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Credit Card and Financial Glossary
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
A
account number: Every cardholder's account is identified by an account number. Protect it and never give it out over the telephone unless you initiated the call.
activate: To prevent fraud, many card issuers require you to call them when you receive your new card in the mail to verify that the correct person has received it. Until proper ownership is confirmed, the card may not be activated.
activity: Activity is any transaction that appears on your bill, including purchases, cash advances, finance charges and fees. It also includes any payments made.
additional cardmember/cardholder: Most issuers allow you to sign on an additional cardholder, such as a spouse, to your account. You are liable for any charges that the additional cardholder incurs.
advance-fee loan: A loan calculated so that all the finance charges and other creditor expenses are deducted before the consumer receives the principal.
agreement: Your card issuer will send you a cardholder agreement that describes the terms that apply to your card, including the interest rate charged, method of calculating interest and any transaction fees. If your card issuer refuses to disclose fully the terms of your card agreement before you accept the card, you might want to shop around for an issuer that will.
amount due: Generally, the minimum monthly payment you must make, not the total amount you owe.
annual fee: Card issuers may charge you a yearly fee in addition to the interest that accumulates when you make purchases. Depending on how you use it, a card with no annual fee but a high interest rate could cost you significantly more than one with a higher annual fee and a low, or no, interest rate.
annual percentage rate (APR): The APR measures the cost of credit expressed as a yearly interest rate.
automatic payment: If you have a savings or checking account with the same bank that issues your card, you may be able to automatically transfer money from your bank account to pay a credit card bill. Automatic payment eliminates the risk of paying a bill late and being assessed a late charge.
available credit: The unused portion of credit that falls within the consumer's applicable credit limit, if any.
average daily balance (including or excluding new purchases): The most common method of calculating interest. To figure out your average daily balance, the bank will add up the amount you owe for each day of your billing cycle and divide that number by the number of days in the billing cycle (see billing cycle). New purchases may or may not be added to the balance, depending on the individual card's terms. The most favorable calculation excludes new purchases. Back...
B
balance: Your balance is the amount of money you owe the card issuer, and includes purchases, fees, interest and transaction charges.
bill aka monthly statement: Each billing cycle (usually once per month) your card issuer will send you a bill. The bill will detail the activity on your account for that billing cycle. The reverse side of your bill usually describes some of the basic terms of your card agreement, including how the interest is calculated and where to call with questions. See your card agreement for complete information on the terms.
billing cycle: The time between your last bill and your current bill, usually 28 to 31 days. Back...
C
cash advance: You can use your card at a bank or an automatic teller machine to get a cash loan. The interest rate for a cash advance is typically higher than it is for purchases, and there is usually no grace period. There can also be a handling fee for withdrawing cash in addition to the interest charges, which can raise the cost significantly.
charge card: A charge card requires you to pay your bill in full each month, but charges no interest.
closing date: The closing date is the last day that transactions are posted on your account for that month.
collateral: Savings, bonds, insurance policies, jewelry, property or other items that are pledged to pay off a loan or other debt if payments are not made according to the agreement. Also called security.
collection agency: If you fail to pay a credit or charge card bill, the card issuer may send your overdue bill to a collection agency, a company that will attempt to obtain payment from you. If this happens, your account may be listed as a "collection account" on your credit report. If you do not pay your bill and your card issuer has to go to a collection agency to attempt to obtain payment from you, you may be liable for the cost of the collection agency's services. Check your cardholder agreement to see if your card includes this potential fee.
There are certain things a bill collector cannot lawfully do: use or threaten to use violence or other criminal means to harm you, your property or your reputation; use obscene or profane language; publish your name; list your debt for sale to the public; or place telephone calls to you or any other person without identifying himself or herself as a bill collector. If a collection agency goes beyond these boundaries, you have legal rights protecting you.
consumer credit file: A credit bureau record on a given individual. It may include: consumer name, address, Social Security number, credit history, inquiries, collection records, and public records such as bankruptcy filings and tax liens.
convenience check aka transfer check: When you open a new account with a credit card issuer, it may send you a blank convenience check or transfer check so you can shift the debt you have with your old card to your new card.
copy charge aka document fee/charge: Card issuers are required to provide you with copies of documents relating to your account. They may, however, charge a fee for the copying and handling. See your cardholder agreement for your issuer's copy charges.
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, that is, doesn't pay.
co-signer: A parent or any person over 18 years old who agrees to share credit responsibilities and pay debts.
credit bureau: A credit bureau keeps a record of your credit history for any card or loan issuer to review when considering your application for credit. The three major credit reporting agencies in the United States are Equifax, Experian (formerly TRW) and Trans Union.
credit card: A credit card allows you to make partial payments for purchases, but charges interest on the amount owed. You can also pay your balance off in full to avoid interest payments. Banks and other card issuers set interest rates and fees.
credit counseling: Advice given by professional counselors to people about how to use credit responsibly and how to get out of serious debt.
credit limit: Your credit limit is the maximum amount you may charge on a credit card. Some card issuers set a separate limit for purchases and cash advances. Many banks will allow you to spend more than your credit limit, but may charge you a fee for doing so. It is up to you to keep track of your credit limit and how much available credit you have left.
credit record/credit file: A person's up-to-date credit history.
credit report: A summary of your recent credit history plus additional facts about you, including your age, address, marital status, employment history and other details that will help creditors judge your creditworthiness.
A credit report includes a record of any card that you hold now, held in the past, or for which you have applied. It also includes the credit limit and your payment history. You should request a copy of your credit report periodically to check it for accuracy. If you find an error, write to the credit bureau and request that the agency research and correct the error. You cannot have correct information removed from your records for seven years, or 10 years in the case of bankruptcy.
credit union: A democratically owned and controlled nonprofit financial cooperative that offers a variety of savings and lending services to members.
creditworthy: Judged to be qualified to have credit. Back...
D
daily periodic rate: The daily periodic rate is your annual interest rate expressed on a daily basis. It equals 1/365th of your annual percentage rate.
debit card: This card allows you to deduct the amount of your purchase directly from your checking account for payment to the merchant.
default: Failure to pay a debt as outlined in the cardholder agreement, bankruptcy, or an inability or unwillingness to pay your debt. If you default on your credit card account, the issuer will cancel your account and demand full payment of the outstanding balance.
deferred payment: Payment put off to a future date or extended over a period of time. Watch out for skip-a-month offers. Interest still accumulates when you skip a month.
delinquency assessment: A fee that is charged for a late payment.
dispute: Credit and charge card bills are governed, in the United States, by the Fair Credit Billing Act, which is included in the Truth in Lending Act (see Truth in Lending Act). If you think your bill is wrong, write to your card issuer at the address listed on your statement. You must write no later than 60 days after receiving the first statement where the error appeared. The card issuer must acknowledge your letter within 30 days, and correct the error or explain why it thinks the statement was correct, within two billing cycles (but in no event later than 90 days) after receipt of your letter. You do not have to pay the amount in question while it is being investigated, but you must pay the rest of your bill.
due date: The day a payment is due to a creditor. After that date, a late fee can be charged and the payment can be recorded as late, or the account can be considered delinquent. Back...
E
effective date: The first day your card is activated and ready for use or when new terms take effect.
Equal Credit Opportunity Act: The Equal Credit Opportunity Act requires that U.S. financial institutions and other creditors make credit equally available to all creditworthy customers without regard to race, color, religion, national origin, sex, marital status or age. For example, a creditor cannot ask you to reapply, close your account or change terms of a loan if you become widowed or divorced. Income from pensions, annuities or part-time employment may not be excluded by a creditor in evaluating a consumer's creditworthiness. Back...
F
Fair Credit Billing Act: See dispute.
Fair Credit Reporting Act: The U.S. Fair Credit Reporting Act seeks to achieve fair, timely and accurate reporting of credit information by regulating the activities of credit bureaus, limiting access to credit bureau information, and requiring that creditors disclose certain information regarding their use of credit bureau or third party information. Under the Fair Credit Reporting Act, you have the right to see the credit history maintained by a credit bureau about you (see credit report).
Federal Reserve: A central bank 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, provides deposit insurance, and helps guarantee the stability and security of the U.S. banking system.
FICO: Credit bureau risk scores produced from models developed by Fair Isaac Corporation are commonly known as FICO scores. Fair Isaac credit bureau scores are used by lenders and others to assess the credit risk of prospective borrowers or existing customers, in order to help make credit and marketing decisions. These scores are derived solely from the information available on credit bureau reports.
finance charge: The cost of consumer credit expressed as a dollar amount. A finance charge would include the following types of charges imposed by card issuers: interest, transaction fees and service fees.
finance company: 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. Back...
G
goods and services dispute: If you have a problem with the quality of property or services that you purchase with a charge or credit card, and you have tried in good faith to correct the problem with the merchant, you may have the right not to pay the remaining amount due on the property or services. There are two limitations on this right: 1) You must have made the purchase in your home state or, if not within your home state, within 100 miles of your current mailing address, and 2) the purchase price must have been more than $50.
grace period: The period of time, generally 20 to 25 days, from the billing date of your last credit card bill to the due date of your current bill, when you can pay in full without being charged interest. Some cards do not offer a grace period. Others only have a grace period if there was no outstanding balance on the account at the start of the billing cycle. Generally, there is no grace period for cash advances. Back...
I
inquiry: Your credit report has an inquiry section that lists anyone who has asked for your credit history.
installment credit: A credit agreement that allows you to repay credit in regular payments over a specified time.
interest: A charge for borrowed money, generally a percentage of the amount owed. Back...
J
joint account: Two people can share a card, each individually responsible for the outstanding balance on the card account. (This is different from having one person apply as a cardholder, with additional cards on that account issued to family members or others. For more information, see additional cardmember/cardholder.) Back...
L
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 fee. Your credit report may reflect late payments, and if you have made a habit of paying late, creditors may be dissuaded from granting additional credit.
liability: Liability refers to the responsibility for charges to an account. Generally, a cardholder agrees to be liable for any charges to his or her account, including purchases, fees and finance charges. If the cardholder allows someone else to make charges to his or her account (through, for example, an additional card), the cardholder is still responsible for paying the bill. Two people who apply for a card together may both be responsible for the entire balance. Your liability is described in the cardholder agreement you receive from the issuer. Be sure to read it carefully. Back...
M
minimum payment: The minimum amount you are required to pay the credit card issuer each month. You may, however, choose to pay more. Paying the minimum monthly payment may be helpful when you can only afford to make a small payment. However, interest charges can really add up when you stretch out a loan with minimum payments.
For example, at an 18.5 percent interest rate, it will take you more than 11 years to pay off a debt of $2,000 if you only pay the minimum balance due each month. During this time, you will pay interest charges of $1,934 -- almost doubling the cost of your purchase. (This calculation is based on making a payment which is 1/36th of the outstanding balance, or $20, whichever is larger.)
monthly periodic rate: The rate of interest per month, calculated by dividing the annual percentage rate (APR) by 12. Back...
O
other charges: Other charges may be listed on your bill and can include the annual membership fee or late payment fees.
over-the-limit fee: When you charge more than your credit limit allows, you may be charged an over-the-limit, or over-credit-limit, fee. Your card issuer may allow you to exceed your credit limit without telling you in advance, and you may not know you have done so until you receive your bill.
overdraft agreement: Some issuers allow you to link your credit card to a checking or savings account that you hold with that bank. When you sign an overdraft agreement and you bounce a check, the bank can charge that amount to your credit card account and the check will clear. This way, you avoid a returned-check fee. Back...
P
partial payment: Paying less than the full amount due.
past due: When you do not make at least the minimum payment on time, your account is considered past due.
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.
posting date: The date that a transaction is recorded on your account. Some companies assess interest on charges and cash advances from the transaction date (see transaction date), others from the posting date. It is more favorable to assess interest from the posting date, because that may be later, giving you some interest-free days.
previous balance: The amount you still owe after last month's payments and charges were added to your balance.
prime rate: The interest rate banks charge for loans to their biggest and highest-rated customers. The prime rate changes based on the demand for money and the rate the U.S. Federal Reserve Bank charges to its member banks. It is used as a major economic indicator.
principal: The amount of money you owe, not including the interest due on it.
promotional aka introductory rate: An interest rate that applies for a limited amount of time. After the time limit expires, the ongoing rate (which is usually higher) is applied to your outstanding balance. Check both rates when deciding which card offers the most value. Back...
R
rebate/enhancement cards: Some cards include rebates on merchandise or cash-back offers depending on how much you charge annually. Others have enhancements that offer special benefits, such as frequent-flier miles or long-distance telephone discounts. When choosing a rebate card, be sure that the rebates the card provides add up to more than what you might save with a lower interest rate card.
revolve: To carry over a debt from month to month, paying interest on the amount owed.
revolving credit: A credit agreement that allows consumers to pay all or part of the outstanding balance on a loan or credit card. As credit is paid off, it becomes available again to use for another purchase or cash advance. Back...
S
secured credit card or loan: A consumer uses savings or other collateral to guarantee the credit card or loan; the limit of credit is based on the amount of collateral available.
SET protocol: Secure electronic transaction protocol, an encryption technology designed to allow secure electronic transactions between card issuers, merchants and consumers. Unsecured information sent over the Internet can be intercepted. When making purchases online, you should consider a secure browser that complies with industry standards, such as secure sockets layer (SSL) or secure hypertext transfer protocol (S-HTTP). These often are included with Internet connection services.
smart card: A card containing a central processing unit (CPU) that stores and secures information and makes decisions, as required by the card issuer's specific application needs.
status: A credit report will describe the status of your accounts -- the type of account (charge, credit or installment loan) and whether your account has been paid on time, is past due or canceled.
stored value card: An information storage card that contains stored value, which the user can "spend" in a pay phone, retail, vending or related transaction. Back...
T
transaction date: The date a purchase is made or cash is withdrawn. Some companies assess interest on charges and cash advances from the transaction date, others from the posting date (see posting date).
transaction fee: A fee that is charged each time certain transactions take place, for example, cash advances.
Truth in Lending Act: The Truth in Lending Act seeks to tell U.S. consumers important information about credit terms that can help them make informed credit choices and should protect them against inaccurate and unfair billing practices. The Truth in Lending Act was amended by, and includes, the Fair Credit Billing Act (see dispute). Back...
U
unsecured loan: A loan based on a consumer's promise to pay, without savings or other collateral as a guarantee. Sometimes called a signature loan.
unused credit: The amount of credit you have available before you reach your credit limit. Back...
V
variable interest rate: A variable interest rate is based on fluctuating rates in the banking system, such as the prime rate. For example, if on January 1, the prime rate was 6 percent and your credit card's variable rate formula was the prime rate plus 9.9 percent, your interest rate would be 15.9 percent (see prime rate). Back...
Z
zero balance: If you have no previous outstanding balances on your card account and no new activity that month, this means that you have a zero balance. You might not get a bill since you do not owe anything. Back...
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