12 most important credit card terms you should know (2024)

Lots of people like using credit cards for shopping because they come with lots of benefits. Credit card companies give rewards like cash back and discounts. But to use your credit card well, it's important to know the words related to it. Understanding what credit cards are and key terms is important for getting the most out of your card. Words like billing cycle, annual fee, credit score, grace period, and EMI are important for managing your money wisely. Knowing these words helps you make smart choices and use your credit card well.

Here are 12 important credit card terms you should know.

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• Revolving credit

Revolving credit might seem complicated, but it's just an agreement about borrowing money. With this type of credit, you can choose to pay back all or part of what you owe. You can keep using the credit up to a certain limit as long as you keep making payments on time and the account stays open. The amount of credit you have available, the smallest amount you need to pay each month, and what you owe will change depending on what you buy and how much you pay off. Usually, you don't have to pay any extra fees if you pay back what you've borrowed within 48 days, states the Kotak Mahindra Bank website.

• Credit limit

Your credit limit is the maximum amount you can spend using your credit card each billing cycle. It can change based on how you use your card and if you pay on time. If you make payments regularly, your credit limit might go up. But if you're late with payments, your limit could stay the same or even decrease.

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• Balance transfer

• Billing cycle

"A billing cycle, or billing period, is the time from when you get your last credit card bill to when you get the next one. It's typically about a month long, but it can vary," stated the Kotak Mahindra Bank website. Because months have different numbers of days, the length of your billing cycle might change. But there are rules to make sure things are fair and consistent.

• Due date

According to IDFC FIRST Bank website, "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."

• Annual fee

An annual fee is a set amount of money you have to pay every year for your credit card. It's a common payment term, and the cost can vary, usually between Rs. 500 and Rs. 2,999, or sometimes more. Paying this fee can give you benefits like cash back, reward points, or airline miles. Some credit cards might waive the annual fee for the first year, so you don't have to pay it right away.

• Credit Score

"A credit score between 300 and 900 indicates your trustworthiness when borrowing money. The higher your credit score, the more likely you will be approved for loans and offered better interest rates. Your credit score is determined by looking at your credit history, which includes details such as the number of accounts you have, the amount of debt you owe, how consistently you've repaid your debts, and other relevant factors. Lenders use your credit score to assess credit card payment terms and how likely you are to repay loans on time," stated Kotak Mahindra Bank on its website.

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• Grace Period

The grace period is a time after a payment due date, like for a loan or insurance, where you can still make the payment without penalties. It's like an extra time given to make the payment without any negative consequences.

• Annual percentage rate (APR)

"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," according to the IDFC FIRST Bank website

• Interest rate

Interest charges on a credit card can vary depending on what you're using it for. The interest rate for paying in installments (EMI) is usually lower than for extending your payment. And it's different again for things like cash advances or if you spend more than your limit. Make sure to check how these charges work for different transactions and services before you get a card.

• Chargeback/disputes

If you notice a mistake in your monthly statement from the credit card company, you can dispute it by writing to them. They're supposed to respond within 30 days of getting your letter. It's important to know your card issuer's dispute terms because errors in billing can happen anytime.

• Over limit charge

If you spend more than your credit card limit set by the issuer, you might be charged an over-limit fee. This fee is usually a fixed amount, but it can affect your credit score because it's recorded on your credit report. It's not great for your credit health.