Credit card terms and facts
In the world of credit cards and borrowing money, the most important factor is your credit score.
What is a credit score?
Answer: A credit score is a numerical value from 300 to 850 calculated from the information in your credit report. The higher the score, the lower the risk for the lender and this works towards your advantage for more favorable rates.
What is a credit report?
Answer: A credit report is the official record of how you pay off your debt to creditors, such credit card companies, mortgages, student loans, etc. It also contains historical information such as payment history and the amounts you owed.
Because credit cards are so closely tied to your credit score, it is imperative to always be in good credit standing if possible. Any financial planner or advisor will tell you that to get out of credit card debt, you have to make more than the minimum payment. However, when it comes to your credit score and protecting it, ALWAYS make the payment, even if it is only the minimum payment.
With a competitive credit score, you can be more selective in choosing a credit card. However, there are often other fees associated with credit cards that many people fail to evaluate when choosing the correct credit card to meet their needs:
Annual Fee – Is the fee for having the credit card. It is usually billed annually on your anniversary date (when the card was actually issued)
IMPORTANT: Watch annual fees, many card issuers waive the annual fee on the first year to make the credit card look more attractive. However, it is easy to forget to cancel the card before the anniversary date if you were planning to avoid the annual fee. Put a reminder on your calendar at work or home, to cancel one month prior to your anniversary date if you do not want to pay the annual fee.
Cash Advance Fee – This is the fee that is charged when you get cash using your credit card at an ATM or a bank. Typically these are very high fees, often the minimum is $5 USD. It is generally NOT a good idea to get a cash advance on a credit card if at all possible because of the fees associated with the transaction.
Balance Transfer Fee – This is fee that is charged when you move a credit card balance from one card to another card. If your credit score is favorable, it is fairly easy to find a card that will waive balance transfer fees if you transfer a balance from another account when you first open the new card.
There are some other terms to be aware of that are common in the credit card industry:
Chargeback – This is when the consumer calls the bank that issued their particular credit card and disputes the charge for whatever reason. The most common reason to dispute a charge on your account is for fraudulent use.
IMPORTANT: You are well within your right to dispute any charge that looks suspect on your credit card statement. The bank is required to obtain supporting information to prove that you the cardholder made the charge. For example, the merchant may be required to produce the receipt of the purchase with you signature.
Typically banks will not make you pay for the purchases that are in dispute while the issue is being resolved.
PIN – Personal Identification Number – this is a value that is usually 4 digits (but can be more digits) that is either given to or selected by the credit card holder or debit card holder in the event they want to do a PIN based transaction. A typical transaction my be a cash advance from a credit card at an ATM.
A common misconception is the PIN is stored on the track or someplace on the card. This is NOT the case, your PIN is not stored on the card itself. When you enter the pin the device encrypts the value you enter and sends it to a major network such as VISA or MasterCard with all your other transaction data when the transaction is performed.