At a Glance

Understanding credit card terms is essential for managing your finances effectively. This article provides an overview of 14 crucial credit card terms that every cardholder should know. From annual fees to penalty APRs, this guide will help you confidently navigate the world of credit cards.



Average APR on credit cards as of June 2023.

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1. Annual fee

Credit cards may charge an annual fee for using their services. This fee is typically charged once a year and can vary widely depending on the credit card issuer and the card type. Some credit cards offer benefits or rewards that offset the annual fee, while others may not.

2. Annual percentage rate (APR)

The annual percentage rate, or APR, is the interest rate charged on credit card balances expressed as an annual percentage. It is an important factor to consider when evaluating credit card offers. The APR determines how much interest you will pay on any outstanding balance on your card.

a. Fixed APR

A fixed APR means that the interest rate remains the same over time. This provides predictability, as the rate does not fluctuate based on market conditions or changes in your credit score. Planning and budgeting for payments is easier when you have a fixed APR.

b. Variable APR

A variable APR, on the other hand, is subject to change based on various factors such as the prime rate or market conditions. The variable APR can increase or decrease, impacting the interest charges on your credit card balance. Cardholders with variable APRs should pay attention to any rate changes.

Learn more: What is APR on Credit Card

3. Balance transfer

A balance transfer is the process of moving an existing credit card balance from one card to another. This is often done for lower interest rates or promotional offers. It can help consolidate debt and potentially save money on interest payments.

Learn more: Balance Transfer Credit Cards

4. Balance transfer fee

When you perform a balance transfer, the credit card issuer may charge a balance transfer fee. This fee is typically a percentage of the transferred balance and is added to your new credit card balance. It is important to consider this fee when deciding whether a balance transfer benefits you.

5. Billing cycle

The billing cycle refers to the period between two consecutive credit card statements. It usually lasts around 30 days. During this time, any purchases, balance transfers, or cash advances you make are recorded and accumulated to determine your statement balance.

6. Cash advance

A cash advance allows you to withdraw cash from your credit card. This can be done at an ATM or through other methods specified by your credit card issuer. Cash advances often come with higher interest rates and may have additional fees associated with them. It is advisable to use them sparingly due to the potential costs involved.

7. Credit limit

The credit limit is the maximum amount of money you can borrow on your credit card. It is determined by the credit card issuer based on various factors such as your credit history, income, and other financial considerations. Exceeding your credit limit can result in fees or other penalties.

8. Credit utilization rate

The credit utilization rate is the percentage of your available credit that you are currently using. It is calculated by dividing your credit card balance by your credit limit and multiplying by 100. Maintaining a low credit utilization rate is generally beneficial for your credit score.

Learn more: What is Credit Utilization Rate

9. Grace period

The grace period is the time between the end of a billing cycle and the due date for your payment. During this period, you can pay off your balance in full without incurring any interest charges. However, if you carry a balance from the previous billing cycle, interest may accrue immediately on new purchases.

10. Introductory APR

Some credit cards offer an introductory APR, a promotional interest rate applied to new accounts for a limited period. This rate is often lower than the regular APR and can be advantageous if you plan to make significant purchases or carry a balance. It’s essential to understand when the introductory period ends and what the regular APR will be after that.

11. Late-payment fee

You may be charged a late payment fee if you fail to make at least the minimum payment by the due date. This fee varies by credit card issuer but is typically a fixed amount. To avoid late payment fees, it’s crucial to make timely payments or set up automatic payments.

12. Minimum payment

The minimum payment is the smallest amount you must pay by the due date to keep your credit card account in good standing. It is usually a percentage of your total balance or a fixed amount, whichever is higher. Paying only the minimum can lead to long-term debt and increased interest charges.

13. Penalty APR

A penalty APR is a significantly higher interest rate that credit card issuers can apply if you violate the terms of your card agreement. Common reasons for triggering a penalty APR include late payments or exceeding your credit limit. Review your credit card agreement to understand the conditions that may lead to a penalty APR.

Periodic rate: The periodic rate is the interest rate applied to your credit card balance during each billing cycle. It is calculated by dividing the annual percentage rate by the number of billing cycles in a year. The periodic rate determines the interest charges if you carry a balance beyond the grace period.

14. Statement balance

The statement balance is the total amount you owe on your credit card as of the statement closing date. It includes purchases, balance transfers, cash advances, and any fees or interest charges incurred during the billing cycle. Paying the statement balance in full by the due date helps avoid interest charges.


The 15/30 rule suggests keeping your credit utilization below 15% of your available credit and paying your credit card bill in full within 30 days of the statement date. This practice can help maintain a healthy credit score and minimize interest charges.

The credit card 7% rule suggests that it is generally beneficial to keep your credit card balance below 7% of your total credit limit. This helps maintain a low credit utilization rate and demonstrates responsible credit usage.

The five key features of a credit card are credit limit, APR, fees, rewards or benefits, and issuer reputation. Understanding these features is crucial for selecting a credit card that aligns with your financial needs and goals.

SP* on credit card statements typically refers to a merchant’s name or identifier. It helps identify the specific vendor or transaction associated with that charge on your statement.

The golden rule of credit cards is to use them responsibly. This involves making timely payments, keeping credit utilization low, and avoiding unnecessary debt. Responsible credit card usage can help build a positive credit history and financial well-being.