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7 Terms to Know When Applying for a Credit Card

7 Terms to Know When Applying for a Credit Card
Are you looking to get a new credit card, but you're not sure what the various terms mean? Let's take a closer look at the 7 terms you should know before applying:

1. APR
APR is an acronym used for annual percentage rate. It is the interest rate of a loan or credit card within a year's time. The lower the APR, the less interest you are going to pay on a credit card balance. If you pay in full each month, APR is not of concern to you, as interest is only assessed on unpaid balances.

2. Grace Period
Grace Period is the time you have before a credit card company starts charging interest on your new purchases. The grace period varies by credit card issuer and is usually a period of 20 to 30 days.

3. Credit Limit
Credit Limit is the maximum balance that you will be able to carry on the card. The amount of the credit limit is determined by several factors, among them: your credit rating, your income level, and your past account histories that show on your credit report.

4. Annual Fee
Annual Fee is the yearly fee charged by a credit card company to its cardholders. An annual fee on a credit card can cost from $0 to $450, though the cards on our site are on the lower end of that scale. This fee is added to your statement once a year and is added to your account balance.

5. Processing Fee
Processing Fee is the amount that is charged to open a credit card account. It is also known commonly as an application fee. This fee covers the charges incurred by the credit card company in issuing you your card, such as application processing, card creation, mailing costs, and customer service.

6. Minimum Payment
Minimum Payment is the least amount of money that you are required to pay on your credit card statement each month to keep it in good standing. This amount is calculated as a percentage of your total current balance. It is important to note that with compounding interest, you could end up paying for a long time if you only pay the minimum, so it is a good idea to pay more than your minimum payment whenever you are able.

7. Credit Bureau Reporting
Credit Bureau Reporting means that a credit card issuer reports your account payment history to a credit bureau like Experian, Equifax or TransUnion, usually on a monthly basis. Reporting to credit bureaus ensures that your good payment history shows up on your credit profile and that you, in turn, are rewarded over time with a better credit rating. For more credit-related terms and their definitions, we invite you to visit our Glossary of Terms section.