Applying for a credit card is a huge responsibility. There are agreements that you will need to read, understand and agree to before you get hold of your credit card. You can do your own research on the general terms and conditions prior to your credit card application. Doing so will give you a gist of the financial commitment you are signing up for. 

Moreover, knowing and understanding the credit card terms will help you manage the credit correctly. You will be able to comprehend the agreement and your monthly statements. Although it is undeniable that some of the terms can be overwhelming for new applicants, this should not stop you from expanding your credit card knowledge. 

Here are some of the prominent credit card jargons that you need to know. 

Annual Fee vs Annual Interest Rate

Annual fee and annual interest rate can be often misunderstood as the same thing. These terms may refer to yearly payments but both carry different charges.  

Annual fee is a fixed, yearly amount charged by the credit card provider to its users. It is a routined payment every year as part of your membership renewal. All the credit card providers will have different annual fee charges. You can even have your annual fee waived off for a certain period depending on the plan you choose. 

Annual interest rate will have to be one of the most important terms that you should be fully aware of. It is the percentage of the principal loan that you will be required to pay every year. Make sure your credit card provider exposes the details of your annual interest rate as it will be reflected in your statements. You should avoid high interest rates by paying full payments each month. 

Balance Transfer 

A balance is the amount that you still owe on your credit card. The figure changes according to your monthly payments and other additional charges. If you manage to pay it in full, then your balance debt will be lower. 

Meanwhile, a balance transfer refers to the loan that you would like to shift to a new credit card. The balance transfer is valid for a fixed period. Therefore, it actually gives you more time to pay off your debt. Usually, you will be recommended to perform a balance transfer to reduce your annual interest rate. 

You should also take note of the balance transfer interest fee. Although your annual interest rate can be reduced, there may be other charges which you have to be informed of. It is best to further inquire with your credit card provider on this matter.

Note: Balance transfer cannot be performed within the same bank.

Credit Report and Credit Score

A credit report is different from a credit score. The credit report is mainly referring to the history of your credit card use. It will contain information about your credit card account(s). Some of which include, your monthly payments, credit balance, and the rest of your credit card activities. 

A credit score is the statistical analysis conducted by the financial experts in the loan and banking industry. You will need to have a good credit score to get approval for any loan from the banks or other institutions. 

If you are looking to build a good credit score, then you will need to make sure your credit report is well maintained. The information from your credit report and credit score will play a major role the next time you apply for a loan. 

Credit Limit

Every credit card has its maximum limit of use. The credit limit depends on the plan you sign up for. You can choose to set a maximum limit that you are allowed to spend. Since there are overlimit fees that some credit card companies may charge you, it is better to set and know your limit before you start using your credit card.

Foreign Transaction Fee

It is definitely a privilege when you get to use your credit card for overseas payments. It makes your online purchases more cost-efficient. 

Still, you need to learn the charges applied for foreign transactions. Generally, the foreign transaction fees are between 1% to 3% of your expenses per usage. There are also credit cards that discount you from this fee. Most travel credit cards will waive off foreign transaction fees which can save you a few hundred dollars per year. 

This fee is usually charged when you pay for items or services out of Singapore. It is also charged when you use the credit card in other countries. Hence, if you are a frequent traveller, you need to clarify about your overseas charges with your credit card company. This is to avoid any misunderstandings and additional payments. 

Late Payment Penalty 

Credit cards have late payment fees. It is a penalty that you will have to pay every time you pay your debt late. The penalty charges are not the same for all credit cards though you need to know how much you will be charged if you miss your payment. 

How to know whether your payment has been delayed? While some credit card bills are issued promptly, it does not necessarily mean that you have to pay on the issued date. There are dates and times fixed by your credit card provider which you will have to adhere to. You can always clarify this while you are signing up. 

You have to realise that late payment penalties are calculated from the time you delay. Therefore, your accrued late payment fees will snowball the longer you delay.  

Minimum Monthly Payment

As you have borrowed from the bank, you will have a stipulated amount of which you will need to pay every month. Your monthly payments will be based on the sum you have loaned and used. 

The misunderstanding of this term has probably caused many people to assume negatively of a credit card. The minimum required payment for every month is indeed given by the credit card provider. But it is falsely assumed that the minimum monthly payments are enough to pay off the debt. 

Because your monthly payments vary according to your expenses, it is only practical to pay the due according to your expenses. Otherwise, you will have to bear interests that will be carried forward every month until you have settled the full payment. You will only end up paying more. 

Sign Up Offers

With the number of ongoing credit card promotions, it can be tempting to sign up for the welcome offers alone. But you have to realise the responsibility you will have once you own a credit card. 

As much as you want to spend more to redeem your points on that exclusive prize, you need to keep in mind that the rewards are one-time deals. And once you receive your gift, you will need to pay back the money you used. 

This does not mean that you should not sign up for a credit card during a promotion. You can actually save more with welcome offers. But, you need to look beyond the offers to decide the credit card which will serve you the best. 

Understand Credit Card Jargons Before You Sign Up For One

These are some of the credit card key terms that you should know. Once you understand these terminologies, you will be able to evaluate the best credit card for your use. You can then enjoy the credit card perks without any fear and doubts.