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Credit Card GlossaryA Additional cardholder One credit card account can have more than one credit card issued on it. Additional cardholders are able to make use of the credit card account, but it will be the main cardholder who is responsible for bill payment. Annual Membership Fee Many issuers charge flat, yearly charge, which often ranges from $25 to $50. However, more and more banks waive membership fee as the competition grows. Average Daily Balance Average Daily Balance is used for calculating interest by most issuers. It is computed by adding up the balance of the account for every day in the billing cycle (usually one month) then dividing by the number of days in that cycle. APR (Annual Percentage Rate) You are charged interest on your outstanding balance for the use of the issuer's money. The APR is a measure of the cost of credit, expressed as a yearly rate. The APR can be either fixed-rate or varibale rate. The APR is disclosed to you when you apply for a card, again when you open the account, and it is also noted on each bill you receive. ATM Stands for 'Automated Teller Machine', or, more colloquially, simply as cash machine. You can withdraw money from an ATM with your credit card, although you will need a PIN (personal identification number) in order to access your account. B Balance Transfer The process of moving an unpaid credit card debt from one issuer to another. Transfers of the balance owed may occur through the use of special checks, or may be handled directly by the issuer on your behalf. Billing Cycle The number of days between the last statement date and the current statement date. C Card holder agreement The written statement that gives the terms and conditions of a credit card account. It must include the Annual Percentage Rate, the monthly minimum payment formula, annual fee, if applicable, and the card holder's rights in billing disputes. Cash Advances Unlike purchases of merchandise, the card issuers treat cash advances like loans. When you take a cash advance, interest begins to accrue differently--often timeswithout a grace period and at a higher rate. You should check your issuer for the cash advance details associated with your credit card, when you do cash advances. Credit A means of borrowing money from a person or company and returning it at a later date, usually with accrued interest charged on top of the initial sum borrowed. Credit Bureau An agency that provides credit and collection data on consumers within a particular time frame (usually measured in years). This data comprises people's credit histories, and can be released in the form of credit reports. Credit History A partial profile of your financial life given within a particular time frame (usually measured in years). It shows the extent to which you pay your bills on time and how much you may owe particular parties. Credit Insurance A policy that pays off the card debt should the borrower lose his job, die or become disabled. Credit Limit The maximum amount of charges you may incur on your card, which is determined by the issuer after examining your income, the amount of your current debt and your credit history. Credit Report A document that lists your credit history, created and updated using information from banks, merchants and other creditors. D Daily Periodic Rate The interest rate factor used to calculate interest charges on a daily basis. The factor is computed by dividing the yearly rate by 365 days. Used by the Discover card, but few other cards, this method of computing interest can result in an effective annual percentage rate which is approximately 2% greater than the yearly stated rate of interest. Debit Card A card which directly accesses the cardholder's account, providing payment for a transaction much like writing a check. No credit is extended to the cardholder. No debt is incurred. E F Finance Charge The dollar amount you pay to use credit. Besides interest costs, it may include other charges associated with transactions such as cash advance fees. Fixed Interest Rate An interest rate that changes only if the issuer notifies cardholders through an amended cardholder agreement. Federal law stipulates a minimum of 15 days advance notice is required. G Grace Period The grace peirod is the time the issuer gives you to pay off the new balance before assessing finance charges. It's often measured from the close of the billing cycle to the payment due date. Under most credit card plans, the grace period only applies if you pay your balance in full each month. H I Introductory Rate Various credit cards offer a low introductory rate that switches to a higher variable or fixed rate. Make sure that you know how long the introductory rate is applicable and what APR the card will carry after the introductory period elapses. Be aware that the introductory rate for some cards will be terminated if you are late with a payment. J K L M Monthly Periodic Rate The most common interest rate factor used to calculate the interest charges on a monthly basis. The factor is computed by dividing the yearly rate by 12. N O Over-Limit Fee A fee charged for exceeding your credit limit. The fee is frequently $10 - $20, and may not be assessed unless the credit limit is exceeded by 10%. P Late (Payment) Fee A fee charged for failing to submit the minimum monthly payment by its due date. The amount of the fee is usually $20 - $30. Periodic Rate The rate applied to your outstanding balance to figure the finance charge for each billing period. Prime Rate The interest rate a bank charges to its best or "prime" customers. Q R S Secured Card A credit card for which the cardholder has made a security deposit, frequently in the form a savings deposit, to ensure payment of the outstanding balance should the cardholder default. Designed for those who lack credit, or have damaged credit. T Teaser rate Often called the introductory rate, it is the below-market interest rate offered to entice customers to switch credit cards. Transaction date The date that goods or services were purchased or the date the cash advance was made. Truth in Lending Act A federal law that requires lenders to provide certain information in a standardized manner so borrowers can compare one loan to another. The most important facts lenders must provide are: Finance charges and the annual percentage rate (APR); the credit issuer or company providing the credit line and the size of the credit line; length of grace period, if any, before payment must be made; minimum payment required; any annual fees; and fees for credit insurance, if any. Two-cycle billing With the two-cycle method, the average daily balance is calculated from two billing cycles rather than one and finance charges are typically higher This method, in effect, wipes out the grace period for customers who carry a balance. If the bill is not paid in full at the first billing, interest becomes retroactive back to the purchase date. Most credit card issuers use the single-cycle average daily balance method to calculate finance charges. U V Variable Interest Rate With variable-rate cards, the APR changes when interest rates or other economic indicators change. It is also called floating rate. W X Y Z |
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