Credit Card Glossary
Adjusted Balance
Adjusted Balance is an accounting method that determines costs based on the amount or amounts owed once credits and payments have been applied.
Affinity Card
This is a special kind of credit card that is typically issued by a bank in conjunction with a charitable organization whose logo will appear on the card. A percentage of each transaction is donated to that charity every time the card is used.
Air Miles
Air miles, also known as frequent flier miles, are a very popular reward program that earns free airline miles every time the card is used and then transfers them to the cardholder's account associated with a specific partner airline that can then be redeemed for free airline tickets, seat upgrades and other amenities.
APR (Annual Percentage Rate)
The APR is the total yearly cost of interest that is charged for borrowing that becomes expressed as a percentage number. The APR also includes any fees or additional costs.
Annual Fee
This is the fee charged for participation or membership that is charged per year by credit card companies in order to have a credit card with them.
Average Daily Balance
A method of calculating costs and interests based on what is owed at the end of each day. It is very popular for department store credit cards to utilize this system since it allows for cardholders to lower the interest payable immediately.
Bankruptcy, Chapter 7
A bankruptcy proceeding where a company ceases all operations and goes out of business completely, and where an appointed trustee is brought in to liquidate all company assets. Once the assets have been liquidated, the money will be used to pay off debt. Debt is then paid off in order of investors who take the least risk getting paid first. Secured creditors, unsecured creditors, then investors.
Bankruptcy, Chapter 11
A bankruptcy proceeding where a debtor's business affairs and assets are reorganized. This is typically filed by corporations who are seeking more time to restructure their debts, and is the most complex as well as the most expensive of all bankruptcy cases.
Balance Transfer
The act of transferring the outstanding balance from one credit card to a new credit card. This is typically done by consumers who are shifting their existing credit card debt to a new card with a lower interest rate, less penalties and other benefits such as reward points or air miles.
Balance Transfer Fees
The fee charged for a balance transfer. This is a one time fee that consumers have to pay when they move an existing credit card balance from one card to another.
Cash Advance
A loan taken out against a line of credit, typically a credit card where one can receive cash. Cash advances typically have higher than normal interest rates than one would receive on a normal purchase with the same credit card.
Cash Advance Fee
A one time fee charged when one receives a cash advance from their credit card. Similar to have to pay an off-network fee from a cash machine that is not from your banking institution.
Cash Rebates
A form of reward for using your credit card. Typically between 1-3% per purchase. Cash rebates are paid to consumers from the percentage the company makes from transaction fees.
Co-Signer
A co-signer is someone else on loan documents that will take responsibility for the debt in the event the primary borrower defaults.
Credit
A contractual agreement where one party receives something of value and then agrees to repay the lender at a future date, typically with interest. It may also refer to the actual borrowing capacity of both individuals and companies. Credit can also refer to an accounting entry that will increase net income on a balance sheet.
Credit Card
A card that is issued by a financial institution that gives the cardholder an option to borrow funds at a point of sale. Typically used for short-term financing of items. There are pre-set borrowing limits on credit cards, known as a credit limit that is based off of the individual's credit rating.
Credit History
This is the historic record of a consumer's ability to be able to repay their debts as well as how responsible an individual is when it comes to repaying debts including the number of as well as types of credit accounts, amounts owed, and amount of available credit. This information is contained in an individual's credit report.
Credit Line
A credit line is an agreement between a financial institution and a customer that will establish the maximum loan balance available for the consumer to tap into at any time, as long as the borrower does not go over the maximum amount agreed upon. Interest is not paid on the unused amount available in the credit line, only what they have borrowed.
Credit Limit
The total amount of credit a financial institution will extend to a client, such as the maximum amount an individual can spend using a single credit card. The credit limit is typically established based on the information contained in a credit application as well as the individual's credit history.
Credit Report
A credit report is a detailed reporting of an individual's credit history that is prepared by a credit bureau and then used by a lender to determine how creditworthy a loan applicant is. It contains the individual's complete credit history, as well as current and previous addresses, employment history, details of any accounts that have been sent to collection, and information on how to dispute any inaccuracies.
Credit Score
An individual's credit score is a numeric representation of an individual's creditworthiness that has been statistically derived from past credit history. Credit scores will range between 300 and 850, and the higher the number the more creditworthy an individual is.
Debit Card
An electronic card that allows bank clients to withdraw cash to pay for goods and services, eliminating the need to go to a cash machine in order to remove cash from their account. It also removes the need for checks since the debit card will immediately transfer money from the client's account without having to wait. They are convenient and secure.
Debt Consolidation
The act of combining several loans or other liabilities from various creditors and sources into one single loan. Typically, this involves taking out a new loan in order to pay off several other debts. Many people who use debt consolidation do so in order to receive a lower interest rate or to simply have the simplicity of only having one loan.
Fixed Rate (F)
A fixed rate is an established interest rate that is locked into one specific rate, unlike adjustable rates that can fluctuate. If the letter F or (F) follows the APR, or annual percentage rate, that indicates it is a fixed rate APR and not adjustable.
Grace Period
A grace period is a provision that most loan and insurance contracts, even bills have which will allow for payment to be received for a specified period of time after the due date, typically 15 days. During this time, no late fees will be charged and the late payment will not result in the default of a loan.
Interest Rate
The amount charged by a lender to a borrower, expressed as a percentage of the principal owed. Typically the interest rate is expressed on an annual basis, also known as APR or annual percentage rate. If the borrower is low risk, they will receive a lower interest rate, and high risk borrowers will typically receive a higher interest rate.
Monthly Periodic Rate
The interest you are charged on a monthly basis. This is the annual percentage rate (APR) divided by 12.
Online Banking
The act of performing banking activates over the internet. Also known as internet banking. Online banking services offer customers services that are traditionally available through a local branch from the comfort of their own home. This includes accepting deposits online, as well as online bill payment systems.
Overdraft
When a checking account reaches zero and then goes over, an overdraft will allow the individual to continue withdrawing money even though there are no funds in the account rather than giving the customer an insufficient funds notice. Essentially, it is the extension of credit from a lending institution. These can come with high interest rates, as well as hefty fees to consumers for each fee that puts an individual's account into the negative.
Penalty APR
This is a fee or adjustment made to a borrowers interest rate after missing multiple payments, as well as making late payments.
Personal Identification Number
Also known as a PIN. This is a unique number that provides the user with personal security when using their card since the PIN must be entered at the Point of Sale.
Point of Sale
The point where a sales transaction occurs. Retailers refer to the point of sale as the area that surrounds the counter where customers pay.
Pre-Approved
An evaluation of a borrower by a lender that determines the borrower is qualified for an extension of credit from the lender before an application has been made. It can also refer to the maximum amount that the borrower would be able to receive from a lender.
Rate
The amount a borrower pays for the use of money that is typically expressed as an annual percentage.
Rebate Credit Card
A credit card that allows the borrower to accumulate rewards in the form of cash rebates, services, or merchandise based on card usage.
Secured Credit Card
A credit card that is backed by a savings account that is used as collateral for purchases made on the card. Credit limits for secured credit cards are based on previous credit histories as well as the amount that is deposited into the account.
Statement
A record of all transactions that have been made in a billing cycle, usually on a monthly basis. A statement will list all debits, credits, deposits, balance, service charges, and other activity that has happened on an account.
Tiered Rate (T)
An account with a tiered rate will pay interest in higher amounts the higher the account balance of the account is. For example, a savings account with a tiered rate will pay 1% interest on a balance of $2000 to $5000. Balances of $5001 to $10,000 will pay 1.15% interest, while an account with a balance of $10,001 to $17,000 will pay $1.3% interest.
Variable Rate (V)
An interest rate that fluctuates over time due to being based off of an underlying benchmark index that will see periodic changes. If the underlying index falls, the interest payments will also fall, and if the index rises interest payments will see increases.
VISA
VISA is the world's largest credit card payment network. VISA is an acronym for Visa International Service Association, and their name also refers to "visa" which is a government document that would permit entry into a country or region. The name VISA is a play on how a visa allows you to "go anywhere" while referring to how more merchants accept credit cards from VISA than any other credit card company.