Your handy credit card jargon buster

It’s estimated that almost 34 million people in the UK have at least one credit card. But there may be words and phrases that credit card providers use that aren’t so easy to understand. To help, we’ve put together this useful guide to help explain the common terms you'll likely come across.

Annual fee

Some credit cards charge you an annual fee for having a card, whether or not you use it. This will be charged to your card account automatically.

APR

The Annual Percentage Rate, or APR, is the rate that you will be charged on your credit card balance over a full year. Credit card providers are legally required to show their APR as this lets you compare them with each other.

Assumed credit limit

This is a credit limit, usually £1200, that credit card providers use when giving examples of the costs of using their card. Your actual credit limit is likely to be different to this once your application has been approved.

Balance transfer

When taking out a new credit card you are often invited to transfer over the balance from existing credit or store cards. This can be a good idea if you are switching to a card with a lower APR. Often, there is also a special 0% or other low introductory rate offered for a set period of time on any balances you transfer.

Balance transfer credit card

This is a credit card that features a special low rate on balance transfers as an incentive to encourage switching to it.

Balance transfer fee

There is generally a fee that needs to be paid when you transfer a balance to a new card. It’s calculated as a percentage of the balance transfer and is automatically added to your credit card debt.

Cashback credit cards

Some credit cards give you a cash reward in the form of a small percentage of any eligible payments, for example with selected retailers, that you make using them.

Cash withdrawal

You can withdraw cash from most ATMs using a credit card. But it usually includes a 3% fee plus you start paying interest straight away on the amount that you’ve withdrawn. It’s also bad news for your credit score so it’s best to avoid doing this.

Charge cards

A charge card is different from a credit card in that you need to clear your balance in full every month. This means that people use them for convenience rather than for spreading the cost of purchases.

Compound Interest

When you carry a credit card balance over from month to month it attracts compound interest. That is, your balance attracts interest on the interest that has already been added. So the longer you take to clear a balance, the more interest you’ll have to pay.

Credit builder cards

These are cards, generally with quite a high interest rate, that are aimed at people with little or no credit history who want to build up their credit score by showing they can use credit responsibly.

Credit card

A credit card lets you pay for goods and services in person or online and then either settle your balance at the end of each billing month or over a period of time. The latter attracts a monthly interest charge and there will always be an upper credit limit on the amount you can spend with the card.

Consumer Credit Act

The Act passed in 1974 that defines all aspects of how credit card companies must run their business. It also gives protection for credit card holders on any purchase made with their card between £100 and £30,000.

Credit limit

The maximum amount a lender will let you borrow on your credit card. If you exceed this your account will likely be frozen.

Credit reference agency

Credit reference agencies hold records of your payment history, how much credit you have and use, and other and information about you. Whenever you apply for any kind of credit the provider will request this information to help them decide if you are credit worthy.

Credit report

This is the report that a credit reference agency will provide to any lender making enquiries. You can request to see your credit report and many people do this to check that it’s accurate.

Credit score

This is a number that credit reference agencies give you according to certain factors. The higher the score, the more likely you are to be offered credit. There are ways that you can boost your score, for example by ensuring that you are registered to vote and have a permanent address. You can find out more about credit scores here.

Direct Debit

When you set up a direct debit it allows a credit card provider to take a specified amount each month from your current account as payment. It might be the minimum amount, the full balance or any figure that you have agreed.

Handling fee

Some retailers add a small fee to credit card purchases to cover the additional costs they have to pay when accepting this form of payment. It is usually a percentage of the whole transaction cost.

Interest

This is the additional charge made for borrowing and is calculated as a percentage of your credit card account balance at the end of the billing month. You can see how credit card interest is calculated here.

Interest-free period

Many balance transfer, money transfer or purchase credit cards have a period, sometimes as long as 24 months, when you pay no interest on the amount transferred or spent. Many people use this as an opportunity to pay off a credit card debt.

Introductory offer

Any offer, usually time-limited, made to entice someone to take out a credit card. It might be extra cashback on purchases or an interest-free period on a balance transfer to give two typical examples.

Late payment fee

If your monthly payment fails to reach the credit card provider by the monthly due date a late payment fee will be added to your balance. A good way to prevent this from ever happening is to set up a monthly direct debit payment.

Legal protection

Under Section 75 of the Consumer Credit Act you are given certain legal protection for purchases of between £100 and £30,000 made with your credit card. So if anything goes wrong with the transaction like the retailer going out of business and failing to provide your goods the credit card provider is legally required to reimburse you. 

Minimum repayment

This is the minimum amount that your credit card provider needs you to pay back each month calculated as a percentage of your total balance. Only paying the minimum amount each month means that compound interest will add up, making the debt increasingly difficult to clear.

Money Transfer

This is similar to a balance transfer, but instead of moving money from one credit card to another, you’re moving money from a credit card to your bank account. This can be useful if the money transfer card has an interest-free period as you can use the cash to clear other debts such as overdrafts.

Money Transfer fee

The fee for transferring money from a credit card to a bank account.

OTP

An OTP is a one-time password. When you set up your online credit card account many providers give you a password that you can use just once to get into the account. Then you will be asked to create your own memorable password to use in the future.

Promotional period

The length of time that any offers like 0% interest on balance transfers or enhanced cashback rates will last.

Purchase credit card

A 0% credit card allows you to make purchases without interest being added for a set time. This are handy for spreading the cost of expensive purchases. You will however have to make minimum repayments each month, and ideally clear the debt before the interest-free period ends.    

Representative APR

Credit card providers have to show examples of what borrowing with their card will cost. This is to allow potential customers to compare credit cards like for like. So the representative APR is the one that they use, although it’s unlikely to be the actual APR that is applied.

 Representative example

This is an example given to show what the credit card payments would be like on a certain balance, at a certain interest rate and over a certain period. This gives potential card holders the information they need to compare different credit cards.

Reward credit card

Similar to cashback credit cards, these will earn you points as you spend. Often these are linked to airlines but you can also earn supermarket vouchers.

Transfer fee

A fee charged for transferring a balance from another credit or store card to a new one.

Variable APR

This means that the credit card issuer may raise or lower the APR depending on a number of conditions. This may include external factors like the Bank of England borrowing rate changing or personal ones like late payments being made by the card holder.

Top-ranking credit cards on Smart Money People

Looking for the best credit card on the market? Our Smart Money People community have been sharing their experiences by leaving reviews on their credit card providers. See the top-ranking credit card providers here.