What are the usual credit terms?
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There are many different credit card options out there from affinity cards to rewards cards. When choosing a credit card, the most important thing is to know exactly how you’ll plan to use it. The perfect credit card for someone who maintains a balance is probably the wrong card for someone who pays his or her balance off every single month. Once you know how you’ll use your card, you should compare some of the features of various credit cards to see which one
will suit your financial needs. Remember, when you agree to the terms of a credit card, you are entering into a legally binding document. The following are some things to consider when choosing which credit card to obtain: The APR measures the cost of credit on an annual basis and may be the easiest way to compare costs among
credit cards. Usually, the lower the APR, the less you'll be charged for credit. The APR includes the interest rate and other costs, such as service charges or loan fees. If you expect to pay back less than the full amount you charge each month, you’ll have to pay finance charges on the unpaid balance. In this case, choose a card with a low APR. Many companies charge an annual fee, no matter how much or how little you use your card. If you intend to pay your
credit card bills in full each month, you won't have to pay monthly finance charges, so a card with a low or no annual fee will be more important to you than one with a low APR. A grace period allows you to avoid finance charges if you pay your bill before its due date. Some credit cards have no grace period and begin to impose finance charges the day you charge an item. Other cards offer grace periods from 21 to 30 days. Cards with longer grace periods can save you
money if you pay all of your charges each month. Because finance charges are based on your balance, it is important to know how your balance is calculated. One of the most common types of finance charge is the average daily balance. To calculate your average daily balance, the creditor adds each daily balance together and then divides by the number of days in the month. Some issuers include new purchases in their calculations; others do
not. While most creditors calculate your balance based on one month’s average daily balance others base your charges on the average daily balance for two billing cycles. Other possible methods include the previous balance method (based on the amount owed at the end of the previous billing cycle) and the adjusted balance method (where they subtract payments before calculating the finance charge). Many cards assess fees when you use your card in certain
ways. For example, transaction fees are common for cash advances and wire transfers. Some cards also charge fees for purchasing theater tickets over the phone, buying lottery tickets, or charging casino gaming chips. If you make a late or partial payment, most, (if not all) creditors will charge you a fee. Fees often range depending on your balance; the higher the balance, the higher the fee. Late fees typically range from $20 to $40. Since fees are so high,
consider setting up automatic bill payments to help you to avoid making late payments. It pays to pay attention to your balance. Fees for charging over your limit can add up quickly. If you must charge past your current limit, call your credit card company and ask them to raise your limit. Just remember that an increased limit is not a license to spend. If you pay your card off on time every month, you may find that a
rewards card will work well for you. If you do choose a rewards card, remember to choose a card that offers rewards you will actually use. Finally, remember that not everyone qualifies for every card; this is true even if you receive a “preapproved” offer in the mail. Preapproved offers are still contingent on you meeting the creditor’s qualifications. Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges. Credit cards can be a great asset when used responsibly, but like so many other financial products, it's easy to be overwhelmed by all the related jargon. APR, balance transfer, prime rate — it can sometimes feel like card issuers make things unnecessarily complicated. But a little bit of research can go a long way in helping you feel more comfortable with the benefits and limitations of your credit card. Below, CNBC Select breaks down the most common credit-related terms, so you can better understand how your card works and avoid the pitfalls (and high costs) that can come when you don't use your card properly. Annual feeThe yearly fee charged for holding a credit card. Some cards may waive the annual fee for the first year. Annual Percentage RateUsually referred to as APR, the annual percentage rate is the interest rate you are charged if you don't pay off your credit card balance in full each billing cycle. Many credit cards have a range of APRs: balance-transfer APR, purchase APR, introductory APR, variable APR (defined below). When you sign up for a credit card, it's important to know the various APRs, since it can have a big impact on how much you owe if you carry a balance month to month. To find your monthly interest rate, simply divide by 12. For example, if you have a 24.99% APR, divide by 12 to get 2.0825% as your monthly interest rate. BalanceA balance is the amount of money you owe on your credit card bill. It can change from month to month depending on whether you pay your bill in full and on time. The balance includes any charges you make, along with accrued interest, late payments, foreign transaction fees, annual fees, cash advances and balance transfers. Balance transferA balance transfer is when you take debt from one credit card and move it to a new card with an introductory 0% APR for a set time period, usually six to 21 months. Balance transfers provide you with more time to pay off debt and can save you hundreds of dollars on interest charges. Take note that balances can't be transferred between cards from the same bank. (Looking to make a balance transfer? Check out CNBC Select's roundup of the best balance transfer cards.) Balance transfer APRThis is the interest rate applied to balance transfers and may be greater than the purchase APR. This APR may be variable or fixed. Balance transfer feeWhen you transfer debt from one credit card to another, you'll often incur a 3% to 5% fee per transfer. Cards may also set $5 or $10 minimum fees. Billing cycleA billing cycle is the amount of time between the last statement closing date and the next. Billing cycles must be at least 21 days, according to the CARD Act. Cash advanceWhen you withdraw money from your credit card account, it's known as a cash advance. Card issuers typically limit the amount of money you can withdraw to a portion of your total credit limit and charge high interest rates and fees on the withdrawal, making cash advances costly. Cash-advance APRThe interest rate you incur if you take out a cash advance. This rate is often one of the highest APRs you can be charged. Cash advances incur interest immediately, with no grace period. Cash-advance feeWhen you take out a cash advance, you typically incur a fee: 5% or $10 per advance, whichever is greater. Credit bureauA credit bureau is an agency that aggregates information about your credit history and reports it to financial institutions and other parties, such as real estate and auto companies. The three main credit bureaus are Experian, Equifax and TransUnion. Credit limitA credit limit is the maximum amount of money that can be charged to a credit card. Credit limit may also be known as a line of credit, credit line or spending limit. Credit reportA credit report is an aggregation of your credit history. Credit reports include detailed information on credit accounts, such as payment history, balances, account opening date and more. The information from a credit report is summed up in a credit score. (Here's how to get a free credit report.) Credit scoreA credit score is a three-digit number that represents your creditworthiness. The most common type of credit score is a FICO Score, and scores range from 300 to 850. The higher the credit score, the better. (Read more about how to check your credit score for free.) Credit utilization rateAlso known as your credit utilization ratio, or CUR, this number is the amount of credit you're using compared to the amount of credit you have available. So if you have an $800 credit card balance and you have a $2,000 credit card balance, your CUR is 40%: ($800 / $2,000 = 0.4 X 100 = 40%) Experts recommend keeping your utilization rate below 30%. Fixed APRA fixed APR does not change with the prime rate. Card issuers can still change your APR, though they need to notify you prior. Foreign transaction feeGrace periodA grace period is the amount of time between the end of a billing cycle and when your bill is due. During a grace period, you typically won't be charged interest on your balance. Grace periods vary by issuer, but must be a minimum of 21 days from the end of a billing cycle. Beware that grace periods don't apply to cash advances or balance transfers. Introductory APRMany credit cards offer introductory APRs that can charge cardholders no interest for a set length of time (usually 12 to 18 months, but up to 21 months). During the intro 0% APR period, you may benefit from no interest on new purchases, balance transfers or both. These offers are a great way to save on interest charges and get out of debt. (Click here for more information on balance transfers.) Late-payment feeIf you pay your credit card bill late, you'll incur a fee of up to $29 for first-time instances and up to $40 for subsequent violations made within six billing cycles. Find out more about late or missed credit card payments. Minimum paymentA minimum payment is the smallest amount of money you have to pay each month to keep your account current. While issuers calculate minimum payments differently, many set a minimum or "floor" — most commonly $25, according to the Consumer Financial Protection Bureau — which is the lowest payment you'll be charged. Minimum payments can also be a percentage of your current balance. Penalty APRCard issuers may penalize you with an interest rate, known as a penalty APR, that's higher than your regular APR when you pay late. Prime rateThe prime rate, or prime lending rate, is the best interest rate lenders charge consumers. The actual interest rate for your credit card may be above the prime rate. If the prime rate changes, often so will your variable APR. So if the prime rate increases, odds are your variable APR will increase too and vice versa. Purchase APRPurchase APR is the interest rate charged on new purchases and may be variable or fixed. Variable APRA variable APR fluctuates with the prime rate and can go up or down at anytime. If the prime rate increases, so may your variable APR. If the prime rate decreases, your APR may also decrease. Read moreEditorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party. What is the example of credit terms?Credit terms are terms that indicate when payment is due for sales that are made on credit, possible discounts, and any applicable interest or late payment fees. For example, the credit terms for credit sales may be 2/10, net 30. This means that the amount is due in 30 days (net 30).
What do credit terms 3/10 Net 30 mean?3/10 net 30 means a 3% discount if a customer pays within 10 days. Otherwise, the total amount is due within 30 days of the invoice date.
What are the 4 types of credits?Four Common Forms of Credit. Revolving Credit. This form of credit allows you to borrow money up to a certain amount. ... . Charge Cards. This form of credit is often mistaken to be the same as a revolving credit card. ... . Installment Credit. ... . Non-Installment or Service Credit.. What does the term 2/10 N 30 mean?2/10 Net 30 refers to the trade credit offered to a customer for the sale of goods or services. 2/10 net 30 means that if the amount due is paid within 10 days, the customer will enjoy a 2% discount. Otherwise, the amount is due in full within 30 days.
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