If you are just getting started with using credit cards, the acronyms and jargon can be intimidating. This article will help you demystify some of the terms. It is a comprehensive guide to credit card acronyms, showing you the best ways you can earn and redeem points. Discussed below are some of the most common terms and phrases when using credit cards. Read on to find out more!
Credit Score
This is a common term that refers to the value of your credit. You first have to understand credit score concepts before getting into this one. Credit score value ranges from 300 to 850. This is a vital aspect, especially if you are applying for a loan. Most credit card companies use it to determine if you are worthy of a new account. In the US, FICO is the company most lenders use to access a credit score. The following are some of the factors that determine a FICO score:
- Payment history: this contributes to 35% of the total score. The company evaluates how you have managed subsequent payments on credit obligations. Other factors considered are bankruptcy, collection accounts, tax liens and foreclosures.
- Amount owed: this contributes 30% to the total score. You can have a good credit score even with debts. The secret behind that is keeping your debt-to-limit ratio low on your credit cards. Clearing credit card balances is regarded as the best way of boosting your credit score.
- Age of your credit account: this one is 15% of the total score. If you have two accounts, the age of the oldest one and the age of the newest one can impact your FICO score. Older accounts get better scores while new ones might result in the opposite.
- Credit mix: this contributes 10% of the total score. When you have several transactions and installment accounts on your report, your credit score will likely be higher. Revolving accounts are typically home equity lines of credit cards, also known as HELOCs. Installment loans, on the other hand, can be auto loans, mortgages, credit builder loans, among others.
- Credit inquires: just like credit mix, credit inquiries account for 10% of the total score. When you get too many “hard” inquiries on your report in a year, your FICO score can be hurt. A hard inquiry is when you apply for a card. It is highly recommended that you keep your credit inquiries positive to boost your FICO score. There are so many ways you can check your credit score online.
APR
This is another key term in this guide to credit card acronyms. APR stands for annual percentage rate. It is the standard interest rate charged on your credit card in a year. The APR value is generally calculated daily for the 365 days of the year. This is done through a process called compounding. You need to keep your APR value high in order to boost your credit score.
