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Glossary of Credit Card Terminology
A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Annual Fee – A yearly fee charged by some credit cards for use of the card
Annual Percentage Rate (APR) –It is a measure of the cost of credit expressed as a yearly rate. When you open a credit card account, you agree to pay a percentage of the outstanding balance each month as a finance charge.
Authorized User – A person who has been given permission to make changes to the primary card holder’s account. This status must be given by the primary account user. An authorized user is not legally responsible for repaying the account.
Available Credit – Available credit is your credit limit minus your current balance. It is the unused portion of your credit line.
Average Daily Balance – The average daily balance is a common way credit card companies calculate finance charges. The credit card company finds the balance each day of the billing period, adds the daily balances together and divides by the number of days in the period. The calculation includes new purchases and payments. You should refer to your credit card issuer’s Cardmember Agreement for specific information and details regarding the calculation of the Average Daily Balance.
Balance Transfer – Transferring balances from one credit card to another, usually to take advantage of a lower interest rate. Card issuers sometimes offer teaser rates to encourage balance transfers and charge balance transfer fees to discourage transfers to other accounts. Transfers are limited to the available credit on the receiving card.
Billing Cycle – The number of days between your last statement date and your current statement date. Most creditors use a billing cycle of every 30 days.
Billing Statement – A monthly bill from your credit card issuer which describes and summarizes the activity on your account including the outstanding balance, purchases, payments, credits, finance charges and other transactions for the month.
Cardmember Agreement – The issuer’s written statement of terms and conditions relating to your credit card account. The cardmember agreement is required by Federal Reserve regulations. The agreement states the annual percentage rate, the monthly minimum payment formula, annual fee, if applicable, default, and your rights in billing disputes. Changes in the agreement may be made, with written advance notice if necessary, at any time by the issuer. Rules for imposing changes vary from state to state, but the rules that apply are those of the home state of the issuing bank, not the home state of the cardholder.
Cash Advance – A cash withdrawal at an automated teller machine, bank teller or use of a convenience check. This cash is an instant loan from your credit card account. The credit card company will apply finance charges from the day you take the advance until the day you pay it off. Other transactions, which may be considered cash advances, include gaming activities and some balance transfers.
Cash Advance Fee – A one-time fee for cash advances in addition to normal finance charges. This fee can be stated in terms of flat, per-transaction fee or a percentage of the amount of the cash advance. For example, the fee may be expressed as follows: “2%/$10. This means that the cash advance fee will be the greater of 2% of the cash advance amount or $10. Depending on the bank issuing the card, the cash advance fee will be deducted directly from the cash advance at the time the money is received or it may be posted to the bill on the day the advance was taken. Generally, cash advance fees do not have a grace period, which means that interest accrues from the moment the money is withdrawn.
Co-signer – A person who signs a loan or credit card with the primary applicant, pledging to be legally responsible for repaying the loan or debt in the event the applicant is unable.
Credit Insurance – Insurance that pays or pays off credit card debt should the borrower be unable to pay the debt a result of the loss of employment, death, or disability. Generally, this protection covers only the debt that existed as of the last billing cycle.
Credit Limit –Credit limit is the maximum amount that you can charge on your credit card.
Daily Periodic Rate – The interest rate factor used to calculate the interest charges on a daily basis. The factor is computed by dividing the yearly rate by 365 days.
Default – The failure of a cardholder to perform all of the duties and obligations set forth in the cardholder/cardmember agreement. Some card issuers may consider you in default if you miss a payment to any creditor.
Finance Charges – Certain charges expressed as a dollar amount that can be incurred when using a credit card. Finance charges include interest costs.
Fixed Rate – An interest rate that does not vary over time.
Grace Period – If you do NOT have an outstanding revolving balance on your credit card, a grace period is the interest-free time period between the date of your purchase and when that purchase appears on your statement. For example, if you pay off your balance in full on June 1 st and then you buy an item on June 2 nd, you will not be charged interest for the time period between June 2 nd and your next statement. If you carry a balance on your credit card from month to month, you DO NOT have a grace period. You are charged interest immediately when you make a purchase. For example, if you have a $500 balance and make a payment of $50 on June 1 st, and buy an item for $50 on June 2 nd, you will immediately be charged interest on that $50 purchase. This is because you have an outstanding balance of approximately $450 between June 2 nd and your next statement.
Interest Rate – The rate at which a credit card company or other lender charges a customer for “borrowing” money. It is a percentage of the amount borrowed.
Introductory Rate – A lower APR provided by a credit card company for a limited period of time. It is used as incentive to entice the consumer to apply for credit. After the introductory period, the rate will increase to the standard percentage.
Joint Account – A savings or checking account established in the names of more than one person, (e.g., parent/child, wife/husband).
Joint Credit – Credit issued by two people based on an evaluation of each party’s respective assets, incomes, and credit history. Both parties are fully responsible for repaying the debt.
Late Payment Fee – A fee charged when a payment has not been received by the specific due date on the statement.
Line of Credit – An authorized amount of credit given to an individual, business or institution.
Minimum Payment – The smallest payment a customer can make each statement period to keep the account in good standing. Most card issuers require a minimum payment that is a percentage of the outstanding balance.
Outstanding Balance – The total amount that you owe on a credit card or other loan.
Over the Credit Limit – When the amount you owe is more than the limit on your credit line. If you go over your credit limit, you will be charged an extra fee each month until the amount of money you owe is less than or equal to your credit line.
Over-the-limit-fee – A fee charged for exceeding the credit limit on the card.
Past Due – The status of an account when the minimum payment has not been received by the due date.
Penalty Rate – A higher APR the credit card company charges after the customer has made late payments, exceeded their credit limit, or otherwise did not abide by the Cardmember Agreement. On some cards, a single late payment triggers a penalty rate.
Posting Date – The date that a credit or charge is recorded on your account. This date may differ from the transaction date.
Previous Balance – The balance that has carried over from the previous billing period.
Primary Cardholder – A person listed on an account who shares financial responsibility with the secondary cardholder.
Prime Rate – An index used to calculate the applicable APR for a variable rate account. For consumer loans, including credit cards, banks and other lenders often use the Prime Rate as a base for calculating variable interest rates. For example, a credit card might carry an annual percentage rate (APR) of Prime + 7.4%.
Recent Activity – Transactions posted to your account for the current billing cycle. Recent activity will reflect all activity that has posted on the account since the last statement. If you have not made any transactions since your last statement, this section will not have any entries. If you have made a transaction and it does not appear, that transaction may not have posted to your account.
Revolving line of Credit – An agreement to lend a specific amount to a borrower and to allow that amount to be borrowed again once it has been repaid. Most credit cards are considered to have a revolving line of credit.
Variable Rate – An interest rate that changes based on an economic index such as the Prime Rate. A variable rate credit card will often have an interest rate like “Prime + 5.9%” meaning that the interest in the card is the Prime Rate plus an additional 5.9%.
Zero Balance – Zero balance is when the total outstanding balance is paid and there are no new charges or cash advances during a billing cycle.