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Glossary of Credit Card Terms

Allocation of payments
Allocation of payments to transactions. Usual you pay off the lowest interest rate first. e.g. if you take advantage of low interest balance transfer, then this would be paid off first.

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Annual Fee
A fee that is applied to the credit card for having it. Some credit card companies do not charge an annual fee.
Some waive the fee if you do spend a minimum on the card over a year. Other cards charge this fee regard less of how much you spend.

Annual Percentage Rate. This is the rate of interest that is added on to transactions that have been put onto the credit card. An APR of 12% would be a 1% per month.

Balance transfers
If you have more than one credit card, you can transfer some or all of the balance from one credit card to another card up to the credit limit.
You might want to do this if the APR is lower or you get a special discount or offer for transferring a balance. You may want to get a new credit card that offers promotional rate for limited time to save money.

Card Holder
The person authorised to use the credit card.

Cash advance fee
See cash withdrawal.

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Cash back
Cash back is where the credit card company give you a percentage of of your transaction as cash or credit back at the end of a period of time ( usually 1 year ).

Cash Withdrawal
A charge applied to cash withdrawals. Also a higher rate APR may also be charged.

Credit Limit
The maximum amount of credit that the lender is currently prepared to offer.
Sometimes this limit can be negotiated, up or down.

Default Charges
Charges that are applied for failing to do something. Examples of this would be going over the credit limit, not making a repayment, etc.

Foreign Exchange Commission
Is a percentage added to the cash withdrawal made whilst abroad.

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Handling Fee
Credit card companies have started to charge a handling fee for all balance transfers. This is usually between 2% and 3% of the balance transferred. Sometime they will charge a minimum amount.
Depending on the rate of interest offered and the length of the offer this can have a dramatic effect on the benefit of taking the balance transfer.

For example, if you are offered a good promotional rate for the length of the balance then this is good. However if the promotional rate lasts for only 6 months then value it gives is less.

Interest free period
To take advantage of the interest free period on credit cards you must pay the minimum balance each and every month, and within the payment due date. There is nothing stopping you from making extra payments.

The interest free period starts the day after the last statement and is up to the payment due date.

Cash withdrawals, balance transfers and credit card cheques are usually excluded from the interest free period. If they are excluded you will pay an interest charge from the day you withdraw cash or use credit card cheques.

Late payment fee
When you receive the monthly statement it will come with a date you must make payment by.
If you do not make the payment the late payment fee will be added.

This is the minimum you have to pay back to the credit card company in a given month. It is usual 2% or 3% of the balance. If you are only paying the minimum payment per month then you will paying more interest as a result.

Over limit fee
This a charge if you go over the agreed credit limit you have with your credit card. If you find that the credit limit is not enough you maybe able have the limit increased by talking to the credit card company.

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Payment Protection
Payment protection will pay a percentage of the monthly balance on your statement in the event that accident or sickness prevents you from working or you become unemployed through no fault of your own.

Purchase Protection
Purchases over £100 are usually cover by the credit card company.

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