Credit Card terminology you should know before you sign up for a Credit Card

Whether you’re new to credit cards or a seasoned user, there is a good chance you have been stumped by some banking terminology around credit cards and different transactions. So that you don’t have to search, we have a small repository of common credit card banking terms that will educate you and help you figure out the best practices on how to use credit cards.

Annual fee:
 

Card issuers may charge a fee once a year in lieu of the service they provide. Depending on the scope of service, this may range from a few hundred to a few thousand. However, some service providers may waive the fee for the first year while others, like IDFC FIRST Bank, offer credit cards free for lifetime use.

Credit limit:
 

This is the total spending limit or credit line given to you by the card provider. Your income levels, credit score, repayment history and tenure with the bank are some of the factors that determine your credit limit. With a good repayment history, banks may periodically offer higher limits to you.

Annual percentage rate:
 

APR is the banking terminology for the annualised interest charged if you do not pay the outstanding dues of a billing cycle in full within the due date. The interest is charged monthly for every month on unpaid dues. To know the monthly interest charged, simply divide the APR by 12.

Credit score:
 

Your credit score is a three-digit number represented on a scale of up to 900. A good credit score, usually above 750, makes getting a new credit card easier and sanctions for higher credit limits.

Billing cycle:
 

This is the period between the closing of the previous and the next statement date. Most banks usually have a 30-day billing cycle, and you must remember the dates for your card to plan expenses and finances accordingly.

Due date:
 

This is the fixed monthly date when all outstanding payments to the bank, including EMIs, must be paid. Making the payment well before the due date is recommended to avoid late-payment penalties and high-interest charges on unpaid dues.

Grace period:
 

This is the period from the date of issue of your statement till the payment due date. The grace period may range from 14 to 21 days, varying from one service provider to another. The most significant advantage is that no interest is charged on your outstanding dues during this period. This is an important feature to remember when you make use of a credit card.

Interest rate:
 

Interest charges on a credit card can differ. The interest rate applied to an EMI will be different and lower than that for extending your payment. It will also vary for a cash advance or an over-limit charge. Before signing up for a card, check how different transactions and services are charged.

Minimum payment:
 

This is the lowest possible payment you need to make to the bank to keep your account in good standing for transactions during a particular billing cycle. The minimum payment is calculated as a percentage of the total transactions made during the period, excluding ongoing EMIs.

Rewards:
 

Customer loyalty programs or rewards are the most lucrative credit card benefits. You can earn reward points for transactions across different categories, such as apparel, groceries, electronics, travel, dining, etc. You can use these reward points in different ways - redeem them for discounts on future purchases or in cash value to offset your outstanding dues.

Over-limit charges:
 

If your transaction(s) exceed the credit limit assigned to you for a short period, the bank does not reject the transactions. However, a percentage-based over-limit fee is charged on the excess credit used. If you do end up swiping your card beyond the permissible limit, clearing out the excess dues is recommended.

Cash advance:
 

In banking terminology, the option and limit of cash withdrawal available on your card are known as the cash advance facility. This feature often comes with a high-interest cost; however, some banks, such as IDFC FIRST Bank, offer an interest-free period of up to 48 days for ATM cash withdrawals.

Balance transfer:
 

If the APR of one credit card is lower than the one you are servicing, you can transfer the outstanding dues to a low-interest credit card. Balance transfer helps you save considerably on interest costs and can also give you extra period to pay off your dues.

EMI:
 

This is one of the fundamental credit card features that allows you to pay for various goods and services through small affordable monthly payments. You can choose the tenure based on your finances, and a pre-specified rate of interest is charged on the EMI facility.

Flexible tenure:
 

The tenure is the period of time you choose to break down your EMI across. Banks offer different tenure options that range from 3, 6, 9, 12 months or more, going up to 36 months. A longer tenure affords smaller EMIs; however, it will also result in higher interest costs. One of the fundamental ways how to use a credit card effectively is to find the right mix of an EMI and tenure that you can service comfortably while minimising interest charges.

The A to Z of convenience and benefits
 

IDFC FIRST Bank credit cards offer unmatched benefits and rewards, coupled with the lowest interest rate charges across the industry. IDFC FIRST Bank cards are the perfect lifestyle tool that your wallet must carry.

Spend, save and earn – apply for an IDFC FIRST Bank credit card here!

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.