Credit Card Terms Consumers Should Know

Understanding credit card terms is essential for managing your finances, avoiding unnecessary fees, and protecting your credit score. Whether you’re new to credit cards or want to improve your financial knowledge, this guide breaks down the most common credit card terminology in simple terms.

Account Fee

An account fee is a charge applied by a credit card provider for maintaining your card account. This may be charged annually or monthly and often applies to premium or rewards-based credit cards that offer added benefits.

Additional Cardholder

An additional cardholder is a person authorised to use your credit card account with their own card. While they can make purchases, the primary cardholder remains legally responsible for all spending and repayments.

APR (Annual Percentage Rate)

APR represents the yearly cost of borrowing on a credit card, including interest and certain charges. A higher APR means borrowing costs more, especially if you carry a balance beyond the interest-free period.

Available Credit

Available credit is the remaining amount you can spend on your credit card at any given time. It is calculated by subtracting your outstanding balance and pending transactions from your total credit limit.

Balance Transfer

A balance transfer allows you to move debt from one credit card to another, often to benefit from a lower or 0% interest rate for a promotional period, helping reduce interest costs.

Bank of England Base Rate

The Bank of England Base Rate is the interest rate set by the UK’s central bank, influencing lending rates across financial products, including some variable credit card interest rates.

Card Purchase

A card purchase is any transaction made using your credit card to pay for goods or services. These transactions usually benefit from an interest-free period if paid in full on time.

Cashback

Cashback is a reward where you earn a percentage of your spending back as cash. This amount may be credited to your account or paid out periodically, depending on the card’s terms.

County Court Judgment (CCJ)

A County Court Judgment (CCJ) is a legal ruling issued when a debt remains unpaid. Having a CCJ can significantly damage your credit score and affect your ability to obtain credit.

Credit Agreement

A credit agreement is a legally binding contract between you and the credit card issuer outlining borrowing terms, interest rates, fees, and repayment obligations.

Credit Card Issuer

A credit card issuer is the bank or financial institution that provides the credit card, sets the terms, and manages billing, payments, and customer service.

Credit Card Verification Code (CVC)

The CVC is a three- or four-digit security code printed on your card and used to verify online or phone transactions, helping protect against fraud.

Cash Transactions

Cash transactions include withdrawing cash from an ATM or using your credit card for cash-like payments. These usually incur higher fees and interest from the transaction date.

Chip and PIN

Chip and PIN is a security system where a microchip in your card and a personal identification number are used together to authorise transactions securely.

Credit Reference Agency

A credit reference agency collects and maintains information about your borrowing and repayment history, which lenders use to assess your creditworthiness.

Credit Scoring

Credit scoring is a numerical assessment of your financial reliability based on your credit history, outstanding debts, and repayment behaviour.

Credit File

Your credit file is a detailed record of your borrowing activity, including credit cards, loans, payment history, and any missed or late payments.

Credit Limit

A credit limit is the maximum amount you are allowed to borrow on your credit card. Exceeding this limit may result in declined transactions or additional fees.

Current Pending Transactions

Current pending transactions are card payments that have been authorised but not yet fully processed, meaning they temporarily reduce your available credit.

Individual Voluntary Arrangements (IVA)

An IVA is a formal agreement that allows individuals with debt problems to repay creditors over a fixed period, usually at a reduced amount.

Interest

Interest is the cost charged by the lender for borrowing money. On credit cards, interest is applied when balances are not paid in full by the due date.

Interest-Free Period

The interest-free period is the time between making a purchase and the payment due date, during which no interest is charged if the balance is cleared in full.

Last Payment Date

The last payment date is the most recent date a payment was credited to your account, helping you track repayment activity and avoid missed payments.

Money Mule

A money mule is someone who transfers illegally obtained money on behalf of criminals, often unknowingly, which can lead to serious legal consequences.

Minimum Payment

The minimum payment is the smallest amount you must pay each month to keep your account in good standing, though paying only this increases interest costs.

Money Transfer

A money transfer allows you to move funds from your credit card directly into a bank account, typically with fees and immediate interest charges.

Outstanding Balance

The outstanding balance is the total amount you currently owe on your credit card, including purchases, fees, and interest.

Overdue Amount

An overdue amount is any payment not made by the due date. Overdue balances may attract late fees and negatively impact your credit score.

Payment Due Date

The payment due date is the deadline by which your credit card payment must be received to avoid late fees and interest charges.

Pharming

Pharming is a cybercrime where users are redirected to fake websites to steal personal and financial information without their knowledge.

Phishing

Phishing involves fraudulent emails, texts, or calls designed to trick individuals into revealing sensitive information like card details or passwords.

Posting Date

The posting date is the date a transaction is officially added to your credit card account, which may differ from the purchase date.

Settlements

Settlements occur when a lender agrees to accept less than the full balance owed to close a debt, often used in financial hardship situations.

Total Minimum Payment Due

The total minimum payment due includes the minimum payment plus any overdue amounts or fees that must be paid to keep the account up to date.

Withdrawal Limit

The withdrawal limit is the maximum amount of cash you can withdraw using your credit card within a specific time period, often daily.

Knowing these credit card terms empowers you to use credit responsibly, reduce costs, and protect your financial future. Bookmark this guide or share it with anyone looking to improve their credit knowledge.