Credit Cards from A to Z | A guide

The world of finance can be full of confusing jargon, especially when you’re comparing credit cards. Here are some common phrases and words you’ll see in the process and what they mean.

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by Courtney Allan

Last update 01 Dec 2021

Overview

There are hundreds of different credit cards available on the market that all offer different rates and benefits and benefits.

But there are a lot of terms and jargon around credit cards that can make it difficult to know if you’re making a good choice.

At Compare Club, we believe that everybody makes better buying and applying decisions when they understand the ins and outs of financial products like credit cards.

It’s why we’ve compiled the most common credit card related terms, so you can compare and apply for your new card with confidence.

Key Points

bulletUnderstanding common credit card terms should help you take control of your money.
bulletUnderstanding the jargon can help you make better financial decisions around credit cards.
bulletCompare Club makes it simple to compare different credit cards side by side.
bulletComparing credit cards doesn’t affect your credit score.
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Additional cardholder

If you want to add another person to your credit card, like your partner or another family member, this person is known as an additional cardholder.

Just remember, you’re still responsible for all transactions and repayments on the card, as you’re the primary cardholder.

Annual fee

Some credit cards require you to pay an annual fee, which covers the costs of maintaining your account.

The amount you pay usually depends on the type of card you choose.

Not all credit cards have an annual fee.

Assets

When applying for a credit card, some providers may ask you to provide an overview of the value of your assets.

This helps them to assess the maximum amount they’ll allow you to borrow on your card.

Assets can include things like cars, your home, or even stocks and shares.

Average daily balance

The average daily balance helps determine the amount of interest you owe.

You can figure out your daily interest rate rate by dividing your yearly interest rate by 365.

To figure out your daily balance, you simply multiply your daily rate by your monthly balance multiplied by the days in a month.

For example, if you had a credit card with an interest rate of 17% per year and an average monthly balance of $1,000, your 30 day interest fee would be $13.95 a month.

how to calculate daily interest rate

how to calculate daily interest rate

Balance transfer

A credit card balance transfer is when you move the amount you owe onto another credit card.

By moving to a lower interest card, or a card that offers you a temporary lower rate when you transfer your balance, it could help reduce the amount of interest you pay a month.

However, this card comes with fees.

Please see ‘Balance transfer fee’ for more information.

Balance transfer fee

Balance transfer fees are charged when you transfer credit card debt from one card to another.

It’s typically 1% to 3%* of the amount you transfer.

Some cards offer 0% balance transfer fees, but this is an introductory rate with a time limit.

For example, Westpac offers an Altitude Rewards Platinum card with 0% per year for 24 months, but after 24 months, the rate reverts back to 21.49% per year.

Cash advance

A cash advance is when you use your credit card to withdraw cash.

Please see 'Cash advance fee' for more information.

Cash advance fee

This fee is charged if you decide to withdraw cash from your credit card.

The fee is typically 3% or 5%*** of the amount you’ve withdrawn.

For example, if you’ve withdrawn $300 from your credit card, your 5% withdrawal fee would cost you $15.

Cash advance rate

This is the rate that is charged to your account for withdrawing cash.

These are usually high interest rates that can start from 9.39* to 20.99% per year**.

This is different to the cash advance fee, which is the fee you pay for withdrawing cash.

Cash card

A cash card is a credit card with a prepaid balance instead of a line of credit, like a gift card.

Cheque card

A cheque card is known as a debit or bank card and only allows you access to money that is in your bank account instead of a line of credit like a credit card does.

Closing balance

Your closing balance is the total amount you owe at the end of a statement cycle.

Paying this on time may help avoid further interest fees.

Credit limit

A credit limit is the maximum amount you can spend on your credit card before you have to pay some of it off.

Over time, you may be able to increase or decrease your limit.

Credit report

Also known as a credit history, a credit report is a summary of how you have handled credit accounts including type of accounts, payment history and status of your credit accounts, as well as certain other information that’s reported by your lenders to the credit bureaus.

The report is kept by a credit bureau, such as Experian or Equifax, and is used to determine your reliability in paying off future debt.

Lenders use this information to tailor your loan, interest rates and at what terms.

Credit score

Also known as credit rating, a credit score is a three-digit number that represents your creditworthiness (how likely to are to keep on top of your finances) to lenders.

The score is calculated by using several factors, including what your credit history, types of loans you currently have, number of open accounts, total level of debt, repayment history, and other factors.

Together with your credit report, lenders use this information to determine your rates.

Your credit score is also used for home loans, personal loans and car loans.

Creditor

A creditor is the lending agency that you owe money to, like your bank.

CVC

The CVC is typically a three-digit number on the back of your credit or debit card.

CVC stands for Card Verification Code and is another layer of security when making online transactions.

Default

If you default on your credit card or loan, this means you haven’t been able to keep up with repayments.

Defaulting can impact your credit history and credit score.

Direct debit

An arrangement made with a bank that allows a third party to borrow money from your account on agreed dates, typically in order to pay bills such as rent, insurance or any other memberships.

Expenses

When applying for a credit card, the lender may ask for more detailed information about your expenses, such as how much you pay in rent or on your mortgage, your average weekly grocery bill, and other common expenses.

Income

Lenders consider your income to decide your credit limit when you apply for a new credit card.

Income such as salaries/wages, dividend distribution received from investment, rental receipts from real estate investments and other.

Interest free days

Interest free days are the days where you don’t have to pay any interest on your credit card.

Some credit cards offer up to 60 days interest free on purchases.

Interest rate

A credit card's interest rate is the price you're charged for borrowing money from the lender who provides the card.

On most cards you avoid paying interest if you can pay your balance in full each month from the due date.

Interchange fee

An interchange fee is a fee paid between a business’ bank and your bank to conduct an electronic transaction.

Sometimes retailers will pass this cost onto you, but this depends on the type of credit card you have.

Introductory rate

An introductory rate is an interest rate charged to you during the initial stage of loan.

These could be lower than the standard rate, are not permanent and after it expires a normal or higher than normal interest rate will apply.

Liabilities

These are debts that you’re currently paying off, for example, loans, overdrafts or credit debts.

Minimum payment

This payment is the lowest amount you’re required to pay each month to avoid late fees.

It’s calculated by how much you’ve spent on your card.

Minimum interest charge

It’s a monthly credit card fee that you may be charged if your outstanding balance is so low that it’s less than the minimum.

For example, a $1.50 minimum interest charge means you’ll be charged $1.50 in interest, even if the actual amount is less than this.

Monthly payment

This is the amount you pay each month towards your credit card, whether it’s your minimum payment, the whole balance or something in between.

How much you pay is up to you.

Monthly statement

This is a statement that shows all of your transactions, fees and interest charges on your credit card.

It also includes your closing balance, your minimum payment amount as well as when the payment is due.

Over-limit fee

This is a fee you’re charged for exceeding your credit card limit.

The fee can either be a set amount or a percentage of the amount you’re overdrawn on your credit card.

Payment dishonour fee

A payment dishonour fee is a fee that you will be charged if you attempt to make a payment on your credit card but do not have enough funds in your bank account.

Penalty fees

This describes any fees and charges related to violating the terms and conditions of your cardholder agreement, which includes late payment fees, overdrawn account fees and a payment dishonour fee.

These fees vary across credit card lenders.

Purchase rate

The purchase interest rate is applied to any unpaid purchase balances at the end of the billing cycle.

Revolving account

Revolving accounts are a type of credit accounts that provide the cardholder with a maximum limit and allow for varying credit availability.

They do not have a specific expiry date and stay open for as long as you are in good standing with your creditor.

Credit cards are one of the most common examples of a revolving account.

Rewards program

Card providers such as Visa or Mastercard, or the lender may give you access to reward programs, depending on the type of card you choose.

For example, you might earn rewards such as cashback options or shopping depending on how much you spend and sometimes up to a certain limit.

It’s also common for cards to offer Qantas Frequent Flyer or Virgin Velocity Points, either when you sign up for a new card, or on every purchase.

Statement cycle

The statement cycle describes the time between the last statement closing date and the next billing cycle.

Universal default

It provides lenders the right to raise their interest rates if you have defaulted on any loans, including loans from other lenders.

Jargon can be intimidating, especially when comparing credit cards.

The more confident you are with the language credit card providers use, the easier it will be to compare cards and work out what’s the best fit for your finances.

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This guide is a general in nature and should not be taken as financial advice. Please make sure to read the product disclosure statement for the products and check with a financial professional before making any decisions.

^Compare Club compares a range of credit cards from Big Banks, Specialist finance providers and directly from payment issuers. Compare Club doesn't compare all cards on the market and not all cards are available to all people. Our panel will change over time. Customers should consider their personal circumstances before applying for credit.

*Creditcard.com.au, Balance Transfers: Key Rules Explained, written 28 October 2021.

**Savings.com.au, Which credit cards have the lowest cash advance rates and fees?, written 11 November 2021.

***Rates are subject to credit card terms and conditions