Credit Card Glossary 101

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Annual Fee

A charge imposed annually for the maintenance and use of your credit card. Fees, when charged, range from $30 (mainstream cards) to $450 (highly rewarding cards). Many cards are available without an annual fee. Credit card or membership fees are charged annually by some credit card issuers for the privilege of using their card. The range of fees is very broad and goes from $25 to over $1,000 annually. Generally speaking, the higher the fee the greater the perks associated with that particular card. However, there are many cards available that do not charge an annual fee. The better your credit score the more likely that you will qualify for a no-fee credit card.

APR (Annual Percentage Rate)

The periodic interest rate for the outstanding balance (unpaid balance) on your credit card. APR stands for Annual Percentage Rate. APR is the cost of credit expressed as an annual percentage. Credit cards have may have multiple APRs. One can be for introductory purchases and/or balance transfers. Once the introductory period ends, the APR may change to a fixed or floating APR. Fixed APRs are a stated percentage. Floating APRs are tied to a benchmark plus a certain percentage. It is wise to make sure that all your payments are on time - late payments can give the issuer the right to substantially increase the APR and void any introductory rates.

Available Credit

Your card comes with a credit limit which caps the amount of credit available to you. The available credit is the difference between your credit limit and your outstanding balance.

Average Daily Balance

Most cards calculate finance (interest) charges based upon the amount due, using the average daily balance method. Add the outstanding card balance for each day of the billing cycle and divide by the number of days in the billing cycle.

Balance

The amount you owe on your credit card account at any given time.

Balance Transfer

The process of moving an unpaid balance from one credit card to a different credit card (typically in search of a lower APR). Credit cards may offer a 0% balance transfer APR, for a limited time period, to entice you to move your balance to their card. Pay attention to balance transfer fees before you make such a move, as well as the duration of the 0% APR period.

Billing Cycle

The days between your last credit card statement and your current statement. Usually about 30 days.

Cardholder Agreement

This agreement details, exhaustively, every part of your agreement with your credit card issuer. This includes interest rates, fees, benefits and all the “rules of use.”

Cash Advance

Many cards allow you to obtain a cash advance for which you will typically be charged either a percentage fee or flat dollar fee. There are limits to the size of your cash advance and interest accrues immediately.

Cash Credit Line

A cash credit line is the total amount of cash available to you for a cash advance on your credit card. It is a sub-limit of your total credit line.

Credit History

Includes information about whether you pay bills and loans on time and what you owe creditors. Usually goes back many years to provide a long view of your payment history.

Credit Limit

The maximum amount your credit card will allow you to borrow. The credit limit, also known as credit line is simply the maximum amount of credit available to you.

Credit Score

Your credit score is essentially a grade given to you by credit bureaus (who collect your payment/credit history on loans and bills) that measures your credit-worthiness.

Finance Charge

The charge for using a credit card; includes interest charges, as well as any fees.

Foreign Transaction Fee

Credit cards will often charge you an additional fee when you make transactions outside of your country. Fees typically run between 3 and 5% of the transaction cost. For frequent international travelers, look for a card which has no foreign transaction fee.

Grace Period

A "grace period" is the time between when your credit card statement is generated and your payment is due. Most credit cards do not charge interest, if you can pay your credit card balance in full by the due date each month. A grace period only applies on credit card purchases and is not applicable on cash advances or checks written against your credit card. Cash advances checks may also have a different interest rate than on purchases made with your credit card.

Interest

The fee for borrowing money; also known as the interest charge.

Introductory Rate

Credit cards often provide a lower APR or 0% APR introductory period for charges (or balance transfers). They are special promotional rates which last for a limited period of time.

Issuer

The financial institution which issues credit cards – like Citi, Wells Fargo, Capital One and American Express.

Late Fee

If you do not pay your bill by the due date, a late fee will be applied.

Liability for Unauthorized Charges

Your liability is limited to $50 under the Fair Credit Billing Act (FCBA). But, if you report the loss of your credit card before it is stolen, then you are not responsible for any unauthorized charges. If you still have your credit card and your credit card is number is stolen, then you are not responsible for any unauthorized charges.

Minimum Payment

Most cards require at least a payment of 2% of the outstanding balance on a monthly basis.

Mobile Wallet

A digital wallet allows you to store your credit card information on your mobile device for more convenient use (Apply Pay, Android Pay, Microsoft Wallet are a few examples). Cards increasingly support these options.

Payment Due Date

The date when the credit card company requires your payment (monthly).

Periodic Rate

The interest rate for a particular time period which is used to calculate finance charges.

Prime Rate

Many cards base the interest rate charge (APR) on your credit card using the current prime rate (a widely used interest rate) plus a certain percentage. Changes in the prime rate will, then, trigger a chance in your card’s interest rate.

Previous Balance

The remaining balance from your last statement or billing cycle.

Purchases / New Charges

New charges made after your last billing cycle close.

Two-Cycle Billing

This method calculates your average daily balance using two billing cycles rather than one; this typically results in higher finance charges.

Variable Interest Rate

Percentage rate that a borrower pays for purchases (debts) that fluctuates periodically based on changes in the interest rate charges for outstanding balances.