6 Important Credit Card Terms That You Should Know

You don’t need a credit card...or do you?

Well, you do! 

It depends on your spending patterns and lifestyle though.

Cashless payments have been around for quite some time. We did not use these a lot; some of us even had no idea about it! However, ever since the Demonetization drive, cashless transactions have been brought to the forefront.

Amongst the urban youth today, debit and credit cards are quite popular. Owners use these for a wide variety of things, such as shopping, holidays, travels, medical bills, emergencies, and much more.

There are very few amongst us, though, who are well aware of the jargon surrounding these financial instruments. It pays to know these. For instance, you may know the basics of loans and repayment period, but do you know about a ‘Cash Advance’? What about ‘Over Limit Charges’ and ‘Revolving Credit’? Perhaps not. And that’s totally all right.

After all, there is a first time for everything. It is never too late to start learning. 

Without further ado, let us acquaint ourselves with some of the most essential terms in credit card usage.

Six Important Credit Card Terms

Credit Limit

The credit limit is simply the limit to which you can borrow money through your credit card. The limit is set for each particular billing cycle. Based on your credit card repayment pattern and usage history, the credit limit can be increased or decreased by the bank. 

It pays to maintain a good or above-average repayment history, as well as a minimal credit card usage pattern. Unsettled debt and late payments are some of the things that can cause your credit limit to fall.

Cash Advance

A cash advance is a handy feature that allows you to withdraw cash using your credit card at selected ATMs, both in India as well as abroad. A cash advance is useful during emergencies and should only be used in such situations. 

Another thing to remember is that you can only withdraw a small portion of the credit limit as a cash advance. In other words, you can’t max out your credit limit by withdrawing it as cash.

The bank profits through this action in two ways: the flat fee of the cash withdrawal charge and the interest rate for the cash advance.

When it comes to cash advance, there is only one downside. The interest rate is very high. It usually ranges from 3.5% to 5% each month if there is any outstanding amount. This quickly amounts from 42% to 60% in the annual interest rate.

Over Limit Charges

What happens when you exceed the Credit Limit? 

Is this possible? It is, but there’s a catch. Banks charge you on the money you have borrowed beyond the limit. This is called the Over Limit Charges. This is usually in the form of a flat fee and is charged on the credit card itself. The one downside is that actions like overcharging tarnishes your Credit Report.

Annual Percentage Rate

The Annual Percentage Rate or APR one is quite simple. It is charged as a percentage on any outstanding balance on your credit card. The APR is usually for online transactions and swipes. The APR follows this format: 5% per month. As per this example, the yearly APR comes to 60%.

Revolving Credit

Revolving Credit may seem to be a bit complicated, but bear with us a bit. We’ll make it easy, we promise! Revolving Credit is the Credit Limit that is renewed each time you pay off outstanding debts. Revolving Credit, legally, is a contract between the credit issuer and you, in which you are mandated to repay outstanding amounts in full or in part to keep on enjoying the card’s credit facility.

Disputes and Chargebacks

You may sometimes find errors in your monthly statements. Hey, it happens! Credit bureaus check credit reports. Even for those financial experts, it is not always easy. They have to create credit reports for millions of people. Mistakes are totally probable when one creates a credit report for two people with the same name. 

Now, when you notice mistakes, like transactions not made by you, on the report, you can initiate a chargeback. A chargeback is also called a dispute. If disputes are proven, card issuers are required to pay you back the money charged as a mistake. 

Mistakes in the credit card are more common than you think. That’s why it actually matters to know the chargeback rules and procedures.

To Sum Up

Having a credit card comes with a lot of benefits as well as responsibilities. That’s why it is very useful to know the industry jargon and credit card terms and conditions. This can save you from losing money needlessly and even from getting penalized by the credit card issuer when it’s not your fault.