Credit Card Keywords and Definitions
Affinity Credit Card: A credit card that benefits an organization other than the issuer, such as a university or a charity.
Age Requirement: Generally, to qualify for credit cards, you must be at least 18 years old. Also, social security number is required.
Annual Fee: Some credit cards companies charge an annual fee; it is the yearly cost you pay to use the card. Many premium credit cards has hefty annual fees such as Amex Platinum Credit Card ($450 / per year).
Annual Percentage Rate (APR): The Annual Percentage Rate is a measure of the cost of credit expressed as a yearly rate.
Application: A form used to apply for credit card.
Asset: Cash or anything you own that can be turned into cash. This includes property, goods, savings or investments.
ATM: Automated Teller Machine
Available Credit: Available credit is your Credit Line minus your current balance and any pending charges. It is the unused portion of your Credit Line.
Bad Credit: A term used to describe a poor credit rating. Common practices which can damage your credit rating include late or missed payments, exceeding the credit limit on credit cards, defaulting on loans or declaring bankruptcy. Bad credit can result in the denial of future credit.
Balance/Amount Owed on a Credit Card: The total amount you owe the issuer including any unpaid balance from last month, new purchases, Cash Advances, and any other charges such as an Annual Fee, late fees or Interest Charges. The amount owed should not be confused with the Minimum Amount Due (the minimum amount required each month).
Balance Calculation Method: Balance Calculation Method is the method used by a credit card issuer to calculate the balance owed and the interest due each month.
Balance Transfer: Transferring balances from one credit card to another, usually to take advantage of a lower interest rate. Transfers are limited to the available credit on the receiving card. Most credit card company charge you a Balance Transfer fee of 3% to 5% of your balance transfer amount.
Billing Cycle: The number of days between your last credit card statement date and your current statement date.
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, Interest Charges and other transactions for the month.
Borrower: The borrower is the person who signs and agrees to the terms of a promissory note and is responsible for repaying the loan.
Bottom Line: The bottom line is your monthly income less expenses.
Budget: The financial record you use to keep track of the money you earn, how much you spend and what you spend it on. Your budget also includes savings and how much you pay to your creditors.
Cardmember Agreement: The issuer’s written statement of Terms and Conditions relating to your credit card account. The Cardmember Agreement is required by federal regulations. The Agreement states the Annual Percentage Rate, the monthly Minimum Amount Due formula, annual fee, if applicable, and your rights in billing disputes. When you open a new credit card, make sure to read the cardmember agreeement carefully. Every credit card application will have a cardmember agreement.
Cash Advance: A cash withdrawal at an automated teller machine, bank teller or by use of a convenience check. This cash is an instant loan from your credit card account. The credit card company may apply Interest Charges from the day you take the advance until the day you pay it off. A transaction fee may also be charged based on the amount of your withdrawal.
Cash Advance Fee: A one-time fee for Cash Advances in addition to interest charges. This fee is usually a percentage of the advance amount. Most credit card company charges 2% to 5% for Cash Advance Fees. If you were to borrow $1,000 from your credit card, the credit card issuer will charge $30 in cash advance fee if they assess 3% CAF fee.
Charge Card: A card that requires full payment of the balance before the end of the billing period. It is not a line of credit and no interest is charged if you pay on time.
Collateral: An asset pledged to a lender to guarantee repayment. Collateral could include savings, bonds, insurance policies, jewelry, property or other items that are pledged to pay off a loan if payments are not made according to the contract. Collateral is not required for unsecured credit card accounts. (See Secured Card).
Collection: The referral of a Past Due account to a specialist in collecting loans or accounts receivable.
Consolidation Loan: If you owe money to several creditors, you can combine your payments and balances into a single account with one creditor. This can be done in several ways. For example, you can transfer several high interest credit card balances onto one card with a lower rate. If you own a home, you can consolidate your debt with a low-interest home equity loan. Or, you can get a loan specifically designed for this purpose.
Co-sign: To sign a credit agreement with someone and agree to share the debt with that person or assume the debt if the other person defaults and does not pay.
Co-signer: A co-signer is a person who signs a loan or credit card with the primary applicant, pledging to be responsible for repaying the loan or debt in the event the applicant is unable.
Credit: An amount of money that a bank or credit card issuer lends to you. You can charge or spend any amount from your credit line to make purchases or take Cash Advances.
Credit Bureau: A credit bureau is a company that collects and sells information about how you manage your credit. Many banks and credit issuers regularly update the credit bureaus about your payment habits and how much money you owe. Potential creditors may check your credit report when you apply to rent an apartment or when you apply for a loan, credit card or even a new job. If you are denied credit, the creditor must tell you where they got the credit information. You have 60 days after credit denial to obtain your credit report free of charge.
Credit Card Debt: The total unpaid balances on all your credit cards (not to be confused with the Minimum Amount Due you owe each month).
Credit Criteria: Factors used by lenders to rate the credit worthiness or ability to repay debt. They may include the following: income, amount of personal debt carried, number of accounts from other credit sources and credit history. A lender is free to use any credit-related information in approving or denying a credit application as long as they do not violate the Equal Credit Opportunity Act that prohibits credit discrimination on the basis of race, sex and other factors.
Credit History: Your credit history is a record of the way you manage your debt. It is kept by the credit bureaus in the form of a credit report. Banks and credit card issuers tell the credit bureaus about how you pay your debts. When you apply for new credit or a loan, the bank will check your credit history before granting any credit. Information such as missed or late payments will be on your credit report for up to 7 years and bankruptcy filings can remain there for as long as 10 years.
Credit Line: The maximum balance you can carry on your credit card account. On your credit card statement, you can see your credit line for your credit card. Most credit lines are between $500 to $20,000 depending on your credit score and credit history with the credit card company.
Credit Management: The way you handle the money you borrow from banks or credit issuers. For example, you should try to pay more than the Minimum Amount Due each month and make sure payments are received by the due date.
Credit Report: A credit report is a record of all the information that credit bureaus have collected about the way you’ve managed your finances over the last 7-10 years. There are 3 major credit bureaus in the United States: Equifax, Experian, and TransUnion. It is the official record of how you pay the money you owe to your creditors. It includes the names of companies that have loaned you money, your current account balances and the timeliness of your payments. The information on your report can either qualify or disqualify you from obtaining credit cards, mortgages, loans, car or apartment leases and possibly employment.
Credit-worthy: You are judged to be qualified to have credit. Usually Credit-worthiness is based on your FICO Scores.
Daily Periodic Rate: The interest rate factor used to calculate the interest charges on a daily basis for a credit card account. The factor is computed by dividing the yearly rate by 360 or 365 days, depending on the card issuer.
Debt: Money you owe to banks or credit issuers. More specifically, it is the amount of money that you have borrowed and not paid back.
Debt Ratio/Debt Burden: Your debt-to-income ratio usually gives a clear picture of your overall financial well-being. To calculate your debt-to-income ratio, first add up all of your monthly income, which includes your monthly gross pay (pay before tax deductions), Social Security, disability benefits, alimony, etc.
Then, add up all fixed monthly expenses such as mortgages, student loans, credit cards, car loans and rent (but not utilities and telephone charges because they can vary on a monthly basis).
Finally, divide your monthly payments by your monthly income. Multiply the result by 100, and that is your debt-ratio percentage.
Because this ratio gives lenders an indication of how much additional credit you can handle, a low ratio may mean a better chance of not being denied credit or paying a higher interest on loans.
Default: Failure to repay a loan according to the agreed upon terms.
Deferred Payment: Payments put off to a future date or extended over a period of time. Interest will usually still accumulate during deferment.
Delinquency Assessment/Late Fee: A fee that is charged for a late payment. Most credit card companies charge from $27 to $39 depending on your credit card balance.
Delinquency: When loan payments are not paid according to the terms of the agreement or promissory note. Late Payment Fees are often assessed on delinquent accounts, and delinquency results in default.
Disclosure Statement: A disclosure statement details the actual cost of a loan, including all estimated interest costs and loan fees. For credit card accounts, this information may be found in the Cardmember Agreement.
Dispute: If you think your credit card bill is wrong, write to your credit card issuer at the address listed on your statement. You must write no later than 60 days after you received the first statement where the error appeared. The credit card issuer must acknowledge your letter within 30 days, and correct the error or explain why they think the statement was correct within two Billing Cycles, but no later than 90 days after its receipt of your letter. If you notify the credit card issuer of a possible error in writing, you may not have to pay the amount in question while it is investigated, but you must pay the rest of your bill.
Due Date: Credit card statements have a due date. Due date is the day in which payment is due to a creditor. After that date, a late fee can be charged, the payment can be recorded as late, and the account can be considered delinquent. Card issuers that provide a grace period must establish procedures to assure that bills are mailed or delivered at least 21 days before they are due.
Equal Credit Opportunity Act: (ECOA) A federal law that ensures you have an equal opportunity to obtain credit.
Fair and Accurate Credit Transactions Act: (FACTA) A federal law that permits you to receive a free consumer credit report from each of the three major credit bureaus every year.
Fair Credit and Charge Card Disclosure Act: (FCCDA) A federal law that seeks to ensure you get the facts you need to make wise credit choices.
Fair Credit Billing Act: (FCBA) A federal law that seeks to ensure you can find and fix billing mistakes.
Fair Credit Reporting Act: (FCRA) A federal law that seeks to ensure you can see and correct mistakes on your Credit Report and be sure that the information is not being misused.
Fair Debt Collection Practices Act: (FDCPA) A federal law that seeks to ensure you are protected from harassment and unfair treatment by debt collectors.
Federal Reserve: The central bank in the United States that monitors and influences the total supply of money and credit through its 12 regional offices. The Federal Reserve Board sets Interest Rates, maintains the flow of cash to local and regional banks, clears checks and helps guarantee the stability and security of the U.S. banking system.
Finance Company: A finance company is a business that makes consumer loans, often to consumers who cannot qualify for credit at a credit union or bank. Typically the Interest Rates charged by a finance company are higher than those charged by other creditors.
Financial Health (also referred to as financial well-being): This is a description of your overall financial situation. To take a closer look at your financial health, you consider the amount of money you make each month, if you own a home or other valuables, any investments you may have, and the amount of debt you carry. For example, if you own a home, have a small mortgage, and have very little credit card debt, you may be in good financial health.
Fixed Expenses: Fixed expenses are those that you have to pay every month. These are expenses that you really cannot change like your mortgage, rent payment, car payment or child care.
Grace Period on Purchases: Many credit card issuers give you a Grace Period on Purchases if you pay your balance on your statement by the due date each month. If you don’t, you may not get a Grace Period on Purchases until you pay the balance by the due date for two months in a row. Typically the grace period must be 21 days or over. Usually, major credit card issuers have a 25 days grace period.
Income: Income from all sources including wages, commissions, bonuses, alimony, child support, Social Security or retirement benefits, unemployment compensation or disability, dividends and interest. Look at your last federal income tax return for your income sources.
Inflation: The gradual rise in prices of products and services. With a rise in inflation, a dollar invested or saved today is worth less than the same dollar yesterday.
Installment Loan: A loan that you promise to pay back by paying the same amount of money on a regular basis, usually monthly, for a specific amount of time. For example, you might pay back an installment loan by paying $300 a month for 5 years. Student loans and auto loans are usually installment loans.
Interest Charges: Interest Charges are the cost of consumer credit expressed as a dollar amount. They may include charges, such as interest and fees, paid by the consumer to the creditor for obtaining a loan.
Interest Rate: The rate that a bank or credit issuer charges for the money it lends to you.
Late Payment: Most charge and credit card bills list the date by which payments are due. If you miss the due date, the account is considered past due and you may be charged a late fee. Late payments may be reflected on your Credit Report. If you have paid late numerous times, it may be difficult to get additional credit.
Late Payment Fee: A fee charged on a credit card account for failing to submit the Minimum Amount Due by its due date. If your payment is late, credit card will also assess finance charges on your credit card balance.
Legal Judgment: A court verdict that requires a person to do something, such as pay a debt.
Liability: Liability is the responsibility for a loan or credit account. When applying for credit, you agree to be liable for any charges to your account, including purchases, fees and Interest Charges. For a credit card account, your liability is described in the Cardmember Agreement you receive from the issuer.
Minimum Amount Due for a Credit Card Account: The smallest amount you can pay by the due date each month and still meet the terms of your Cardmember Agreement.
National Foundation for Credit Counseling (NFCC): A non-profit organization dedicated to educating consumers in the wise use of credit. The NFCC is the umbrella group for Consumer Credit Counseling Service offices throughout the nation.
Outstanding Balance: The total amount that you owe on a credit card or other loan.
Over-the-Credit-Line: When the amount you owe is more than the limit on your Credit Line. Any combination of purchases, Cash Advances, fees or Interest Charges may cause you to exceed your Credit Line. For example, you will be over the Credit Line if you spend $2,000 when you have $1,000 of your Credit Line left.
Past Due: The status of an account when the Minimum Amount Due has not been received by the due date.
Periodic Rate: The Interest Rate described in relation to a specific amount of time. For example, the monthly periodic rate is the cost of credit per month; the Daily Periodic Rate is the cost of credit per day.
PIN: Abbreviation for Personal Identification Number, the number used as an access code to ATMs. Usually the PIN number is between 4 digits to 6 digits depending on the bank or credit card company.
Posting Date: The date that a purchase, Cash Advance, fee, service charge or payment is applied to your charge or credit account.
Pre-Approved Credit: Credit card or a line of credit that is approved based upon available data, generally requiring only limited additional information to be supplied by the potential cardmember.
Prepayment: When a portion or the entire amount of the principal of a loan is paid before it is due. This will usually reduce the total amount of interest that must be paid.
Previous Balance: The total balance due at the end of the last credit card Billing Cycle.
Prime Rate: The Prime Rate is the interest rate that some major banks charge to many of their best corporate borrowers. Each bank sets its own Prime Rate, though because the rate is so competitive, sometimes the rate is the same at all banks. The Prime Rate is reported daily in many publications, including The Wall Street Journal.
For consumer loans — including credit cards — banks and other lenders may use the Prime Rate as a base for calculating variable interest rates. For example, a credit card might carry an Annual Percentage Rate (APR) based upon the Prime Rate + 7.4%. If the Prime Rate today is 3.25%, the rate on the loan will be 10.65% (3.25% + 7.4% = 10.65%). If the Prime Rate drops to 3% when the price on the loan is next evaluated, the rate on the loan may go down to 10.4% (3% + 7.4% = 10.4%).
Principal: Principal is the portion of a loan that represents the actual amount of money borrowed. Principal is separate from interest. In terms of credit cards, principal represents the price of purchased items or the amount of a Cash Advance.
Promissory Note: A promissory note is a binding legal document that a borrower signs to obtain a loan. It lists your rights and responsibilities under the loan agreement, including how and when the loan must be repaid. Rights and responsibilities for credit card accounts are listed in the Cardmember Agreement.
Quarterly: Quarterly divides the year into four parts. In a calendar year, the first quarter is January through March, second quarter is April through June, third quarter is July through September, and fourth quarter is October through December.
- 1st Quarter: January 1 to March 31
- 2nd Quarter: April 1 to June 30
- 3rd Quarter: July 1 to September 30
- 4th Quarter: October 1 to December 31
Recession: When demand in the economy decreases, prices of goods and services also decrease, resulting in a slowdown of the economy. When this slowdown becomes a long-term decline, this is known as a depression. In order to qualify as Recession, the slow-down must be 2 quarters or longer.
Reference: A person who can vouch for your reliability, employment history or other factor needed to determine your Creditworthiness.
Revolving Credit: A credit agreement that allows consumers to pay all or part of the outstanding balance on a credit card or line of credit. As the balance is paid off, it becomes available again to use for another purchase or Cash Advance.
Savings: Money set aside so that it can be used later. Usually savings is defined as money that can be converted to cash instantly.
Secured Card: A credit card that is collateralized, or partially collateralized, by a cash deposit held in a special savings account or certificate of deposit. Some banks may require that the deposit remain in the account until the Credit Line is closed or the bank decides security is no longer necessary.
The Credit Line on the card may sometimes equal the amount of the deposit. If a cardmember defaults on the card, the issuer may apply the deposit toward the outstanding balance.
Secured Debt: Debt for which repayment is guaranteed through collateral property of equal or greater value than the amount of the loan. If you do not repay the loan, the issuer may take possession of the Collateral. Collateral may be an asset such as a car or a home or, in the case of a secured credit card, a cash deposit held by the issuer. For example, a mortgage is a secured debt in which the home is collateral. If the person fails to repay the loan, the bank may take the home as payment.
Semi-Annually: Twice a year. Usually is broken down from January 1 to June 30 and July 1 to December 31 period.
Signs of Trouble: Situations or events that suggest you may be having financial difficulty. For example, a sign of trouble could be that you use your credit card to pay for groceries because you have no money in your checking or savings account. Other signs of trouble include paying only the Minimum Amount Due on your credit cards, using one credit card to pay the monthly Minimum Amount Due on another card and routinely having maxed-out credit cards.
Social Security Number: a nine digit number issued by Social Security Administration (SSA).
Student Credit Cards – Credit Cards specifically designed for college students
Taxable Income: Any money you earn or receive, such as salary, bonuses, dividends or interest from investments, that can be taxed by the Federal, state, or local government.
Transaction Date: The date a purchase is made or cash is withdrawn. Some companies assess interest from the Transaction Date, others from the Posting Date.
Transaction Fee: An extra charge for various credit activities such as using an ATM or receiving a Cash Advance.
Unsecured Debt: This is debt that is not guaranteed by Collateral, therefore, no assets are committed in the event of default. Most credit cards are unsecured
Variable Expenses: Variable expenses are those that can change from month to month. Variable expenses include necessities that can be reduced (such as food and utilities) and non-essentials that could be eliminated (e.g., long distance charges, cable, magazine subscriptions, etc.).
Variable Interest Rate: An interest rate that changes based on an economic index such as the Prime Rate or the U.S. LIBOR Rate. For example, a variable rate credit card with an interest rate like “Prime + 5.9%” means that the interest on the card is based upon the Prime Rate plus an additional 5.9%.
Zero APR: 0% APR means the credit card issuer is not charging any interest on your credit card balance.
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.