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Glossary & Terms
Especially if you're new to credit and credit cards, it may
not be clear what certain terms and abbreviations mean. Here is an
a glossary to find the meaning of the frequently used credit terms.
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Airline Miles - Miles that can be used for free travel or other discounts.
You earn miles every time you use your card. Most major U.S. Airlines offer these
cards. Airline Miles are often referred to as Frequent Flyer Miles.
Annual Fee - A fee charged by the card
issuer for being a card holder. Today, many creditor charge no annual fee.
Annual fees are commonly associated with airline miles credit cards
or cards that are designed to help you rebuild your credit history.
Annual Percentage Rate (APR) - The interest rate you pay on the
outstanding balance on the credit card account.
The annual percentage rate will be a fixed or variable.
See "Fixed Rate" or "Variable Rate" for descriptions.
Average Daily Balance - The average account balance for a billing cycle.
This is one of the ways credit card companies compute the interest you pay.
You can figure out your average daily balance by adding the balances of each
day of the cycle together and then divide them by the number of days in the cycle.
Balance Transfer - Moving a credit card balance from one
credit card to another card. This is usually done to lower the APR
(interest rate) over the outstanding balance.
Balance Transfer Fee - A fee charged for transferring a balance from one
credit card to another.
Bankruptcy - A legal status in which a person is declared unable to pay their
debts as they become due. Federal bankruptcy laws have been enacted which allow
a person to sell their assets to pay a reduced amount to their creditors.
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.
The two ways types of personal bankruptcy:
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Chapter 7 - eliminates all debts except some taxes and possibly
alimony payments. This plan liquidates all assets that are not exempt such as
cars, work-related tools and basic household furnishings. Some property may be
sold by a court appointed official or turned over to creditors.
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Chapter 13 - allows a borrower with a stable income and limited
debt, to pay off bills under a court approved repayment plan over a 36 to 60
month period rather than surrender any property.
Billing Cycle - The days between the last statement and the
current statement. Billing cycles generally occur monthly.
Business Card- A bookkeeping and tax preparation card
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.
Cash Advance - A cash advance occurs when the credit card company provides you
with cash. Credit cards normally have a cash advance limit. The checks that come
attached to your monthly statement are also a cash advance.
The interest rates for cash advances are generally high.
Cash Advance Fee - A fee charged for
using your card to obtain a cash advance. The fee will either be a flat fee or a
percentage of the transaction.
Charge Card - You use it like a credit card, but the credit terms are different.
Charge cards generally have an annual fee and require the balance to be paid in full
when the statement arrives.
Classic Card - The Visa® version of a basic credit card. The Classic Card
generally has a lower credit limit. The MasterCard® version is called the Standard Card.
Credit Bureau - Credit Bureaus collect and report facts about your financial
habits; for instance, whether you pay your bills on time. These facts are
then compiled into a "credit report," which can be accessed by potential
creditors, employers, etc. The three major credit reporting agencies are
Equifax, Experian and TransUnion.
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.
Credit Scoring - Rating or scoring system used by creditors to determine if you
are a good risk for credit cards, auto
loans and home mortgages. Analyzes data from your credit application and
credit report about your bill-paying history, the
number and type of accounts you have, late payments, collection actions,
outstanding debt and the age of your accounts. It treats all applicants
objectively by comparing your credit information to the credit performance of
consumers with similar profiles. A credit scoring system awards points for each
factor that helps predict who is most likely to repay a debt. The lower your
score, the higher your interest rate will be.
Debit Card - A card issued by the cardholder's bank. Debit cards can be used to make
purchases or get cash from ATMs. Each purchase will deduct money from the
cardholder's checking account and works much like a check.
Fair Credit Billing Act - An Act passed by Congress in
1975 to help credit card holders resolve billing problems with issuers.
The Act gave cardholder certain rights when dealing with credit card issuers.
Finance Charge - The amount of interest charged to an account for the billing cycle.
Fixed Rate - A fixed annual percentage rate of the finance charge.
Frequent Flyer Miles -
Miles that can be used for free travel or other discounts. You earn miles each
time you use your credit card. Most major U.S. Airlines offer these cards. Frequent
Flyer Miles are often also referred to as Airline Miles.
Gold Card - A credit card that may include added benefits not offered with a
Classic or Standard credit card. The credit line is generally between $2,000 and $5,000.
Grace Period - The time allowed to pay your balance
without being charged a finance charge. Usually 25 to 30 days.
Interest Rate - The percentage rate of the finance charge.
The interest rate will be a fixed or variable rate. See "Fixed Rate" or
"Variable Rate" for descriptions. The Interest Rate is also known as the Annual
Percentage Rate (APR).
Introductory Rate - A low interest rate offered for a limited time, usually for the
first 3, 6, 9, or 12 months on being a cardholder.
Late Payment Fee - A fee charged to a cardholder's account once a payment is overdue.
MasterCard® - An institution that licenses it's brand to member banks for use
on credit cards and other products.
Minimum Payment - The minimum amount of the balance a cardholder is
required to pay to keep the account in good standing.
Over The Limit Fee - A fee charged if your credit card balance exceeds
your credit limit.
Platinum Card - Usually offered to people with higher incomes
and a good credit history. This card has a minimum credit limit of $5,000
and may include additional member benefits.
Pre-Approved - You are pre-approved when you pass
a preliminary screening for the credit card. You will still need to
have your credit checked.
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.
Rewards Card - Allows a cardholder to earn points or money
to get cash, merchandise, or services for using the card.
Secured Card - A card that is secured by a savings account opened with
the issuer. Secured cards are designed for people who are looking
to rebuild their credit, but are having trouble getting a regular (unsecured) card.
See "Unsecured Card" for regular credit card details.
Standard Card - The MasterCard® version of a basic credit card. Generally has a
lower credit limit. The Visa® version is a Classic Card.
Titanium Card - Usually offered to people with higher
incomes and a good credit history. This card has a credit limit above the
Platinum level and may include special member benefits.
Truth in Lending Act - A law requiring lenders to provide
information giving borrowers the ability to compare one loan to another.
Unsecured Card - A credit card that is not secured by collateral (for
example an account with money in it). Unsecured cards are the majority of cards issued.
Variable Rate - The credit card interest rate is variable and subject to change
if the letter "V" appears after the annual percentage rate (APR).
Visa® - An institution that licenses it's brand to member banks for use
on credit cards and other products.
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