If you’ve ever taken time taken time to read the fine print on your credit card statement or application, you may feel as though you’re reading a foreign language. But, you shouldn’t feel alone. Studies show that the majority of consumers simply can’t understand the fine print and jargon used by the credit card industry. The problem is that this “jargon” usually pertains to interest rates and fees and being in the “know” can make a big difference in what you’ll pay.

Though most everyone understands the basics of APR (the annual percentage rate of interest you’ll pay), Annual Fee (the amount you’ll be charged annually for the keeping the account open – this charge applies even if you never use your card. We’ve received so many emails asking about various terms that I wanted to dedicate an article to this topic. In my opinion, if you’re going to have a credit card, you should have a solid understanding of all the terms and definitions. But, if I had to pick just three of the most important terms that every card holder MUST know and understand I would choose the following:

1. APR — Short for Annual Percentage Rate, APR is the percentage you’ll be charged on the purchases you make. APR is used to determine the “periodic rate” or the rate you’ll pay for a single billing cycle. Dividing the APR by 12 will give you the “periodic rate.”
2. Grace Period — The grace period is the time between when your bill is prepared (not the date you receive it) and when you’ll be charged interest on your purchases. Grace periods can vary but usually run around 25 days. You can save yourself expensive interest charges if you’ll pay your card before the grace period ends.
3. Default Rate – I chose the default rate as one of the top 3 to know because I’ve heard horror stories of people transferring balances to a balance transfer card offering 0% interest only to lose that special rate because they were late on one payment. Though you might assume that “default” would mean something else, with many credit cards, a single late payment is defined as “default” and can result in a significantly higher interest for as much as 12 months or more in addition to forfeiting the rate that attracted you to the card in the first place.

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I recently came across a report that talked about how few Americans really understand their credit card’s fine print and terms. In many cases understanding and managing your credit card in accordance with these terms can save a lot of money. And, I decided to write an article that will clarify some of the more important terms and what every cardholder should know about them. Though this listing is not complete, it’s a good start and getting familiar with these terms can actually help you decide which credit cards will best fit your situation.

APR: Short for Annual Percentage Rate, APR is the percentage you’ll be charged on the purchases you make. (Note: you can avoid paying interest if you pay your entire balance off before the grace period. See explanation for grace period below.)

Annual Fee: These fees vary by credit card. Many cards that require good to excellent credit will offer no annual fee. Credit cards for bad credit situations, whether secured or unsecured will almost always charge an annual fee. Charge cards, like those offered by American Express, also charge an annual fee (sometimes a very hefty one) in lieu of charging interest. Many card offers will waive the first year annual fee. The only way to know for certain is to read the fine print.

Bill Payment Fee: One of the more popular features today is the online bill payment option. This is the fee that you’ll be charged for the privilege of paying your bill online. It will vary by credit card issuer – some are offering it as a value-added service at no charge while others will charge a high transaction fee.

Grace Period: The grace period is the time between when your bill is prepared (not the date you receive it) and when you’ll be charged interest on your purchases. Grace periods can vary but usually run around 25 days. You can save yourself expensive interest charges if you’ll pay your card before the grace period ends.

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Consumers seeking to put a marred financial past behind them and build a solid credit score often reach a dismal juncture – working toward good credit seems impossible when lenders will not extend you credit due to a blemished credit history. Even with a history of meticulously managed finances, an applicant can be denied approval for a credit card or loan due to a lack of prolonged credit history. If you must have credit to get credit, how does anyone get started or offset past mistakes?

If you have encountered this predicament, congratulations! You have already taken the first step toward a brighter financial future by deciding to proactively improve your credit score. Not only will a solid credit score pave the way for opportunities such as home and vehicle ownership, it will earn you better interest rates, translating to true short and long-term savings. With good credit on your side, you can qualify for accounts with utility companies, cellular phone services and credit cards with the most attractive limits and rates.

A secured credit card can be an excellent tool to help jumpstart credit for those with poor or no credit. To obtain a secured credit card, you must deposit a specified cash amount into a designated account to serve as collateral for the credit line. Most secured credit cards carry a limit equal to the amount you put up, initially, though many will raise your limit periodically over time if you manage the card wisely. If you decide that a secured credit card is appropriate for your financial situation, be sure to shop around for a card suitable for your needs, and read the fine print. Some specifics to analyze for each credit card in consideration are:

-Does the card issuer report to the three major credit bureaus? Ideally, your secured credit card will be utilized as an instrument for improving your credit score in addition to affording you the convenience and peace of mind that a credit card provides. Ensuring that your responsible habits will be reported to the bureaus is fundamental to improving your score.

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