Financial literacy ABCs: 3 important credit card terms to know

Written by
Richard Barrington
Terms apply; see the online credit card application for full terms and conditions of offers and rewards.
Where are you on your credit card journey?
Get Started

At we discuss the most up-to-date news and trends within the credit card space. Since we first pioneered the concept of online credit card reviews in 1998, our team of financial experts has provided comprehensive and unbiased credit card reviews for more than 175 cards, plus hundreds of additional resource articles to help educate everyday cardholders so they can feel more confident about their card choices. All our content is written and reviewed by industry experts. Though our content may occasionally contain references to products from our partners, we maintain strict editorial integrity and advertiser relationships and compensation never influences ratings, reviews or featured products. The difference between editorial content and advertising must always be clearly stated. Learn more.

Financial literacy is an important topic. A lot of people want to know more about personal finance, but don’t know where to begin.

A good place to start is with something you might use every day – your credit card. That little plastic rectangle in your wallet represents a lot of information. What you do with that information can save you – or cost you – a significant amount of money.

Three critical pieces of information are represented by the letters A,B and C. This article will explain the ABCs of credit cards, and teach you how to use this information to your financial benefit.

A is for annual percentage rate (APR)

Your annual percentage rate determines the amount of interest charged on your credit card balance. This percentage is applied to the amount you owe. It’s quoted based on the rate you’d pay over the course of a full year, but it’s applied to your balance every month.

So, suppose you have a credit card with a 29% APR and you owe $1,000 on that card. Twenty-nine percent of 1,000 is $290. That’s how much interest you would pay in a year, if your balance didn’t get any bigger or smaller. That $290 would be divided into 12 monthly increments of about $24.17.

A recent CardRatings credit card interest rate survey found that average credit card APRs range from 17.24% to 30.74%. While the exact numbers may change over time, the point is there are huge differences in the APRs that different credit cards charge. That means shopping around can save you a significant amount of money.

For example, suppose that instead of paying a 29% APR, you were able to find a card with a 24% APR. That same $1,000 balance would cost you $240 a year instead of $290, a savings of $50. You can probably think of a lot better things to do with $50 than giving it to a credit card company if you don’t have to.

Paying attention to a credit card’s APR is important when you are choosing a card, but it remains important for as long as you have that card. Review your statements and any correspondence from your credit card company to make sure you are aware of the APR changes. Also pay attention to APRs offered by other credit cards, to see if there might be a better deal out there for you.

B is for billing cycle

Credit cards generally bill on a monthly cycle, but it isn’t always at the beginning or end of the month. Your credit card’s billing cycle may fall somewhere in between.

Why is this important? You need to be aware of your credit card’s billing cycle so that your payments aren’t late. While you may rely on mailed statements, emails or text alerts to notify you of a new credit card bill, it’s helpful to keep the billing cycle in mind in case you miss a notice. Perhaps post reminders on your calendar.

You may have seen recently that the Consumer Financial Protection Bureau plans to force credit card companies to lower late fees from an average of $32 to $8 dollars. Even so, $8 is too much to pay – especially if you are regularly late with your bills. Over the course of a year, $8 a month would add up to $96 – the equivalent of paying an extra 9.6% on a $1,000 balance.

Speaking of extra interest, in addition to late fees credit card companies often apply a penalty APR to balances that are overdue.

Besides letting you know when it’s time to pay your credit card bill, being aware of the billing cycle can remind you to make sure you have money available for that bill. Especially if you’ve been using your card heavily, coming up with the cash on short notice can be tough. It helps if you know in advance when that bill is coming due.

You might be wondering if setting up automated payments would eliminate the necessity of keeping up with your credit card’s billing cycle. It might, but automated payments don’t solve the problem of making sure there’s enough money in your bank account to cover those payments. Minimum payments on credit card balances often vary from month to month. Because of that, they are not the best fit for automated payments unless you’re sure you’ll have enough funds in your account to cover your costs.

C is for cash advance

Using your credit card to get money from an ATM is called a cash advance. There are also other types of transactions that are considered cash advances. These include:

  • Using a credit card to gamble
  • Obtaining foreign currency with your credit card
  • Having your card linked to a checking account to cover overdrafts

This is important because cash advances are typically charged a higher APR than purchases, and may also incur a fee for each transaction. In addition, cash advances start accruing interest immediately, as opposed to after a grace period at the end of your billing cycle.

It’s also very important to note that there are important differences between “cash back” and “cash advances.” A cash advance allows you to get cash back using your credit card at an ATM or with a teller, and often involves high fees, while credit card cash-back rewards are something you earn when using cash-back credit cards.

It’s best to avoid using a credit card for a cash advance unless absolutely necessary.

Knowing these credit card ABCs can save you money

APRs, billing cycles and cash advances are three basics of using credit cards. Understanding them can save you money in the following ways:

  1. Reduce interest charges by choosing a credit card with a lower APR. The credit card market is very competitive, and rates change frequently. It pays to regularly do some comparison shopping to see if you can qualify for a lower APR.
  2. Avoid late fees by being aware of your credit card billing cycles. For people on a tight budget, this means not only remembering to pay the bill but also preparing to have enough cash available when the time comes.
  3. Minimize cash advance charges. Using a credit card is not a cost-effective way to get cash. Interest accrues more quickly and at higher rates than for purchases, and there may be fees involved as well. Read your credit card terms carefully to make sure you know what types of transactions will be treated as cash advances.
  4. Protect your credit score. People with lower credit scores are generally charged higher APRs. The ABCs of credit cards can help you avoid missing payments. They can also help keep your balance down, by minimizing interest and fee charges. A good payment history and lower balances are both positive factors in building credit scores.

Basic fundamentals are important. Keeping the ABCs of credit cards in mind should help you use credit more successfully.

Richard Barrington
Cardratings Contributor

Richard has over 30 years of experience in financial services, including 23 years with the investment management firm Manning & Napier Advisors, Inc., where he led the Marketing Group and served on the firm’s Investment Policy Group and Executive Group. Over the years, Barrington has...Read more

Featured Partner Cards:


The information in this article is believed to be accurate as of the date it was written. Please keep in mind that credit card offers change frequently. Therefore, we cannot guarantee the accuracy of the information in this article. Reasonable efforts are made to maintain accurate information. See the online credit card application for full terms and conditions on offers and rewards. Please verify all terms and conditions of any credit card prior to applying.

This content is not provided by any company mentioned in this article. Any opinions, analyses, reviews or recommendations expressed here are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any such company. does not review every company or every offer available on the market.