Before you shop around for a credit card
you must be familiar with the important terms used in the financial world. These
are the terms that you will be required to know when you discuss terms of a
particular credit card you are interested in.

Annual percentage rate

This is the annual rate of the total financial charges. There are two types of plans in it. One is fixed and the other is variable. In the fixed plan the change in other interest rates like prime rate, Treasury bill rate etc change has no affect on the APR where as in variable APR the change in other interest rates may increase the APR on the credit card.

Annual fee

It is a fee on credit card account that has to be paid at the end of each year. There are many companies that provide no annual fee on credit cards and they are also flexible in removing any such annual charges if you are unable to pay them on time.

Financial charges

These charges include cash advance fees, etc which you incur when you take credit from a lender.

Grace periods

It is the time period that is given to you in which you are allowed to repay the amount of money borrowed back to the bank without any charges except for the transaction fees. This period is provided only if you are paying the monthly bills of credit card accounts on time.

Introductory rate

This is a rate that is given to you at the start of your new credit line. After the end of certain time frame this rate is changed to the normal rate.

How credit companies earn Profits

Credit card companies earn profit through the following methods;

• The interest that is charged on the balances of consumers.
• Fees that include late payment fees, fees on crossing the credit limit, cash advance fees, foreign currency transactions and annual fees.

Types of Credit Accounts

There are three types of credit accounts which are stated below.

Installment accounts

There are now millions of consumer products in the market that can be bought in installments. These credit accounts have fixed monthly payments that have to be paid for a designated time frame.

Revolving accounts

These are the credit accounts in which the borrower pays only a percentage of the total outstanding balance instead of complete monthly payment. The amount left is added to the remaining total of the credit account.

Charge agreements

In these sort of accounts the consumer pays each months payment in full and doesn't pay any extra interest charges.