Annual percentage rate

This is the main term that you are likely to encounter. Your credit card company has to disclose this rate, which is the annual -- or yearly -- interest rate that is charged. For the most part, though, your monthly balance will be charged what is called the "periodic rate." This is the annual percentage rate divided by the period that is used. If it is a monthly periodic rate, the annual rate is divided by 12. So if your credit card had a 24% interest rate, your monthly periodic rate would be 2%, and your interest charges would be 2% of your balance each month. A daily periodic rate would be the annual rate divided by 365.

Your credit card agreement must also specify what kind of billing is used. Some credit card companies charge you on the balance that you have at the end of the month. Others charge you on the average daily balance. for this method, they take all of your daily balances and divide it by the number of days in the cycle. So even if you end the month at a zero balance, if you had $300 at one point at the end of a day in a 30 day period, you would be charged on the $10 average daily balance. There is also a method called two-cycle billing, in which the company takes your balances from the past two cycles and charges you on that. This means that you could pay interest even if your balance has been zero for an entire month.

Additionally, the credit card agreement must inform you of whether your interest rate is variable or fixed. If it is variable, an index is used to determine the proper interest rate, and then a certain number of points are added to that. For example, if the credit card company uses a certain rate + 5, then when that rate is 6.9%, your credit card interest rate is 11.9%. The company must let you know which index is used, and how many points are added to it. A fixed rate is simply whatever the card says it is, and it doesn't change -- unless you do something like go over you limit, pay late or miss a payment.

Grace period

This is an amount of time that allows you to avoid paying interest charges. This means that you have a certain amount of time (between 14 days and 25 days, usually) to pay off purchases before interest is charged. This can be very useful, since it allows you time to pay off your balance and avoid charges. Not all credit cards offer grace periods, however. Some cards start charging you interest the day the purchase is made. In either case, the company has to let you know its grace period policy.

Annual fee

This is a pay that is charged to your card each year. It is a membership or participation card. However, there are plenty of cards that do not charge an annual fee. Make sure you read the literature carefully. Some cards will waive the fee the first year, but after that you may be charged.

Penalty fees

Make sure you carefully check for the types of fees charged. Late payments, missed payments and going over the limit can all result in fees. It is important to also look for transaction fees and balance transfer fees. These fees are charged when you do certain transactions, and it can really add up. It is important to note that with penalty fees, as well as annual fees, they are added to your balance and you can be charged interest on them.

Make sure you understand the terms of your credit card agreement. You do not want any unpleasant surprises down the road.