Glossary
ATM Card
A card used in an automated teller machine (ATM) which may access a credit or a
debit account to complete banking inquiries and fund transfers between accounts.
Annual Percentage Rate
Often referred as the "APR", this shows how much credit will cost you on a yearly
basis.
Annual Fee
The annual cost of membership to a particular credit card account.Most banks now
have products without annual fees.
Balance Computation Methods
Credit card issuers assess finance charges by applying the APR to a balance.
There are a few methods for determining your balance. Two of the most frequently
used balance methods are the average daily balance method and the two cycle method.
Average Daily Balance Method
This balance is figured by adding the outstanding balance and deducting payments
and credits for each day in the billing cycle, and then dividing 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.
Billing Cycle
This is the length of time between billing statements. A billing cycle is typically 30 days
but it can vary due to weekends, holidays, and differences in the number of days in the
month which can cause the billing cycle to be short as 27 days and as long as 33 days.
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 cards, charge cards must be paid in full every month. The
American Express card is an example of a charge card.
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.
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, etc.
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'll be 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
This 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
When you receive a new credit card, you're usually issued a set "credit line." That
amount is the most you can charge on your account. Under some circumstances,
your card issuer may increase or decrease your credit line.
Credit Report
This is record of your credit history. It shows whether you pay your bills on time, how
much debt you have, etc. 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 card subtracts money from your
account when you use it to make a purchase or get cash.
Equal Credit Opportunity Act
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 if your credit
application is rejected and the right to have someone other than your spouse
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, transaction fees, and other
charges.
Fixed APR
Unlike a "Variable APR," this type of APR does not change based on changes in an
index.
Grace Period
If you have a credit card, a "grace period" means the period of time your issuer
doesn't charge you interest on purchases. Be sure to read the fine print, though.
Some credit card issuers give you a grace period only if your 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 they charge you for that service.
Introductory APR
This is 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.
Minimum Payment
You'll see this on your credit card statement. It's the lowest amount you can pay
every month, based on that month's balance at the time of billing.
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.
Secured Card
A great "first credit card" or way to re-establish 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.
Transaction Fees
Fees which are 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
This federal law that 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 Annual Percentage Rate (expressed in yearly terms) fluctuates based
on an index such as the Prime Rate.
ATM Card
A card used in an automated teller machine (ATM) which may access a credit or a
debit account to complete banking inquiries and fund transfers between accounts.
Annual Percentage Rate
Often referred as the "APR", this shows how much credit will cost you on a yearly
basis.
Annual Fee
The annual cost of membership to a particular credit card account.Most banks now
have products without annual fees.
Balance Computation Methods
Credit card issuers assess finance charges by applying the APR to a balance.
There are a few methods for determining your balance. Two of the most frequently
used balance methods are the average daily balance method and the two cycle method.
Average Daily Balance Method
This balance is figured by adding the outstanding balance and deducting payments
and credits for each day in the billing cycle, and then dividing 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.
Billing Cycle
This is the length of time between billing statements. A billing cycle is typically 30 days
but it can vary due to weekends, holidays, and differences in the number of days in the
month which can cause the billing cycle to be short as 27 days and as long as 33 days.
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 cards, charge cards must be paid in full every month. The
American Express card is an example of a charge card.
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.
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, etc.
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'll be 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
This 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
When you receive a new credit card, you're usually issued a set "credit line." That
amount is the most you can charge on your account. Under some circumstances,
your card issuer may increase or decrease your credit line.
Credit Report
This is record of your credit history. It shows whether you pay your bills on time, how
much debt you have, etc. 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 card subtracts money from your
account when you use it to make a purchase or get cash.
Equal Credit Opportunity Act
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 if your credit
application is rejected and the right to have someone other than your spouse
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, transaction fees, and other
charges.
Fixed APR
Unlike a "Variable APR," this type of APR does not change based on changes in an
index.
Grace Period
If you have a credit card, a "grace period" means the period of time your issuer
doesn't charge you interest on purchases. Be sure to read the fine print, though.
Some credit card issuers give you a grace period only if your 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 they charge you for that service.
Introductory APR
This is 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.
Minimum Payment
You'll see this on your credit card statement. It's the lowest amount you can pay
every month, based on that month's balance at the time of billing.
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.
Secured Card
A great "first credit card" or way to re-establish 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.
Transaction Fees
Fees which are 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
This federal law that 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 Annual Percentage Rate (expressed in yearly terms) fluctuates based
on an index such as the Prime Rate.
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