Annual Fee
The annual cost of membership to a particular credit card account. Most banks now have products without annual fees.
Annual Percentage Rate (APR)
This shows how much credit will cost you on a yearly basis.
ATM Card
A card used in an automated teller machine (ATM) to access a credit or a debit account to complete banking inquiries and fund transfers between accounts.
Balance Computation Methods
Credit card issuers assess finance charges by applying the APR to a balance. There are several methods for determining your balance. Descriptions of two of the most frequently used follow:
Average Daily Balance Method - This balance is figured by taking the outstanding balance and deducting payments and adding credits for each day in the billing cycle, and then dividing that amount by the number of days in the billing cycle. Some credit card issuers include new transactions in this calculation, while others exclude new transactions.
Two-Cycle (or Double-Cycle) Average Daily Balance Method - This balance is calculated by taking the sum of the average daily balances for two billing cycles. The first balance is for the current billing cycle and the second balance is for the previous billing cycle.
Bankrupt
The status of being legally declared unable to pay your debts as they become due. Federal bankruptcy laws have been enacted that allow a person or organization to liquidate their assets to pay a reduced amount to their creditors or that allow the rehabilitation of the debtor by requiring creditors to accept reduced payments from future earnings of the debtor. A declaration of bankruptcy will remain on a person's credit report for at least 10 years and, in some cases, indefinitely. Declaring bankruptcy is generally considered a last resort.
Billing Cycle
The length of time between billing statements. A billing cycle is typically 30 days, but because of weekends, holidays, and the variance in the number of days in a month, a billing cycle may be as short as 27 days and as long as 33 days.
Business Card (Business Credit Card)
A bookkeeping and tax preparation tool for many businesses, these credit cards are generally issued to corporate executives or business owners. They make it easy to keep business expenses separate from personal charges.
Charge Card
Unlike revolving credit card accounts, which allow you to carry balances from month to month, charge card accounts must be paid in full every month. American Express offers a charge card.
Chip Card
There are various types of Chip Cards, sometimes called Smart Cards. Electronic chips allow these cards to function in different ways: as credit cards, debit cards, frequent buyer or rewards program cards, ID cards, or any combination. Many college ID cards are chip cards. These may or may not be credit cards.
Co-Branded Card
A credit card sponsored by both the issuing bank and a retail organization, such as a department store or an airline. Cardholders benefit through account enhancements that allow discounts or free merchandise from the sponsoring merchant based on account usage.
Consumer Credit Counseling Service (CCCS)
This is a nonprofit organization that has helped thousands of people get out of debt. CCCS counselors can advise you on how to develop a budget you can live with and can be invaluable in helping you negotiate repayment plans with your creditors. This service is confidential. To reach the CCCS, call 1-800-388-2227.
Credit Bureau
Credit bureaus collect and report vital facts about your financial habits, for instance, whether or not you pay your bills on time. These facts are then compiled into a "credit report," which can be accessed by potential creditors, employers, and the like. The three major credit reporting agencies are Equifax, Experian and TransUnion. You can contact them at the addresses below.
Equifax
P.O. Box 105873
Atlanta, GA 30348
1-800-685-1111
Equifax Personal Solutions: Credit Reports, Credit Scores, Protection Against Identity Theft Experian
P.O. Box 2104
Allen, TX 75013-2140
1-888-397-3742
Experian | Free Credit Report and Credit Score | Check Your Online Credit Report Today. TransUnion
P.O. Box 390
Springfield, PA 19064
1-800-916-8800
TransUnion - Credit Score Information & Online Credit
Credit Card
Unlike charge cards, these cards allow you to "revolve" your charges, that is, carry over portions of your balance from month to month. However, if you do not pay your balance in full, you are assessed finance charges. To protect your credit rating, be sure to pay at least the minimum amount due by the payment due date.
Credit Card Insurance
Protects you if you are unable to pay your credit card bills because of illness, unemployment, or other severe conditions. Under these circumstances, the insurance provider will pay your minimum payments.
Credit Line
The most you can charge on your credit card account. When you receive a new credit card, you're usually issued a set credit line. Under some circumstances, your card issuer may increase or decrease it.
Credit Report
The record of your credit history. It shows whether you pay your bills on time, how much debt you have, and the like. Your report is compiled by credit bureaus and released to lenders and others.
Debit Card
A convenient way to "pay as you go," this enhanced ATM card subtracts money from your account when you use it to make a purchase or get cash.
Endorsed Card
A credit card endorsed by groups, such as colleges, sports teams, professional organizations, or special interest groups, and offered to their alumni, fans, or members. Typically, use of the credit card gives financial benefit to the endorsing organization.
Equal Credit Opportunity Act (Implemented by Federal Reserve Regulation B)
This federal law protects your rights against being denied credit because of sex, race, color, age, national origin, or religion. It also guarantees your right to have credit in your given name or your married name, the right to know why your credit application is rejected, and the right to have someone other than your husband or wife co-sign for you.
Fair Credit Billing Act
This federal act protects many important credit rights including your rights to dispute billing errors, unauthorized use of your account, and charges for unsatisfactory goods and services.
Finance Charge
The total cost of credit including service fees, late fees, and transaction fees.
Fixed APR
Unlike a "variable APR," this type of APR does not change based on changes in an index such as Prime Rate or LIBOR.
Grace Period
If you have a credit card, the period of time the issuer doesn't charge interest on purchases. Be sure to read the fine print; Some credit card issuers give a grace period only if the account is paid up and doesn't have a balance carried over from the previous month.
Interest Rate
Credit is not free! When you use money provided by a bank or financial institution, the interest rate reflects the amount the organization charges for that service.
Introductory APR
A temporary, usually low, interest rate (expressed as a yearly rate) offered by providers to "introduce" you to their services. It will usually go up after a certain amount of time.
LIBOR (London interbank offered rates)
Five major London banks determine these fixed rates daily for specific maturities. What does this mean to you? LIBOR may be used by some banks instead of the Prime Rate to set APRs.
Minimum Payment
Shown on your credit card statement, the lowest amount you can pay every month, based on that month's balance at the time of billing.
Performance (or Risk Based) APR
A performance APR is similar to a variable APR, but it is based on your payment performance. There is a standard APR when you open the account, but that APR will increase if you are late making a payment. If you are late making a payment more than once within a specified time (usually between 6 and 12 months), the APR may increase again. If the APR has gone up because of a late payment or late payments, it may go back to the standard APR if you are not late on your payments for a certain period (typically one year).
Previous Balance
How much you owed your card issuer at the end of your last billing period.
Prime Rate
Prime means "best," and this rate is what banks charge their best commercial customers for loans. The prime changes often, is reported daily in The Wall Street Journal, and is used as a reference point for many businesses. For instance, the prime rate is used by some financial institutions to set the APR for credit cards.
Principal
Unlike interest or fees, the principal reflects the actual dollar amount of the purchases you made or the balance that remains on your loan or credit card account.
Purchasing Card
A real convenience for businesses, this card eliminates the need for time-consuming purchase orders. A company simply places orders directly with suppliers and charges them to the card, usually for purchases of $5,000 or less.
Secured Card
A great "first credit card" or way to reestablish your credit rating, this kind of card is "secured" by money you deposit in a designated savings account. For instance, if you deposit $500, your credit card limit generally will be for that amount. If for some reason you cannot pay your credit card bills, your credit card issuer will be paid from the savings account.
Smart Card
See Chip Card.
Transaction Fees
Fees charged when you make certain types of transactions. Transaction fees are typically assessed on cash advances and cash-like transactions, such as money orders, wire transfers, and casino gaming chips.
Truth in Lending Act (Implemented by Federal Reserve Regulation Z)
This federal law protects you by making sure lenders tell you about the costs, terms, and conditions at the time they offer you a loan or credit card.
Variable APR
The variable APR (expressed in yearly terms) fluctuates based on an index, such as the Prime Rate or LIBOR.
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