Credit Card Glossary
Clear, plain-English definitions for the most common credit card terms in the UK.
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Annual Percentage Rate (APR)
The total cost of borrowing on a credit card over a year, including standard interest and any mandatory annual fees. It provides a standard way to compare the cost of different credit cards.
Balance Transfer
Moving debt from one credit card to another, usually to take advantage of a lower interest rate or a 0% promotional period. This helps you clear debt faster by reducing interest charges.
Balance Transfer Fee
A one-off charge applied when you move debt to a new credit card. It is usually calculated as a percentage of the amount transferred, typically between 1% and 3%.
Cash Advance
Using your credit card to withdraw cash from an ATM, buy foreign currency, or purchase gambling chips. Cash advances usually attract a higher interest rate than purchases, and interest is charged immediately from the day of the transaction.
Credit Limit
The maximum amount of money the card issuer allows you to borrow on your credit card at any one time. Exceeding this limit will usually result in penalty fees and damage your credit score.
Credit Utilisation Ratio
The percentage of your available credit limit that you are currently using. Keeping this ratio below 30% is crucial for maintaining a good credit score.
Direct Debit
An automated payment set up with your bank to pay your credit card bill each month. Setting up a direct debit for at least the minimum payment ensures you never miss a payment.
Interest-Free Period (Grace Period)
The time between making a purchase and the date interest starts being charged. If you pay your statement balance in full by the due date every month, you usually will not pay any interest on purchases.
Minimum Payment
The lowest amount you must pay toward your credit card balance each month to avoid penalty fees and missed payment markers on your credit report. Paying only the minimum means it will take years to clear the debt.
Representative APR
The APR that a lender must offer to at least 51% of successful applicants. If you have a lower credit score, you may be accepted for the card but offered a higher APR than the representative rate.
Section 75 Protection
A UK law (Section 75 of the Consumer Credit Act) that makes your credit card company jointly liable with the retailer if something goes wrong with a purchase between £100 and £30,000. It provides powerful protection against faulty goods or company administration.
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