Credit card glossary

Annual fee

An annual fee is a charge you may have to pay once a year on certain types of credit cards – usually those which offer extra perks such as rewards, cashback and air miles. If you get the card but stop using it after a while, you might still have to pay the fee.

Annual percentage rate (APR)

The annual percentage rate (also known as APR) gives you an idea of how much borrowing on your card will cost you over a year.

It includes interest and standard fees, but not any fees that are based on how you use the card such as cash withdrawal fees and late payment fees.

Keep in mind credit cards don’t charge you any interest if you repay your whole balance on time every month (unless you use yours to withdraw cash, in which case interest will usually kick in from day one).

Available credit

Your available credit is the amount you’ve got left to spend on your credit card. Take your card’s credit limit and then subtract your current balance and any pending transactions to see what’s still ‘available’ for you to use.

Watch your available credit closely. If you go over your credit limit, it can:

• Lead to fees or declined payments

• Affect your credit score.

Remember it’s a credit limit, not a target. Aim to use no more than 30% of your available credit and make the most of online banking to help keep track of your spending.

Balance transfer

A balance transfer is when you move the money you owe on one credit card over to a different credit card – usually one that charges less or zero interest. You’ll often pay a fee to do this.

Taking out a 0% interest balance transfer credit card gives you a set time where you don’t pay any interest on the amount you’ve moved over. This means more of your monthly payments go towards clearing the actual debt, not just the interest.

Balance transfer fee

A balance transfer fee is a charge you might pay when you move your existing credit card balance to a new card.

It’s usually a small percentage (around 2-4%) of the amount you’re transferring, though some cards have a lower or even no transfer fee. Always check the size of the fee to see if your overall savings from the transfer still make it worthwhile.

Billing cycle

A billing cycle is the time between your credit card statements – usually about a month long.

During this time, all the spending on your card (plus any fees or charges) gets added up. Knowing your billing cycle, and staying on top of it, can help you stay organised with your payments and avoid late fees.

Cash advance

A cash advance, also called a cash withdrawal, is when you use your credit card to take out cash (typically from an ATM).

It’s an expensive – and generally unwise – way to borrow because you pay daily interest as soon as you take out the money, and at a higher rate than your usual interest charge. You’ll generally also have to pay a fee based on how much you withdraw.

Cash balance

A cash balance is the amount you owe on your credit card from cash-related transactions. This includes taking money out from a cash machine, buying foreign currency, or even using your card to gamble.

It makes financial sense to pay off this balance as soon as you can to avoid building up high daily interest.

Cash withdrawals abroad

Cash withdrawals abroad are when you use your credit card to take out money from a cash machine while you're in another country.

• Withdrawing cash can be pricey as you’re typically charged a foreign transaction fee and a cash fee, each around 3% of the amount withdrawn

• On top of that, it shows up on your credit file and frequent cash withdrawals can be viewed negatively by lenders.

Travel credit cards, however, are specially designed for use abroad and don’t charge these fees. They can also offer better exchange rates.

Cashback

Cashback is a type of reward you can earn each time you use a cashback credit card. You earn cashback as you spend, and it’s usually paid monthly or annually depending on your card provider.

Cashback rewards may be:

• Added to your credit card balance

• Transferred to your bank account

• Converted into redeemable points.

It’s a perk that can work if you repay what you owe in full each month, so you’re not paying interest. Otherwise, the interest charges can wipe out the value of any cashback you earn.

Charges

Charges are any extra costs your credit card provider might add to your account, triggered by certain actions.

Common examples include a:

• Late payment charge – if you miss a payment or pay after the due date

• Overlimit charge – if you spend over your credit limit

• Cash withdrawal charge – for taking out cash on your credit card

• Foreign transaction charge – if you use your card abroad or in a different currency

These charges can add up, so make a note of what your card’s fees are and how to avoid them.

Compound interest

Compound interest is when you’re charged interest on the money you originally borrowed, and on the interest previously added.

Most credit cards charge interest daily, so the longer you have an outstanding balance, the more interest builds up on top of interest. You can avoid this by paying your balance in full each month.

Contactless

Contactless is a quick and easy way to pay with your credit card without a need to insert it or enter your PIN. Simply tap your card on the card reader, and your payment goes through in seconds. There’s usually a £100 limit per contactless transaction.

Most credit cards now feature contactless as standard. You can tell by looking for the little wave symbol on the front. Contactless is different from when you use your phone to pay via the likes of Apple Pay and Google Pay.

Credit agreement

A credit agreement is the contract between you and your credit card provider. It sets out all the key details about your card, such as your:

• Credit limit

• Interest rates

• Fees

• How and when you need to make payments.

If you’re approved for a credit card, you’ll be asked to read and accept this agreement before you can start using it. Take time to read through it carefully so you know what you’re signing up for.

Credit card balance

Also known as your current balance, the credit card balance shows what you owe at any given time.

It includes everything you’ve spent, plus any fees or interest that’s been added, minus any payments you’ve made. Whenever you use your card to buy items or withdraw cash, it will all show up in your balance.

Keeping an eye on your balance – done quickly and easily via online banking – can help you to stay in control of your spending.

Credit card issuer

A credit card issuer is the bank or financial company that gives you a credit card and lends you money to spend. Examples include Barclays, MBNA, HSBC, and Lloyds Bank.

Even though your card might display a Mastercard or Visa logo, those reflect the payment networks instead - not the issuer.

Credit card verification code (CVC)

The CVC, also known as the CVV or security code, is a 3-digit number on the back of your credit card.

You’ll usually be asked to put it in when you’re shopping online or over the phone. It’s used as an extra security check. Never share your CVC unless you're making a payment on a trusted site or with a company you know.

Credit limit

Your credit limit is the maximum amount you’re allowed to borrow on your credit card. Once you reach that limit, you won’t be able to spend any more until you make a payment to bring the balance down.

Lenders decide your credit limit based on details including your:

• Income

• Existing debts

• Available credit elsewhere

• Credit and repayment history

It’ll help to stay well below your credit limit if you can – spend too much and it can affect your credit score.

Credit rating/score

Your credit rating – or credit score – is used to decide how much of a risk you are when it comes to borrowing, alongside things such as affordability.

It’s based on your credit history and helps lenders to work out whether to approve you for credit cards, loans, mortgages and other products.

The actual number can vary slightly depending on the credit reference agency (CRA – find out more in our guide to good credit scores). But the general idea is that the higher your score, the more likely you are to be seen as a reliable borrower.

Having a good credit score can boost your chances of getting accepted for credit as well as being offered better rates and higher credit limits.

Credit reference agency

A credit reference agency (CRA) is a company that collects information about your credit history. This includes how much you’ve borrowed, whether you make payments on time, and how often you apply for credit.

In the UK, the three main credit reference agencies are Equifax, Experian, and TransUnion.

Credit report

Your credit report is a detailed record of your credit history. It includes information such as:

• How much you owe

• Your payment history

• Whether you’ve missed any repayments

• How often you’ve applied for credit

• Your current credit accounts

• Your address and whether you're on the electoral roll

You can check your credit report for free with any UK credit reference agency. It's a useful way to spot any mistakes or see how you might improve your credit score.

Credit utilisation rate

Your credit utilisation rate tells you how much of your available credit you’re using, shown as a percentage. For example, if your credit limit is £2,000 and you’ve spent £500, your credit utilisation is 25%.

It’s worked out across all your credit cards – not just one – so try to keep your overall usage below 30% if possible. If you can, it could help improve your credit score.

Current balance

Your current balance (also called your credit card balance) includes everything since your last billing cycle.

It’s your most up-to-date total, including any recent purchases, payments or fees that haven’t yet appeared on a statement.

Default fee

A default fee is a charge your credit card provider adds if you miss a payment or don’t pay at least the minimum amount by the due date. This fee is usually around £12 but may lead to other charges or interest being added.

Missing a payment can also hurt your credit score and cause you to lose any promotional 0% rates. Setting up a Direct Debit can help make sure you don’t miss any payments and avoid late payment fees.

Direct Debit

A Direct Debit is a way to pay your credit card automatically from your bank account.

You set it up once, and then your bank will send a payment to your credit card provider on the same date each month. You can usually choose to pay the minimum amount, the full balance, or a fixed amount.

Make sure there’s enough money in your account on the payment date, so the Direct Debit doesn’t bounce.

Eligibility check

An eligibility check is a quick way to see if you’re likely to be accepted for a credit card without affecting your credit score. This is also called a soft search or soft credit check.

It can be a smart move to do an eligibility check before applying. This is because making lots of full applications in a short time that include a hard search can harm your credit score.

Hard credit check

A hard credit check, also known as a hard search, happens when a lender takes a deep dive into your credit report as part of your formal credit application.

Unlike a soft search, a hard check shows up on your credit report - and too many in a short space of time can damage your credit score.

Interest

Interest is the money you’re charged for borrowing on your credit card. If you don’t repay your balance in full by each due date, you’ll be charged interest on the money you still owe.

Unless you’re on a 0% interest deal, the amount is usually shown as a percentage called the annual percentage rate (APR).

Interest-free period

An interest-free period is a time when you can borrow on your credit card without being charged any interest.

If you’ve been approved for a 0% interest deal, you’ll need to:

• Make sure you keep up with at least the minimum repayments. Otherwise, you could lose your promotional rate and be moved to the lender’s higher standard interest rate.

• Clear your balance in full by the end of the interest-free period. After this, you’ll start getting charged interest on any remaining balance when you move to the reversion rate. This rate can be found on your statement and T&Cs.

Many credit cards give you up to 56 days interest-free on purchases. If you buy items with the card and pay it off within that time, you won’t be charged interest.

Introductory rate/offer

An introductory rate or offer is a special deal or promotional period you get when you first take out a credit card. It usually lasts for a limited time, often up to 30 months, so it’s important to make a note of when the deal ends.

Common examples of introductory rates and offers include:

• 0% interest on balance transfers

• 0% interest on purchases

• Bonus cashback or rewards

Late payment fee

A late payment fee is a charge (usually £12) put on your bill if you don’t make at least the minimum payment on your credit card by the due date.

As well as the cost of the penalty, it can also:

• Hurt your credit score

• Cause you to lose any 0% promotional rates

• Add extra interest to your balance

Minimum payment

The minimum payment is the lowest amount you must pay on your credit card each month. It’s usually either a set amount (for example £5) or a small percentage of your balance, whichever is higher.

If you can afford to, it makes good financial sense to pay more – or ideally, the full balance – to avoid interest and pay off your debt faster.

Money transfer/transfer to bank

A money transfer (or transfer to bank) is when you move some of the available credit from your card across to your bank account.

Some dedicated money transfer credit cards offer 0% interest on money transfers for a set time, but you’ll usually have to pay a fee.

Money transfer fee

A money transfer fee is the charge you pay when you use your credit card to move money into your bank account.

This varies from lender to lender but is normally a percentage of the amount you transfer.

Non-sterling transaction fee

A non-sterling transaction is the charge for using your credit card to spend in a currency other than pounds. For example, this could be when you’re shopping abroad or buying something from a website based in another country.

Most credit cards charge a non-sterling transaction fee that’s typically around 3% of the transaction amount. But some specialist travel credit cards don’t charge this fee, which can make it cheaper to spend abroad.

Payment date

Your payment date is the deadline for making a payment on your credit card each month. You can find this on your monthly statement or in your online banking.

You’ll need to make at least the minimum payment stated on your bill.

Payment holiday

A payment holiday is a temporary break from making your monthly credit card payments. These are usually offered in special circumstances such as financial hardship or temporary crises, but you’ll need to ask for and agree it with your lender.

You don’t have to make payments during this break, but interest usually still builds up and you’ll still owe the balance later. So while it gives short-term breathing room, your debt can grow if you're not careful.

Promotional period

A promotional period is the amount of time given to you for any special terms on your credit card, such as 0% interest on purchases or balance transfers. For example, you could get 0% on purchases for 12 months.

Once this promotional period ends, the lender’s standard interest rate usually kicks in. Although these offers can save you money, it’s important that you:

• Know when the promotional period ends

• Make at least the minimum repayments each month to keep the deal

• Have a plan to clear your balance before interest starts

Promotional rate

A promotional rate is a special interest rate your credit card offers for a limited time. This could be a low or 0% interest rate offer.

While you have the promotional rate, you won’t pay interest on purchases or transferred balances (depending on your credit card type). But once it ends, the standard rate (also known as the reversion rate) applies - and it can be much higher.

Purchase rate

The purchase rate is the interest rate your credit card charges you for everyday spending, if you don’t repay your balance in full each month.

Most credit cards give you an interest-free period on purchases – usually up to 56 days – if you clear your full balance by the due date.

Representative APR

The Representative APR is a way to help you compare credit card deals. It shows the typical interest rate (including any standard fees) that most people are likely to get.

At least 51% of people who are accepted for the card must be offered the representative APR or better.

Representative example

A representative example is a sample breakdown of what borrowing on a credit card might cost you. You’ll often see it in adverts to help you understand the potential costs before you apply.

Always remember that it’s a rough guide and not a guarantee as to what you’ll be offered (if eligible).

Section 75

Section 75 is a UK law that can protect you when you use your credit card to buy items or services costing between £100 and £30,000.

You could claim a refund from your credit card company if something goes wrong – for example, your item doesn’t arrive or is faulty.

Soft credit check

A soft credit check, or soft search, is what’s carried out when you do a credit card eligibility check.

It’s a quick look at your credit report that doesn't affect your credit score and can’t be seen by other lenders.

Standard rate

The standard rate (also known as the reversion rate) is the interest rate you move to once any introductory or promotional offers have ended.

It’s also the rate of interest that applies straight away to actions like cash withdrawals, unless stated otherwise.

Statement

Your credit card statement is a summary of everything that’s happened on your card over the last billing cycle. It’s sent by post or online (depending on your settings) and usually shows:

• What you’ve spent

• Any payments you’ve made

• Interest or fees charged

• How much you owe

• The minimum payment due

• The payment due date.

Check it every month to monitor your spending and spot any potential unusual charges.

Statement balance

Your statement balance is the total amount you owe on your credit card at the end of your last billing cycle.

It includes all the spending, interest, and fees added during that time minus any payments you made.

Statement date

The statement date is the day your credit card provider creates your monthly statement.

It marks the end of your billing cycle and shows everything you’ve spent, paid, or been charged up to that point.

Transfer fee

A transfer fee is a charge you pay when doing a balance transfer. It’s usually a percentage of the amount you’re transferring.

There are two common types:

• Balance transfer fee – when you move debt from one credit card to another

• Money transfer fee – when you move money from your credit card to your bank account.

Unsecured borrowing/lending

Unsecured borrowing means you’re borrowing money without putting up anything as security, such as your home or car.

With unsecured lending, the lender is trusting you to pay the money back based on your credit history, income and financial behaviour.

Because there are no assets to take from you if you don’t repay, interest rates can be higher than with secured loans. The interest rate you’re offered will be based on your personal financial history and circumstances.

Variable APR

A variable APR means the interest rate on your credit card can change over time.

Unlike a fixed rate (which stays the same), a variable APR can go up or down, usually based on movements by the Bank of England base rate or the lender’s own decisions.