If you’re doing research on credit cards, you might have come across some confusing terms. We’re here to help so you don’t have to learn these terms through mistakes you might make using your card. In this quick guide, we’ll explain some important terms you should know.
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The APR is the way credit cards make money on lending you money. APR stands for annual percentage rate — the interest rate that’s charged to debt. It’s applied each month to the remaining balance on the card.
An annual fee is a yearly fee you pay to your credit card company for the ability to use your card.
- The other card has a better interest rate, or
- You want to consolidate debt from multiple cards.
Though balance transfers are usually for credit card debt, you can often transfer many different types of debt, including student loans, mortgages and auto loans.
Balance transfer fees
Most providers charge transfer fees when you initiate balance transfers. Typically, these fees are 3% to 5% of the amount you transfer.
Balance transfer kiting
Balance transfer kiting is the process of avoiding interest by opening up multiple credit cards with 0% intro rates to transfer your debt. Credit card kiting isn’t illegal, but can be risky. Repeat transfers to avoid paying APRs on a balance you can’t afford to pay off can lead to a mountain of debt. And it can negatively affect your credit if lenders see that you keep high levels of debt.
Cash advance rate
Taking out a cash loan from your credit card is called a cash advance and costs significantly more than you’d pay to make purchases. You’ll likely pay a transaction fee and pay around 24% of your advance, often with no grace period to pay off before you’re charged.
A credit score is a number assigned to you 300 and higher that summarizes your financial health. Anytime you apply for a loan or credit card, lenders check your score to determine your rate, with the higher scores getting the best rate. Sometimes you can be turned down for a loan if your score is too low. The most widely used score is distributed by FICO, the credit rating agency. It determines your score based on factors like payment history, age of credit and debt-to-income ratio.
Foreign transaction fee
A foreign transaction fee is a fee assessed when you use your credit card for a purchase outside of the US. A card’s foreign transaction fee is usually between 1% to 3% of the transaction amount in US dollars.
An introductory APR, also called an intro APR, is a temporary interest rate a credit card provider offers to a new customer. After the intro APR ends, it reverts to an ongoing APR.
Joint balance transfer
A joint balance transfer is when a balance is transferred for a partner or family member’s debt. Not all credit card providers allow this process, but there are many that give you the option to move your debt to a partner’s credit card. There are two ways to do this: Through transferring between two names and by creating a joint account for the debt. Transferring between accounts involves moving your balance to a new card with your partner’s name attached. This essentially moves the responsibility of debt and could increase your partner’s debt-to-income ratio, while helping yours. Creating a joint account allows you and your partner to share the responsibility of the debt.
No-fee balance transfer card
With a no-fee balance transfer card, you’re not charged fees when you move debt to it. Sometimes, this perk is temporary — sometimes up to 60 days. Other card providers may offer no balance transfer fees indefinitely.
Keep in mind that though a no-fee balance transfer card doesn’t charge balance transfer fees, it may still charge annual fees, foreign transaction fees, cash advance fees and more.
The ongoing APR, also known as the revert rate, is the interest rate you’ll pay after your introductory APR period ends. Typically, the ongoing APR is much higher than the intro APR.
When you have a clear understanding of these terms, you can start comparing credit cards to find one that fits your needs.