Before I get too in-depth about using the credit card system to your advantage, you must first understand how to do it appropriately. Follow the rules and don’t fall into the trap of high-interest debt for eternity.
Bills and Statements
Billing Cycle
- Statement dates – the period of a billing statement, typically one month long. Transactions posted within these two dates are part of the statement.
- Statement Close date – the end of the statement date. Any transactions posted before this date are part of this statement. Any transactions posted after the statement close date (it might have even been initiated before this date) are considered part of the next statement.
- Payment Due date – The day a payment is due, equal to at least the minimum payment amount. If the issuer does not receive a minimum payment by this day, the card account becomes late and delinquent.
Making Payments
- Minimum payment amount – the minimum amount of payment necessary for the account to show as “good standing”. This is not the same as the statement amount. Failure to make the minimum payment amount may cause you to become delinquent and impact your credit score or collections status.
- Statement balance – the total amount spent during this statement. All purchases and credits add to this amount. You should always aim to pay off the statement balance in full.
Say my statement runs April 1 – April 30 and I made the following charges:
I should try my best to pay off $350.25 in full by May 29. That way everything is paid off in full, there is no interest, and my credit score gets a nice little boost. If I make a payment of just $40 on May 29, my account is still considered “good standing” since I made minimum payments. However, I might start accruing interest on the remaining $310.25. The minimum payment the next month also may or may not increase, depending on my history with the company/lender.
Another sidenote, if you make another purchase of $10 on May 2, it would fall onto the next statement. At that point, my current balance would increase to $360.25. However, I am not required to pay those 10 extra dollars. It would be on the statement May 1-May 31 with a payment date of June 29. You only need to pay the statement balance.
Fees and Limits
Annual Fee
An annual fee on a credit card is a fee you must pay each year just to be a cardmember. These are most common on premium travel credit cards or charge cards. Cards with high annual fees often come with huge benefits and credits that help offset the fee.
I highly recommend people start with cards with no annual fee. That way they can test the waters before diving head first into paying hundreds of dollars a year, only to find out they don’t really want to play the credit card game.
APR
Not to be confused with APY on a savings account, an APR is the interest rate you accrue on credit card balances that are past due. If you fail to pay in full on the payment due date, your charges will start to balloon. This normally hovers around the 15-25% zone. So that means your $100 bill can suddenly become $125 just because you didn’t pay it off in time! Don’t use credit cards as loan devices…
Credit Limit / Credit Line
The credit limit available to you is the maximum amount of balance you can have on your credit card at any one given time. You can spend more than that in a statement period, but you must first pay down your balance a little. Your credit limit may increase or decrease over time depending on your creditworthiness and your history with the issuer.
Charge cards don’t have a set credit limit. Rather, the intent is that you will pay off the balance in full every single month. They still cap you at some purchase amount, but it changes every month. If you never touch the card, you might have a cap of $1,000 that month. But if you spend $10k next month on that same card, you might be allowed to swipe $25,000.
Incentives or Bonuses
Sign Up Bonus (SUB)
A sign-up bonus (also called a New User Bonus) is meant to entice you to apply for the credit card. These can range from $200 cash back to 60,000 miles or even free nights at hotels. The issuers are trying to get new customers with these offers.
Now of course, we can’t have nice things in this world without people ruining it for the rest of us. People were signing up for multiple cards or even cancelling a card just to sign up again a day later. So, issuers have restrictions on SUB eligibility. You might be able to only get one SUB on that card every 48 months (some, like AmEx limit you to one per lifetime). Maybe you will only get the card if you haven’t applied for a card at that bank in 5 days.
Read the terms and conditions (T&Cs) carefully when reviewing SUB offers. Most issuers will not give you a warning that you are ineligible. Those that do (ahem, AmEx) put you in “popup jail” for seemingly no reason.
Retention Offer
Perhaps you were a very good customer and used the credit card many times over the year. Your annual fee is about to hit and you feel that $695 Platinum annual fee isn’t really worth it for you. You still have other cards so you want to close your card and move on with your life.
But wait! The issuer is willing to give you a retention offer. You were such a good customer and they would like to keep you spending on their card. The issuer offers you 50,000 miles if you keep the card open and spend $5,000 in the next 60 days. In doing the math, you realize that’s about $500 at least in miles alone, so essentially your annual fee comes down to $195.
These retention offers are a powerful tool in our churner’s toolbox. You can use these to your advantage to get even more value every single year. Don’t abuse it though since card issuers may flag you eventually and it all comes crashing down. I only do this consistently on my American Airlines credit card (because I truly do not need the card, and the $99 AF isn’t worth it to me).
Multiple Users
Authorized Users (AU)
An authorized user will get their own credit cards and can spend just like the primary account holder. But how they get reported is unique to each bank. Some banks automatically report accounts to the authorized user’s credit report. This is one tactic commonly used for teenagers and children to help build their credit. I started building credit since I was 16, so by the time I was 18 my credit score was already in the mid-700s.
But even though they get their own cards, the account itself is still the same. That means if an authorized user forgets to make a payment, both the primary and AU are responsible and may get dinged on their credit report.
Some issuers charge an additional fee for authorized users (AmEx is notorious for this) but most banks allow you a certain number of AUs for free. You should reserve AUs to be for trusted family members.
Benefits on cards also may not transfer to AUs. Take for example the Capital One Venture X card, which allows up to 4 AUs for free. Each AU will get their own Priority Pass membership and Hertz President’s Circle status. However, AUs do not get additional bonus miles or $300 travel credit. Read the terms and conditions carefully to see what benefits are not unique to each AU.
Final Remarks
For someone new to credit cards, these are some very confusing concepts. You’ll see lots of abbreviations and terminology thrown around forums and blogs which can be overwhelming. Hopefully this dictionary helps you navigate that a little easier. If you have another concept that isn’t on this list, let me know! I’d be happy to add it if appropriate.