A magnifying glass hovers over a manila folder which holds terms and conditions for credit cards.Image: A magnifying glass hovers over a manila folder which holds terms and conditions for credit cards.

Credit Karma Guide to Credit Card Terms and Conditions

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You don’t have to shy away from reading credit card terms and conditions just because the details confuse you or make you break into a cold sweat. School yourself with this A to Z guide and graduate to more-enlightened credit card shopping and use.

When applying for a credit card, do you glance quickly at the credit card terms and conditions page and then go right back to the splashy offer page to read snippets about benefits, bonuses and rewards? If so, you’re not the only one.

But the thing is, all those benefits and rewards come with limits. And if you want to know everything you’re getting with a credit card — its perks, fees, bonuses and, yes, even its restrictions — you’ll need to dig into the card’s terms and conditions, an in-depth legal document filled with fine print and unfamiliar words. Intimidating, we know.

Fortunately, we’re here to help. Here are the most-common and hardest-to-understand credit card terms all defined in an easy-to-read glossary. Spend some time with this guide and you’ll be a credit card expert in no time.


Annual percentage rate

The annual percentage rate is the interest rate, expressed as an annual amount, that you pay for using your card. The APR is listed in your account agreement and on your monthly statement. Most credit cards have more than one APR, which apply to different transaction types or introductory offer time periods.

Cash advance APR

This is the APR charged for cash advance transactions, typically a higher APR than the one applied to regular transactions. Banks and issuers typically charge a higher rate for cash advances, and interest accrues the moment you take the advance. For this reason, we recommend avoiding credit card cash advances whenever possible.

Interest rate

This is the finance charge you pay for borrowing money on a credit card, generally listed on your statement as “interest charge.”

Penalty APR

Also known as a default APR or default rate, this is an APR that a credit card issuer may apply to your account if you have a late payment, miss a payment, pay less than the amount due or have a returned payment (such as when you attempt to pay a credit card with a check but it bounces because of insufficient funds).

Promotional APR

This is typically an introductory APR that lasts a specified number of months and is generally a low or zero interest rate. It’s important to read the promotional terms carefully to understand restrictions and how long the promotional APR will last.

Variable APR

Variable APR is an interest rate that will change based on an economic index like the prime rate or the U.S. dollar Libor rate. A variable APR can change monthly to a lower or higher interest rate.


Why does my variable APR change based on economic indexes?

The prime rate is based on regular reporting by the U.S. Federal Reserve on rates charged by most of the 25 largest U.S. banks. However, the prime rate can change when the Federal Reserve’s federal funds rate (the rate banks charge one another for loans) is adjusted based on the economy. When the prime rate rises or falls, the variable APR on your credit card can change accordingly.

Balance transfer

Balance transfer

A balance transfer is a transaction in which you transfer all or part of a balance from one or more credit cards to a different credit card — ideally a card with a no-interest introductory offer or a lower interest rate.

For example, by transferring your balance on a high-interest retail card to a card with an introductory period of zero interest, you can save money on interest and possibly pay down your balance faster. You may be charged a balance transfer fee to complete the transfer, and you usually have limits on how much you can transfer. For example, you may only transfer an amount that doesn’t exceed the new card’s credit limit.

Balance transfer APR

Once you make a balance transfer, this is the APR that your new credit card company charges on the balance you transferred to its card. Many cards offer an introductory rate of 0%, or a similar low interest rate, on balance transfers for several months. After the introductory period, the card reverts to the regular variable APR, which typically ranges anywhere from 11% to 25%. 

Balance transfer fee

This is a flat dollar amount, or percentage of the balance transfer amount, charged by a credit card company to transfer a balance from one credit card to another. Credit card companies typically charge around 3% to 5% of the balance transfer amount or a minimum of $5 (whichever is greater).

Cash advance

Cash advance

A cash advance is an advance of funds from your credit card account, generally via ATM withdrawal or convenience check. A cash advance is typically more expensive than a regular transaction because of fees or the higher APR that comes along with it.

Convenience check

This is a check issued by your credit card company and linked to your credit card account that you can use for cash advances or purchases, though both uses are generally more expensive than standard transactions.


Annual fee

This is a fee that a credit card issuer may require you to pay annually to use its credit card. Some credit card issuers waive the annual fee for the first year as an introductory offer, while other cards do not waive the annual fee at all.

Cash advance fee

A cash advance fee is a fee charged when you use your credit card to withdraw money from an ATM or cash a convenience check.

Foreign transaction fee

A foreign transaction fee is a surcharge placed on your credit card bill when you make any purchase that must be processed through a foreign bank or is in a foreign currency. The fee is typically around 3% of your bill.

Late fee

A late fee is a charge for any payment made after the due date shown on your credit card statement.

Over-limit fee

This is a fee charged by some credit card companies when your balance exceeds your credit limit. Over-limit fees are usually $25 for the first instance and $35 for any subsequent over-limit charges, though credit card issuers can set their own fees.

Returned payment fee

A returned payment fee is charged for credit card payments that are returned by the cardholder’s bank. Returned payment fees are meant to discourage cardholders from trying to pay their credit card bills with checks they know won’t clear the bank because of insufficient funds.

Offer details

Introductory offer

Introductory offers are given by credit card companies to entice people to sign up for the card. They might be a low or 0% APR, a sign-up bonus, extra rewards or cash back points. Restrictions and time limits apply to introductory offers. 

No annual fee

Cards that normally charge an annual fee sometimes have an introductory offer of no annual fee for the first year for new cardholders. The annual fee typically begins after 12 months.

0% interest rate

If you see this, it means no interest is charged on new purchases or balance transfers, depending on the offer, during a specific time period.

Sign-up bonus

This is a promotional bonus — such as extra cash back, rewards miles or points — that you receive when you become a new cardholder and spend a designated amount of money within a certain amount of time. Time limits and restrictions typically apply to sign-up bonuses.


Billing period

Also known as the billing cycle, this is an approximate 30-day period of credit card purchases for which you’ll be billed.

Closing date 

This is the last day of your card’s monthly billing cycle. Purchases made after the closing date will be included in the following month’s billing cycle.

Due date

This is the date listed on your credit card statement when at least the minimum payment is due. You can ask about changing your monthly due date by contacting your credit card company.

Grace period

The grace period is the gap between the end of your credit card’s billing cycle and the due date on your credit card statement. If you pay off your credit card balance in full during that gap, you’ll receive a grace period during which the credit card company won’t charge interest on new purchases you make

Late payment

A payment is considered late if at least the minimum amount has not been received by the due date on your credit card statement.

Minimum payment  

The smallest amount you can pay on your balance to avoid defaulting on your credit card. (Defaulting happens when you’ve missed your credit card payments for 120 to 180 days and the card issuer decides, usually, to close your card account and sell it to a debt collection agency.)

New balance

The total amount you owe on your credit card, including interest or fees.


A monthly bill summarizing account activity, including previous balance, credits, purchases, payments, minimum payment, your due date and new balance. The statement also lists your credit limit, available credit, statement closing date, number of days in the billing cycle, a late fee warning, year-to-date totals and changes to interest, billing rates and terms. You’ll also see a minimum payment warning estimating how long it would take to pay off the balance if you made only the minimum payments.

Pricing and cardholder agreements

Account number

The unique number assigned by a credit card company to a cardholder.

Authorized user 

This is a person whom the primary cardholder permits to charge on the credit card. But the primary cardholder is responsible for paying the debt.

Authorized charge

Charges that you or an authorized user makes on the credit card account, as well as the fees and interest charges owed on the account. 

Balance transfer terms   

You’ll find balance transfer fees and the balance transfer APR in the Pricing and Information section for the credit card in what’s known as the Schumer box. This is an easy-to-read table displaying APRs, fees, finance calculation method and other important information.

Credit card agreement  

This is a legally binding document that contains the terms and conditions for the use of a credit card, including interest rate, payment terms, benefits, fees and restrictions. The credit card company sends you a copy when you open a credit card account.

Credit limit

The maximum amount the cardholder can charge on the credit card.

Credit report

Your credit reports are maintained by major credit bureaus and contains information on your credit and payment history. Credit card issuers review your credit reports and credit scores to determine acceptance or denial, APR and credit limit.

Credit score  

Your credit scores are three-digit numbers that are assigned to you based on the information in your credit reports. Credit card issuers look at your credit scores to determine your credit eligibility, credit limit and interest rate. Your scores are based on factors including payment history, amount of debt versus credit available (credit utilization rate), and number and type of credit accounts.

FICO® and VantageScore® are the two most common scoring models used by lenders. FICO scores (created by Fair Isaac Corp.) are based solely on information from your credit reports. FICO scores range between 300 and 850, with higher scores signifying less risk to lenders, and are used in over 90% of U.S. lending decisions. So, your FICO scores may have more sway over your financial life.

VantageScore is independently managed by the three major consumer credit bureaus — Equifax, Experian and TransUnion. The three major credit bureaus individually assign a VantageScore credit score to your credit report, so your scores may vary by bureau.

Many agencies look at similar factors when calculating your credit scores. So long as you make payments on time, keep your credit card balances low and don’t go wild opening new credit card accounts when you don’t need them, you should be in good all-around shape.

Minimum interest charge  

The least amount of interest charged to you within a particular billing cycle when your credit card carries a balance. 

Terms and conditions  

Terms and conditions is the formal statement, issued by a credit card company, that outlines fees, APR, penalties, balance transfer terms, cash advance terms and other important information. 


The restrictions section, generally located toward the bottom of the terms and conditions, explains age restrictions, services restricted to certain cardholders, and restrictions or exceptions for certain states. 

Schumer box 

This is an easy-to-read table displaying APRs, fees, finance calculation method and other important information.


Bonus points

These are rewards points that are associated with a card’s sign-up bonus, promotion or certain terms of a rewards program.

Bonus categories

Some cards offer rotating categories that offer a higher percentage of cash back or other rewards for purchases made in select categories, such as gas, groceries or other selections, during specific time frames. You’ll find a calendar of rotating rewards categories on the card’s website.

Cash back

This is a credit you can redeem on your statement for purchases made with a rewards credit card. Some cash back cards may allow you to redeem cash back as a check or gift cards in addition to, or instead of, a statement credit. 


Airline miles are earned when you make purchases with a co-branded or rewards card that has a partnership with an airline. You can redeem the miles you earn with these cards to pay for (or heavily subsidize) flights to visit family or far-flung destinations.


Awards earned when you make purchases with a rewards credit card. Depending on the card, points may be redeemed for cash back, airline miles, hotel nights or other rewards.


Cardholders can use earned points, miles, cash back or other credit card rewards. Redemption methods vary and are detailed in the card’s terms and conditions.

Rewards program

A program offered by a credit card that rewards cardholders with points, miles, cash back or other rewards for purchases.

What’s next?

Now that you know how to read up on a credit card’s benefits and limitations in the terms and conditions, it’s time to assess the card(s) in your wallet.

You may find that you’re not really benefitting from a card’s airline rewards program and would earn more points with a flat-rate rewards card. Maybe you’ll learn how to avoid interest during a card’s grace period or decide a balance transfer might work to your advantage.

If the cards you have now are a perfect match, that’s great. If they’re not, though, you’ve got everything you need with Credit Karma to help you choose a new credit card wisely.

So, keep this guide handy and explore our other articles below:

About the author: Deb Hipp is a freelance writer with a bachelor’s degree in English and creative writing from the University of Missouri-Kansas City. When she’s not writing about personal finance and news, she enjoys traveling to seas… Read more.