Unless you’re a financial wizard, the world of credit cards can often be confusing. Here at Sioux Falls Federal Credit Union (SFFCU), we get questions all the time surrounding common credit card terms and what they mean. We understand the challenges our members face, so we’ve provided definitions for a few key credit card terms in an attempt to demystify the process.
Read on for definitions to key credit card terms.
“Annual Percentage Rate” may sound like a complicated phrase, but, put in terms of credit cards, it is simply the interest rate of the card. If you successfully pay off your ending balance each month by the due date, then the APR of your card shouldn’t have an impact on your spending. If you maintain a balance, APR is simply the percentage of interest you will have to pay on the remaining balance at the end of a billing cycle.
Balance transfers tend to confuse a lot of credit card customers. Transferring your balance is the act of moving the balance you’ve accumulated on one card to a different card, often with a lower rate. This helps you save money on interest payments.
In fact, for a limited-time only we’re offering a 0% balance transfer with an introductory rate thru Oct. 31, 2019—check out the details here.
“Chargeback” is another common credit card term that stirs up confusion amongst credit card users. While it may be confusing, chargebacks are some of the strongest consumer protections offered by credit cards. They promise the safe return of customer funds from fraudulent charges. Say, for example, someone steals your credit card information and buys something expensive. Instead of leaving you on the hook for the expensive purchase, a chargeback returns your stolen money back to you.
For those who struggle with credit history, acquiring a credit card can be a difficult task. In certain situations, the only way a person with bad or no credit can be approved is by having a cosigner. A cosigner is someone with good credit who associates his or her name with the credit card application of someone with lower or no credit.
Your credit score is essentially a grading system for your credit usage, and a number of factors play a part in determining your final grade. For instance, FICO is one of the largest judges of credit scores in the United States, and your FICO credit score is made up of five key elements.
According to FICO, 35 percent of your credit score is based on your payment history, 30 percent is based on the amounts you owe, 15 percent is based on the length of your credit history, 10 percent is based on your credit mix and 10 percent is based on how much new credit you have. Generally speaking, you want to avoid missing payments, owe little, maintain a long credit history and have diverse sources of credit.
While it may be easy to understand what your credit-utilization ratio is from the name, it can be difficult for some people to understand just why their ratios are important. The truth is that your credit-utilization ratio plays a substantial role in determining your credit score. Credit cardholders who utilize too much of their credit are seen as riskier by lenders, which damages their credit scores. However, utilizing too little of your credit can also damage your credit score. Experts suggest utilizing no more than 30 percent and no less than one percent of your credit at any given point in time in order to maintain the best possible credit score.It goes without saying that the credit card dictionary can be a bit intimidating, but, by understanding the words and phrases surrounding the industry, credit card customers better position themselves for financial success. If you still have questions, don’t hesitate to call or stop in to one of our branches. We’re happy to help.