Using a credit card is easy and convenient. But there are many terms that you may not be familiar with when you first encounter them.
What is a cash advance rate on a credit card? What does APR mean?
If you want to know how to compare credit card terms, from the annual fee to balance transfers and grace periods, you can find everything you need to know in our complete guide to credit card terminology.
Credit Card Terminology (A-Z)
Here is a list of the main terms and definitions you need to know when using credit cards in Canada.
Annual Fee
This is the amount that you have to pay to use the credit card each year. Some credit cards do not charge an annual fee.
Annual Percentage Rate (APR)
The APR is the credit card’s interest rate expressed as an annual percentage. Credit cards often have different APRs for purchases, cash advances and balance transfers.
Authorized User
When you request an additional credit card user, they are given their own card and called an authorized user. Sometimes there is a fee for each authorized user you add.
Bank Draft
These are paper documents like cheques, but they guarantee that the funds are available for the recipient, while regular cheques can bounce.
Business Credit Cards
These are credit cards that are specifically for business use. They often have rewards that are more attractive for businesses.
Balance Transfer
A balance transfer is when you transfer the balance of one credit card to another. Some credit cards provide low or no interest on balance transfers for a set time.
Credit Limit
The credit limit is the amount of credit the user has access to when using their credit card.
Credit Score
Your credit activity is reported to the credit bureaus TransUnion and Equifax. They give you a credit score based on your credit history, and credit card companies use this score to determine the risk you present when you apply for a card.
Credit History
All your loans, credit cards, payments, etc., are reported to the credit bureaus, and all the information goes towards building up your credit history.
Learn what is a credit report here.
Cash Advance
A cash advance is when you withdraw cash at an ATM using your credit card. It often has a higher interest rate than normal credit card purchases.
Cash Back
Some credit cards give a percentage of your purchases back as cash when you spend using the card. This is typically from 0.5% to 4%, but it can be higher for welcome offers.
Check out these best credit cards for cash back.
Convenience Cheque
A convenience cheque is similar to a standard cheque but is paid from your credit card account.
Direct Deposit
Direct deposits are used with prepaid cards. These are when you can automatically deposit a paycheque or a benefits cheque into your account.
Foreign Exchange Fees
When you purchase something in another currency other than Canadian dollars, many credit cards charge a fee to convert the currency.
Grace Period
Your monthly credit card statement specifies a payment date. If you pay your balance in full by this date, you won’t pay any interest, and this period is known as the grace period.
Instant Approval
Instant approval credit cards are cards where a decision on whether your application has been approved is made within seconds.
Introductory Rate
When you transfer a balance to a new credit card, you may be given a lower interest rate or 0% interest for a set period, known as the introductory rate.
Interest Rate
This is the rate of interest that you pay on the money you borrow when using your credit card. It is expressed as the Annual Percentage Rate (APR).
Interest-Free Period
This is the same as the grace period, where you pay no interest on credit card purchases as long as you pay off your balance in full by the payment date.
Insurance Coverage
This is where credit cards provide insurance as a premium perk. This can include travel insurance, mobile device insurance, car rental insurance and more.
Low-Interest
A low-interest credit card is a card that has a lower-than-average APR, which is often about 12% but can be lower.
Minimum Payment
You don’t have to pay off your entire monthly balance when you receive your monthly statement. However, there is a minimum amount that you must always pay, and this is called the minimum payment.
Net Purchases
This is the total amount of purchases made with your credit card during the month minus any deductions for discounts and returns.
No Annual Fee
Many credit cards charge an annual fee to use them. Some cards, however, do not charge a fee, and these are known as no-annual-fee cards.
Here are examples of credit cards with no annual fees.
Over-Limit Fee
You are given a credit limit, which is the maximum amount you can borrow on your credit card. You may be charged an over-limit or over-the-limit fee if you go over this limit.
Overdraft
An overdraft is where more money is withdrawn from your bank account than you have in the account, resulting in a negative balance.
Overdraft Protection
This is where you link a credit card to your bank account so that the money is taken from your credit card instead if the account goes overdrawn.
Personal Identification Number (PIN)
This is the number you use to withdraw money from an ATM using your credit card, and you may be asked to enter it when making a purchase.
Pre-Authorized Payments
You can set up pre-authorized payments to pay your monthly bills and subscriptions using your credit card, and the card will be charged automatically.
Prime Rate
The prime rate, or prime lending rate, is the annual rate banks and financial institutions use to determine their rates for loans and mortgages.
Primary Cardholder
This person opens the credit card account and makes the payments.
Rewards Program
Many credit cards reward users for making purchases with the cards. Different programs have different perks and mainly involve providing the user with discounts.
Learn the different types of credit cards in this article.
Secured Credit Card
Secured credit cards require a security deposit, and the user can only borrow up to the amount they deposit.
Secondary Cardholder
A secondary cardholder has the same responsibilities as the primary cardholder in terms of making payments. Primary and secondary cardholders apply for credit cards together.
Security Deposit
This is the cash deposit that secured credit card users make to borrow money.
These are transactions that the cardholder did not authorize. For example, if a credit card is stolen and transactions are made with it, these are unauthorized.
Related: Find out the factors to consider in choosing the right credit card.
