| Credit and charge cards are invaluable financial tools. This glossary
will help guide you through many of the terms you'll encounter when shopping for and using
them. At the end, there's a listing of additional resources if you need more information
or assistance.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.)
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.
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.
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.
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.
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.
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.
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).
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.
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).
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.
For More Information
The U.S. Federal Trade Commission (FTC) offers free
booklets on credit and other topics of consumer interest. Get a free copy of Best
Sellers, a complete list of FTC publications, from: Public Reference, Federal Trade
Commission, Washington, D.C. 20580; 202-326-2222, (TDD) 202-326-2502.
The Consumer Information Center offers free
information on a number of topics, including credit. Access its online catalog and
full-text entries, or write: Catalog, Consumer Information Center, Pueblo, CO 81009;
719-948-4000.
American Express offers free consumer booklets on a variety of credit subjects. To
order, contact: American Express, P.O. Box 4635, Trenton, NJ 08650-4635. Or, for more
information about students and credit, visit The
Money Pit at the American Express University website.
Bankcard Holders of America (BHA) is a nonprofit consumer organization that provides
credit information as well as customized advice on credit problems. Access BHA at
http://www.epn.com/bha. Or contact: BHA, 524 Branch Drive, Salem, VA 24153; 540-389-5445.
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