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Credit cards key terms

Annual percentage rate (APR)

The APR, or annual percentage rate, is the standard way to compare how much loans cost. It lets you compare the cost of loan products on an “apples-to-apples” basis. Your credit card company must disclose the APR before you agree to the use the card.

To calculate the APR, the interest rate and fees are compared to the amount you borrow and calculated over a one-year period. This allows you to compare the costs of a credit card to a six-month installment loan. It is also why APRs are often different from simple interest rates.

Balance transfer

A balance transfer lets you move an outstanding balance from one credit card to another, sometimes for a fee. The fee is usually a certain percentage of the amount you transfer or a fixed amount, whichever is more. Many credit card companies offer zero-percent or low-interest balance transfers to invite you to consolidate your debt on one credit card. The promotional interest rate for most balance transfers lasts for a limited time. After that, the interest rate on your new credit card may rise, increasing your payment amount.

If you’re more than 60 days late on a payment, the credit card company can increase your interest rate on all balances, including the transferred balance.

Credit balance

A credit balance on your billing statement is an amount that the card issuer owes you.

Credits are added to your account each time you make a payment. It may also be added when you return something you bought with a credit card or because of rewards you have earned or a mistake in a prior bill. If the total of the credits exceeds the amount you owe, your statement shows a credit balance. 

Credit card interest rate

A credit card’s interest rate is the price you pay for borrowing money. 

Daily periodic rate

Some card issuers calculate interest on the account using a daily periodic interest rate, which is used to calculate interest by multiplying the rate by the amount owed at the end of the day. This interest amount is then added to the previous day’s balance, which means that interest is compounded on a daily basis. 

Grace period

A grace period is the period between the end of a billing cycle and the date your payment is due. During this time, you may not be charged interest as long as you pay your balance in full by the due date. Credit card companies are not required to give a grace period. However, most credit cards provide a grace period on purchases.  

Interest rate

A credit card’s interest rate is the price you pay for borrowing money. For credit cards, the interest rates are typically stated as a yearly rate, and this is called the annual percentage rate (APR). On most cards, you can avoid paying interest on purchases if you pay your balance in full each month by the due date.

Prescreened credit card offer

A prescreened credit card offer is when credit card companies use information from credit reporting companies to make firm offers of credit to you if your credit history meets the criteria selected by the card company.

Unauthorized use

Generally, unauthorized use is the use of a credit card by a person who does not have the right to use the card. For example, if you lose your card and someone finds and uses it, that would be an unauthorized use.