Brush Up On Your Knowledge Of Credit Cards

The use of credit cards continues to enjoy an almost meteoric rise to popularity and fame. It has been seen that credit cards have now even overtaken debit cards in the race to become the top plastic alternative to money. The use of credit cards is more often than not rewarding in terms of credit scores and points. Yet, it is important that you are smart when you are using your credit card. There are several terms in the credit card industry that you need to be aware to ensure you continue to make smart use of your credit cards.

Here is a list of some of the terms that you should be aware of.

Average Daily Balance

This as the name suggest is the average of the day’s balance. While this is self explanatory how it is calculated is helpful for you to know. This number is calculated by adding the day’s balance and then dividing it by the number of days present in the billing cycle. Some creditors calculate the rates of interest often by this method.

Compound Interest

The definition of this word is straightforward and yet is vital to be understood. Compound interest is an interest that is charged on the initial amount owed and the interest that has been build up over time.

Annual Percentage Rate

This is the amount of rate of interest in percentage that is charged when you use your credit card and borrow it from a lender. This amount is charged yearly on the amount of balance that you owe. The amount is usually a fraction of that particular amount.

Collateral

As much as the name rings in your mind in relation to a Hollywood movie, it really is a term used in the credit card industry. Collateral is the term that is used to define properties or goods that have are provided as security for the loan and are subject to become the bank’s or the lender’s property in case of the lack of payment of the loan.

Default

This is term that is used for people who fail to pay the lending amount back to the lender. Default is considered a crime and there are sever punishments for defaulting on credit card loans.

Late Charge

This is the amount charged on the person who fails to clear their dues by the due date. It is important that you avoid late fee charges because these can have a negative effect on your credit scores and hurt your chances of getting a credit application approved in the future.

Minimum Monthly payment

The minimum monthly payment as the name suggests is the lowest payment that should be done in order to save oneself from added punishments. This is different for all kinds of financial industries. In terms of credit cards the lowest monthly payment is usually the 2 to 4% amount of the dues of that particular month.