Credit Glossary

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Adjusted Balance
A method used by some card issuers in which they subtract all payments made during the month, then add the finance charges.

Affinity Card
Cards designed for individuals having a common bond or sharing an interest. Frequently, an affinity card issuer donates a portion of the annual fees or transaction charges to the sponsoring organization, or allows the cardholder to qualify for discounts or other bonuses.

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

Annual Membership Fee
A fee charge, billed directly to the cardholder's monthly statement, for maintaining a credit or charge card account throughout the year.

Annual Percentage Rate (APR)
The interest rate reflecting the total yearly cost of the interest on a loan, expressed as a percentage rate. It includes interest as well as other charges. Because all lenders follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing credit cards.

Authorized User
Any person to whom the cardholder gives permission to use his/her credit card account.

Available Credit
The amount of unused credit available. Available credit is computed by subtracting the current credit balance and pending transactions for purchases and cash advances from the cardholder's total credit line.

Average Daily Balance
A method of charging interest on a daily basis. The balance used is the average amount the cardholder owes during each day of the billing period. The daily balance includes the current outstanding balance plus any new charges and minus any payments or credits. This method is used by most card issuers and results in lower charges when compared to calculating interest on the outstanding balance at the end of the billing period.

Balance Calculation
The method used by a credit card issuer to calculate the balance owed and the interest due each month.

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 the cardholder's behalf.

Balance Transfer Fee
Fee charged customers for transferring an outstanding balance from one card to another.

Bankruptcy
A proceeding in U.S. Bankruptcy Court that may legally release a person from repaying debts owed. Credit reports normally include bankruptcies for as long as 10 years.

Billing Cycle
The number of days in the billing period. It includes the day after the previous close date and runs through the current close date.

Billing Statement
The monthly bill sent by a credit card issuer to the cardholder. It gives a summary of activity on an account, including balance, purchases, payments, credits and finance charges. Important changes to a credit card account are often included with the statement.

Cardholder 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 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 drawn from the available credit of the cardholder's card account.

Cash Advance Fee
A fee for obtaining a cash advance. The fee is charged to the cardholder's account and usually ranges from 2 percent to 5 percent of the amount advanced.

Charge Card
A card that requires a full payment of the balance by the due date. These differ from credit cards, which give borrowers a revolving line of credit, lets them borrow against it, and carry a balance with an agreed-to interest rate. American Express and Diner's Club are examples of charge cards.

Classic Card
Brand name for the basic card issued by VISA.

Co-Branded Cards
Cards issued through a partnership between a bank and another company or organization. For instance, a large department store may co-brand a card with a bank. The card would have both the bank name and the store name on it. Some co-branded cards are also rebate cards that provide the cardholder with benefits such as extra services, cash or merchandise every time the card is used.

Collateral
An asset or something of value that guarantees the repayment of a loan. Examples of collateral include real estate property, a new auto or different kinds of financial investment accounts. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

Consumer Credit Counseling Service (CCCS)
A service that provides money management education, confidential budget, credit, and debt counseling, and debt repayment plans.

Credit Bureau
An agency that gathers and maintains information on the debts and repayment records of individuals and businesses. Credit bureaus prepare reports that are used by credit card issuers to view an applicant's or cardholder's credit history.

Credit History
A record of an individual's open and fully repaid debts. A credit history helps a credit card issuer to determine whether a potential borrower has a history of repaying debts in a timely manner.

Credit Insurance
A policy that pays off the card debt should the borrower lose his job, die or become disabled. The structure of protection for a revolving credit card debt is calculated each month to cover only the debt that existed at the last billing cycle.

Credit Limit
The maximum dollar amount in charges the cardholder may incur on the cardholder card.

Credit Bureau Report
A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a credit card applicant's creditworthiness.

Credit Repository
An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

Fair Credit Billing Act
Federal legislation passed to help cardholders resolve billing disputes with card issuers. Disputes include everything from computational errors and incorrect charges to the crediting of payments. The act requires issuers to credit payments to a cardholder's account the day they are received. To properly dispute a charge the cardholder must write to the issuer within 60 days of the mailing date on the bill with the error. The issuer is then required to investigate and either correct the mistake or explain why the statement is correct within two billing cycles. The issuer also must acknowledge a cardholder's complaint within 30 days.

Fair Credit Reporting Act
Federal legislation that promotes the accuracy, confidentiality and proper use of information in the files of every consumer reporting agency.

Finance Charge
The charge for the use of credit, consisting mainly of interest costs, but also including other fees 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 day's advance notice is required.

Float
When a cardholder makes a purchase, the transaction may not post immediately. The charge amount is not added to the balance of the account until the transaction posts. The float is the time between purchase and posting of the transaction.

Gold Card
A credit card that offers a larger credit line and more benefits than a standard card. Benefits may include travel services, rental car insurance, and insurance for items purchased. Gold cards also generally have a higher income requirement.

Grace Period
If you do not carry a balance on your credit card, the grace period is the interest-free time period between the date of purchase (transaction date) and the billing date. You must make your payment by the payment due date. If you carry a balance, you do not enjoy a grace period -- finance charges will begin to accrue from the date of the purchase.

Household Income
The total income of all members of a household. An important yardstick used by credit card issuers evaluating applications for joint credit.

Index
A published market-based figure used by lenders to establish a lending rate. The most common index used by credit card issuers in the US is the prime rate as listed in the Wall Street Journal.

Inquiry
An item on a consumer's credit report that shows that someone with a "permissible purpose" (under Fair Credit Reporting Act rules) has previously requested a copy of the consumer's report.

Interest Rate
Fee charged for money lent. It must be disclosed as an APR to credit card users in the inital disclosure.

Introductory Rate
The rate charged by lenders for an initial period, often used to attract new cardholders. After the introductory period is over, the rate charged increases to the indexed rate or the stated interest rate.

Issuer
The lender that issues the credit card to the cardholder.

Joint credit
Issued to a couple based on both of their assets, incomes and credit reports. It generally results in a higher credit limit, but makes both parties responsible for repaying the debt.

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 $10 to $30.

Linked Account
Some lenders offer the ability to link a credit card account to another account. This enables the cardholder to move funds easily between the accounts.

Minimum Finance Charge
Some lenders have minimum monthly finance charges whenever the lender's financing is used.

Minimum Payment Due
The smallest amount the cardholder can make and remain in compliance with the terms and conditions of the account. Minimum payments are usually 2 to 10 percent of the amount owed.

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.

Outstanding Balance
The amount borrowed on a line of credit or loan. This is the balance used to calculate payments and charge interest.

Over-the-limit Fee
A fee charged for exceeding the cardholder credit limit. The fee is frequently $10 to $30, and is usually not assessed unless the credit limit is exceeded by 10 percent.

Payment Protection Plan
Some lenders provide cardholders with payment benefits following disability, unemployment or death.

Penalty Rate
An annual percentage rate several percentage points higher than a card's current annual percentage rate. This rate may go into effect after two late payments. On some cards, a single late payment triggers a penalty rate. The penalty rate should be disclosed in the terms and conditions.

Periodic Monthly Finance Charge
The rate a cardholder pays to borrow money on a credit card.

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.

Personal Identification Number (PIN)
PINs are secret numbers that credit card cardholders use to get cash advances using ATMs and provide cardholder protection.

Platinum Card
A credit card with a higher credit limit and more benefits than a gold card.

Previous balance
A method used by some card issuers where they base their finance charges on the amount owed at the end of the previous billing cycle.

Prime Rate
The interest rate that commercial banks charge their most creditworthy borrowers, such as large corporations. There is a prime rate average listed in the Wall Street Journal that is an average of the largest commercial banks. The rate given to cardholders on their credit cards is often disclosed as the prime rate plus a certain percentage, which represents the lender's assessment of the risk in lending, plus its profit margin.

Rebate Card
A credit card which supplies benefits based upon the card's usage. Benefits are usually in the form of services, such as airline tickets, discounts on future purchases, or cash refunds, and are based upon a percentage of the purchase amounts charged.

Revolving Line of Credit
An agreement to lend a specific amount to a borrower, and to allow that amount to be borrowed again once it has been repaid. Most credit cards offer revolving credit.

Secured Card
A credit card that a cardholder secures with a savings deposit to ensure payment of the outstanding balance if the cardholder defaults on payments. People who are trying to establish or re-establish credit use it to build their credit history.

Standard Card
The basic card offered by issuers. Cardholders with higher incomes and good credit reports can qualify for the higher-limit gold and platinum cards.

Total Finance Charge
The sum of the monthly finance charge, transaction finance charge, and (if applicable) the minimum finance charge.

Transaction Finance Charge
If applicable, a one-time charge assessed on the date a cash advance is posted to an account.

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 cardholders 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.

Unsecured debt
A loan that is not guaranteed by the pledge of any collateral. Most credit cards are unsecured debt, which is a main reason why their interest rate is higher than other forms of lending, such as mortgages, which rely on real property as collateral.

Zero balance
What shows on a credit card cardholder's bill when the outstanding balance has been paid and no new charges have been incurred during the billing cycle.