Glossary

We have provided some common terms that are relevant to credit cards.

All | A | B | C | D | E | F | G | H | I | M | N | O | P | R | S | T | U | V | Z

Acquiring Financial Institution

Merchants must maintain an account with an acquiring financial institution to receive credit for credit card transactions. Daily credit card totals are deposited into the merchant's account minus any fees.

Additional Principal Payment

Extra money included with a loan payment to pay off the amount owed faster. Over time, this practice reduces the amount of interest paid.

Air Miles

One of the most popular rewards issued by airline-affiliated co-branded cards. Air miles are earned with every use of the card, and then transferred monthly to the cardholder's account with that airline.

Annual Fees

A charge for use of a credit card levied each year, which can range from $15 to $300, billed directly to the customer's monthly statement. Many credit cards come without an annual fee.

Annual Percentage Rate (APR)

It is the yearly amount a consumer must pay for acquiring a loan or other type of credit. Lenders are required by law to disclose the APR. The intended function of the APR is to allow consumers to compare loans and determine which loans or other types of credit are the least costly.

ATM

An acronym for Automated Teller Machine. It's a terminal activated by a magnetically encoded card that allows customers of a bank or other financial institution to conduct certain transactions such as deposits and withdrawals. An interconnection of these terminals allows customers to conduct certain transactions around the nation and the world, usually subject to a surcharge fee.

Average Daily Balance

This is the most common calculation method for credit card interest. The issuing company tracks your balance day by day alongside purchases and subtracting payments as they occur. To get your finance charge they take the average of the daily totals and multiply this by the monthly interest rate.

Balance Transfer

Process of moving credit card debt from one credit card to another. Credit card balance transfer feature can be a great way of consolidating your credit card debt

Balance Transfer Fee

A one-time fee charged by a credit card company to transfer an outstanding balance from one credit card account to another.

Bill Presentment

This is a process that enables bills to be created, delivered, and paid over the Internet.

Billing Period/Cylce

Interval between periodic billing statements, normally one month.

Cardholder Agreement

The written statement that gives the terms and conditions of a credit card account. The cardholder agreement is required by Federal Reserve regulations. It must include the Annual Percentage Rate, the monthly minimum payment formula, annual fee if applicable, and the cardholder's rights in billing disputes. Changes in the cardholder agreement may be made, with written advance notice, 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

Cash provided against a prearranged line of credit such as a credit card, typically imposing higher-than-normal interest charges.

Cash Cards

The CashCard is a stored value card that can be used at most retail stores, car park payment machines, vending machines, pay phones and other places.

Charge Card

A charge card is a specific kind of credit card. The balance on a charge card account is payable in full when the statement is received and cannot be rolled over from one billing to the next. Because you cannot carry a balance, a charge card doesn't have a periodic interest or APR, so there is no rate for a charge card issuer to disclose.

Credit Limit

The maximum amount of credit that a credit card company will allow a card holder to borrow on a single card.

Credit Line

An arrangement in which a bank or vendor extends a specified amount of unsecured credit to a specified borrower for a specified time period.

Credit Rating

A credit rating assesses the credit worthiness and are calculated from financial history and current assets and liabilities. Typically, a credit rating tells a lender or investor the probability of the subject being able to pay back a loan.

Credit Report

A credit report is an accumulation of information about how you pay your bills and repay loans, how much credit you have available, what your monthly debts are, and other types of information that can help a potential lender decide whether you are a good credit risk or a bad credit risk.

Debit Card

A debit card's functionality is similar to writing a check as the funds are withdrawn directly from either the cardholder's bank account (often referred to as a check card).

Debt Consolidation

Consolidating your debt in a single low-interest loan can save on interest payments and speed the process of paying off debts. Debt consolidation is often advisable in theory when someone is paying credit card debt

Debt-to-Income Ratio

Debt-to-income ratio is the amount of one's debt in comparison to the amount of his income. The more credit cards you have and the higher the balances on them, the more debt your credit report is going to show. This is going to make your debt-to-income ratio go up, which will make your creditworthiness go down.

Electronic Check Presentment

Called ECP for short, it captures an electronic image of the check at the point of sale. The image, rather than the paper check, is then processed by banks and clearinghouses. The way it works is that a depositing bank sends the paying bank (or a Federal Reserve Bank) an electronic transmission containing the details of a check, such as the amount, account number and check number, that the depositing bank will be presenting later in the day or the following business day.

FICO scores

A FICO score is a credit score developed by Fair Isaac & Co. Credit scoring is a method of determining the likelihood that credit users will pay their bills. A credit score attempts to condense a borrower's credit history into a single number. Fair, Isaac & Co. and the credit bureaus do not reveal how these scores are computed. The Federal Trade Commission has ruled this to be acceptable.

Finance Charge

A standard finance charge such as interest payments or late fee is the total cost of borrowing a sum of money which is given either as credit or as a loan. The finance charge typically is calculated based on the credit card balance so the amount will vary from month to month.

Fixed Rate (or Fixed APR)

A loan featuring a Fixed Rate Interest means that interest rate stays the same throughout the life of the loan. By choosing a fixed rate loan, you can be certain that your interest rate and monthly payments will stay the same for the entire life of the loan.

Floor

The minimum rate possible on a variable-rate loan or line of credit, after any initial introductory rate period. For example, on a credit card with the Prime rate as its index, no matter how low the Prime rate drops, the rate on the line may never decrease below the stated rate floor.

Grace Period

Grace period is the additional period of time a lender or insurance policy issuer provides for a borrower to make payment on a debt without penalty.

Household Income

The total income of all members of a household. An important yardstick used by lenders evaluating applications for joint credit.

Interest Rate

A rate which is charged or paid for the use of money outstanding on your credit card balance. An interest rate is often expressed as an annual percentage of the principal.

Introductory Rate (or Intro APR)

The interest rate that is used to calculate interest payments for a specified period of time, usually the first six months after the credit card was issued. Introductory APR serves as an incentive to transfer balances from existing credit cards to the new, low or no interest credit card to take advantage of a much lower or 0% interest rate to save money on interest charges.

Merged Credit Report

A credit report that contains information from three credit bureaus. When the report is created, the information is compared for duplicate entries. Any duplicates are combined to provide a summary of your credit.

Minimum Credit Card Payment

The minimum payment on credit card debt is calculated as a percentage of your current balance. It is minimum amount that must be paid to avoid defaulting on the credit card or loan. The creditor can impose a late-fee if the payment received is less than the minimum payment.

Minimum Payment

The minimum amount a cardholder can pay to keep the account from going into default. Some card issuers will set a high minimum if they are uncertain of the cardholder's ability to pay. Most card issuers require a minimum payment of two percent of the outstanding balance.

Non-dischargeable Debt

A type of debt that cannot be eliminated through bankruptcy proceeding. Such debts include, but are not limited to, student loans, most federal, state and local taxes, money borrowed on a credit card to pay those taxes, and child support and alimony.

Open-end Credit

Open-end credit generally refers to a revolving line of credit (such as a credit card account) where repeated transactions are expected, the available credit is replenished as unpaid balances are repaid, and finance charges are assessed on unpaid balances.

Overlimit Fee

It is the charge for overdrawing your checking account or exceeding the limit on your credit card. Purchases are approved, even when the transaction amount surpasses the allowable credit limit. Overlimit fees may also be assessed even when a fee is what caused the overlimit situation.

Periodic Rate

The interest rate described in relation to a specific amount of time. The monthly periodic rate, for example, is the cost of credit per month; the daily periodic rate is the cost of credit per day.

Point of Sale (POS)

The physical location where a sale is completed. POS Terminal is the device used by retail businesses to process a credit card transaction.

Pre-Approved

A credit card offer with "pre-approved" only means that a potential customer has passed a preliminary credit-information screening. A credit card company can spurn the customers it invited with "pre-approved" junk mail if it doesn't like the applicant's credit rating.

Prime Rate (or Prime Interest Rate)

The lowest interest rate charged by commercial banks to their most credit-worthy customers. Many credit cards with variable interest rates have their rate specified as the prime rate (index) plus a fixed value commonly called the spread.

Revolving Line of Credit

An agreement by a bank to lend a specific amount to a borrower, and to allow that amount to be borrowed again once it has been repaid. Also called revolving credit.

Secured Credit Card

A secured credit card is a type of credit card secured by a deposit account owned by the cardholder. This deposit is held in a special savings account. Credit card issuers offer this as they have noticed that delinquencies were notably reduced when the customer perceives he has something to lose if he doesn't repay his balance.

Secured Debt

Debt backed or secured by collateral to reduce the risk associated with lending. An example would be a mortgage, your house is considered collateral towards the debt. If you default on repayment, the bank seizes your house, sells it and uses the proceeds to pay back the debt.

Subprime Borrower

Subprime refers to a borrower that has less than perfect credit. These are borrowers who might be less likely to repay a loan. Subprime borrowers may be classified as subprime because of: bad credit or lack of history, low income or poor debt to income ratios, large loans relative to the securing property (high LTV ratio), maxed out credit cards.

Teaser Rate

Often called the introductory rate, it is the below-market interest rate offered to entice customers to switch credit cards or lenders.

Unsecured Credit Cards

Unsecured Credit Cards are credit cards that do not require a security deposit on the account. This type of card is often subject to credit checks and credit approval. Unlike a secured credit card, you generally cannot increase the credit limit whenever you want to.