Credit Cards

Important credit card terms

Credit card: A physical card that's tied to a credit account. The card can be used to make purchases through that credit account.

Unsecured credit card: A credit card that doesn't require any security deposit from the cardholder. Most credit cards are unsecured.

Secured credit card: A credit card that requires a security deposit when the cardholder opens the account.

Cash advance: Using a credit card to get cash. Cash advances typically have higher APRs and start accruing interest immediately, so they're not recommended.

Balance transfer: Transferring a balance from one credit card to another, most often because one card has a lower APR. Not all credit cards offer this feature.

Credit limit: The maximum balance a credit card can have. Many credit cards have different limits for cash advances. For example, a card could have a credit limit of $10,000, but a cash advance limit of $3,000. That means of the $10,000 credit limit, up to $3,000 could be used for a cash advance.

Available credit: The difference between a card's credit limit and its available credit. If you have a $400 balance on a card with a $1,000 credit limit, then its current available credit is $600.

Revolving line of credit: A line of credit you can borrow from, up to the limit, as long as the account is open.

APR: The annual percentage rate, which is the annual cost of borrowing money.

Minimum payment: The minimum amount you need to pay on your credit card by the due date. If you don't pay at least this much, the card issuer can charge you a late fee.

Statement balance: The credit card's balance on your most recent statement closing date. By paying this amount in full every billing cycle, you can avoid interest charges on purchases you make.

Credit score: A number that rates your creditworthiness, or the likeliness that you'll repay what you borrow.

Credit cards vs. debit cards

Since credit cards and debit cards look alike, it's easy to get them confused. To help you tell them apart, we'll take a closer look at their similarities and differences.

Similarities

Credit cards and debit cards are both physical cards that are tied to a financial account. You can use each type of card to pay for goods or services. The ways you use them for transactions are also the same. For physical transactions, the most common option is to insert your card or swipe it in a card reader. For online transactions, you type in your card information.

Differences

Although both types of cards are tied to financial accounts, the accounts they are tied to are different. A credit card is tied to a revolving line of credit that a bank has issued you. A debit card is tied to your bank account.

This is an important distinction. With a credit card transaction, the card issuer pays, and you pay them back later. With a debit card transaction, you pay using funds from your bank account. If you have a fraudulent charge on your credit card, you can call and have that charge removed, and you won't be out any money. If you're a victim of debit card fraud, the bank will need to investigate before it can put the money back into your account.

Because of that difference, credit cards are a more secure payment method than debit cards.