently gets hold of your credit card information and uses it to make purchases, you would not be liable for the costs involved.

Approval rate
The approval rate refers to the number of applications that are approved by a credit card company. This rate is lower for cards offering lower rate of interest. This is because for lower interest rate cards, credit checks are more stringent. A higher approval rate means a higher rate of interest and these cards are meant for those with an unfavourable credit history.

Balance
This is the sum total of the money you owe to your credit card company and includes your purchases, interest, fees and other transaction charges.

Balance transfer rates
If you have an outstanding balance on your credit card, you can transfer it to a new credit card. Credit card companies usually offer reduced rates on initial or all transfers.

Credit referencing
Credit referencing measures your credit worthiness. It is basically a record of your credit history maintained by credit referencing agencies such as Experian. Your credit history shows whether you pay your bills on time or if you have debts pending etc. Lenders go through your record before extending you a loan or issuing you a card.

Credit scoring
This is a system that enables lenders to assess the level of risk associated with extending a credit card to a borrower. Basically lenders go through a borrower's credit history and study other factors such as source and level of income etc to assess the level before issuing a credit card. As a borrower, you are required to fill in an application form. Each of your answer carries a score. The score is totalled and accordingly the rate of risk is studied by the lender.

Credit limit
This is the maximum limit that you can draw on your credit card. The card issuer may increase or decrease this limit from time to time.

Interest free period
Most credit cards offer up to eight weeks interest free credit if your balance is repaid in full by the due date.

Introductory APR
This is the introductory interest rate offered by card issuers and is used as a carrot to attract customers to their services. The introductory APR is usually for a short period of time, mostly six months, after which your card interest rate is transferred to the standard APR.

Minimum payment
This is the minimum amount that you are required to pay your credit card company every month.