| Adjusted
balance |
A
method used by some card issuers in which they subtract
all payments made during the month, then add the finance
charges. |
| Annual
fee |
A
bank charge for use of a credit card levied each year,
which can range from $15 to $300, billed directly to the
customer's monthly statement. Many credit cards come without
an annual fee. |
| Annual
Percentage Rate (APR) |
The
interest rate reflecting the total yearly cost of the
interest on a loan, expressed as a percentage rate. Under
the federal Truth in Lending Act, it must be calculated
in a standard way to allow consumers to make 'apples to
apples' comparisons of lending terms. |
| Average
daily balance |
This
is the method by which most credit cards calculate your
payment due. An average daily balance is determined by
adding each day's balance and then dividing that total
by the number of days in a billing cycle. The average
daily balance is then multiplied by a card's monthly periodic
rate, which is calculated by dividing the annual percentage
rate by 12. A card with an annual rate of 18 percent would
have a monthly periodic rate of 1.5 percent. If that card
had a $500 average daily balance it would yield a monthly
finance charge of $7.50. |
| Balance
transfer |
The
process of moving an unpaid credit card debt from one
issuer to another. Card issuers sometimes offer teaser
rates to encourage balance transfers coming in and balance
transfer fees to discourage them from going out. |
| Balance
transfer fee |
Fee
charged customers for transferring an outstanding balance
from one card to another. |
| Bankruptcy |
The
last resort for a borrower. If the borrower has difficulty
meeting rent or mortgage payments and is completely extended
beyond the credit limit, and the collection agencies are
uncooperative, the borrower may need to file for protection.
There are two basic ways of filing for personal bankruptcy.
A Chapter 7 bankruptcy declaration gets rid of all debts
(except some taxes and maybe alimony payments); Chapter
13 allows a borrower with a steady income to pay off bills
over a 36- to 60-month period. It's a serious step for
a borrower because it severely limits access to credit
for years to come. |
| Billing
cycle |
The
number of days between the last statement date and the
current statement date. |
| Billing
statement |
The monthly bill sent by a credit card issuer to the customer.
It gives a summary of activity on an account, including
balance, purchases, payments, credits and finance charges.
Important changes to a credit card account are often included
in small-print fliers that are sent with the statement.
|
| Card
holder agreement |
The
written statement that gives the terms and conditions
of a credit card account. The card holder agreement is
required by Federal Reserve regulations. It must include
the Annual Percentage Rate, the monthly minimum payment
formula, annual fee, if applicable, and the card holder's
rights in billing disputes. Changes in the card holder
agreement may be made, with written advance notice, at
any time by the issuer. Rules for imposing changes vary
from state to state, but the rules that apply are those
of the home state of the issuing bank, not the home state
of the card holder. |
| Cash
advance fee |
A charge by the bank for using credit cards to obtain
cash. This fee can be stated in terms of a flat per-transaction
fee or a percentage of the amount of the cash advance.
For example, the fee may be expressed as follows: "2%/$10".
This means that the cash advance fee will be the greater
of 2% of the cash advance amount or $10. The banks may
limit the amount that can be charged to a specific dollar
amount. Depending on the bank issuing the card, the cash
advance fee may be deducted directly from the cash advance
at the time the money is received or it may be posted
to your bill as of the day you received the advance. The
cost of a cash advance is also higher because there generally
is no grace period -- interest accrues from the moment
the money is withdrawn. |
| Cash
Cards |
Cash
cards, similar to pre-paid phone cards, contain a set
amount of value, which can be read by a special cash card
reader. Participating retailers will use the reader to
debit the card in increments until the value is gone.
The cards are like cash -- they have no built-in security,
so if lost or stolen, they can be used by anyone. |
| Charge
card |
A
card that requires a full payment of the charge by the
due date. Unlike credit cards, which give borrowers a
revolving line of credit and lets them borrow against
it, carrying a balance with an agreed-to interest rate,
charge cards do not allow carrying a balance and no interest
is charged. American Express and Diner's Club are examples
of charge cards. |
| Consumer
Credit Counseling Service (CCCS) |
A
service that offers debt counseling with the goal of ensuring
that debts are paid back over time. |
| Credit
bureau (credit reporting agency) |
A
company that collects and sells information about how
people handle credit. It issues credit reports that list
how individuals manage their debts and make payments,
how much untapped credit they have available and whether
they have applied for any loans. The reports are made
available to individuals and to creditors who profess
to have a legitimate need for the information. The three
major national credit bureaus are Equifax, Experian (formerly
TRW) and Trans Union. |
| Credit
card |
A plastic card that with a coded magnetic stripe that,
when signed, entitles its bearer to a revolving line of
credit, whose size and interest rate are determined by
the borrower's income and credit report. Credit cards
began in the late '40s when banks began giving out paper
certificates that could be used like cash in local stores.
The first real credit card was issued in 1951 by Franklin
National Bank in New York. |
| Credit
insurance |
A
policy that pays off the card debt should the borrower
lose his job, die or become disabled. The structure of
protection for a revolving credit card debt is calculated
each month to cover only the debt that existed at the
last billing cycle. |
| Credit
limit |
The
maximum amount of charges a card holder may apply to the
account. The Consumer Federation of America suggests people
carry credit lines no greater than 20 percent of their
gross household income. For example, people with a gross
income of $50,000 would cap credit lines at $10,000. |
| Credit
report |
The
credit report often is a critical factor in credit scoring
systems that lenders use to issue credit cards, mortgages
or other loans. It is a good idea to check your credit
report to know where you stand and correct any errors.
If you've made mistakes in paying previous loans, bounced
checks, made late payments or had other problems, you
may be able to correct them -- or at least reduce the
amount of damage they will do to your credit. If someone
else has made a mistake that ended up on your credit,
you want to get it removed. To make certain your credit
reports are accurate, it is a good idea to check with
the three major national credit bureaus: Equifax,
Experian
(formerly TRW) and Trans
Union. |
| Debit
card |
A
bank card with direct access to a card holder's account,
usually a checking or savings account. The card acts like
a check with the money withdrawn from the existing account
balance. The withdrawal of funds is immediate with online
debit cards, delayed a day or two with offline debit cards.
Cards that carry the logo of either MasterCard or VISA
can be used at any location that displays the network's
logo. |
| F
(Fixed) |
If
the letter "F" appears after the annual percentage rate
(APR) the interest rate is fixed and not subject to adjustment. |
| Fair
Credit Billing Act |
Passed
by Congress in 1975 to help customers resolve billing
disputes with card issuers. Disputes include everything
from computational errors and incorrect charges to the
crediting of payments. The act requires issuers to credit
payments to a customer's account the day they are received.
To be protected under the law, the consumer must write
to the issuer within 60 days of the mailing date on the
bill with the error. The issuer is then required to investigate
and either correct the mistake or explain why the bill
is correct within two billing cycles. The issuer also
must acknowledge a customer's complaint in writing within
30 days. Each issuer is allowed to set specific payment
guidelines. If any of the guidelines are not met, the
issuer can take as many as five days to credit the payment. |
| Finance
charge |
The
charge for using a credit card, comprised of interest
costs and other fees. |
| Foreign
currency surcharge |
A
new charge imposed by some credit card issuers that imposes
a fee on purchases made in a foreign currency. |
| Grace
period |
If
the credit card user does not carry a balance, the grace
period is the interest-free period of time a lender allows
between the transaction date and the billing date.The
standard grace period is usually between 20-30 days. If
there is no grace period, finance charges will accrue
the moment a purchase is made with the credit card. People
who carry a balance on their credit cards have no grace
period. |
| Household
income |
The
total income of all members of a household. An important
yardstick used by credit card issuers evaluating applications
for joint credit. |
| Interest
rate |
The
fee charged form money lent. Under the Truth in Lending
Act, it must be disclosed as an APR to credit card users
on the card application form. |
| Introductory
(or intro) rate |
The
low rate charged by a lender for an initial period to
entice borrowers to accept the credit terms. After the
introductory period is over, the rate charged increases
to the indexed rate or the stated interest rate. Often
called a teaser rate. |
| Joint
credit |
Issued
to a couple based on both of their assets, incomes and
credit reports. It generally results in a higher credit
limit, but makes both parties responsible for repaying
the debt. |
| Late
payment fee |
Charge
to customer whose monthly payment has not been received
as of the due date or stated deadline for payment as shown
on the billing statement. This fee can be stated in terms
of a flat per-transaction fee or a percentage of the amount
of the cash advance. |
| Minimum
payment |
The
minimum amount a card holder can pay to keep the account
from going into default. Some card issuers will set a
high minimum if they are uncertain of the card holder's
ability to pay. Most card issuers require a minimum payment
of 2 percent of the outstanding balance. |
| Monthly
periodic rate |
The
interest rate factor used to calculate the interest charges
on a monthly basis. The factor equals the yearly rate
divided by 12. See periodic rate. |
| National
Foundation for Consumer Credit (NFCC) |
A
non-profit organization that educates consumers about
using credit wisely. The NFCC is the parent group for
Consumer Credit Counseling Service. |
| Offline
debit card |
A
new development in cards that share traits of both ATM
and credit cards. Offline debit cards have the VISA or
MasterCard logo on them and can be issued by a bank, either
instead of or in addition to an ATM card. These cards
can be used at any establishment which displays the VISA
or MasterCard logo, but using them doesn't access a line
of credit -- it debits a customer's checking account.
It is "offline" because the account isn't directly accessed
-- there's a delay of 24 to 72 hours before the debit
is made in the account. If you sign a slip of paper to
conclude the transaction, it was offline. In the U.S.,
no Personal Identification Number (PIN) is required to
use an offline debit card. |
| Online
debit card |
An online debit card deducts funds from the bank account
immediately, as soon as the card is used. It may have
the VISA or MasterCard logo, or only the issuing bank's
logo, like an ATM card. There is no delay for processing
the transaction -- the money is immediately deducted from
your account. In the U.S., if you entered a Personal Identification
Number (PIN)during the transaction, it was online. |
| Over-the-limit
fee |
A
fee charged for exceeding the credit limit on the card. |
| Penalty
rate |
Several
percentage points higher than a card's current annual
percentage rate, which goes into effect after two late
payments. On some cards, a single late payment triggers
a penalty rate. |
| Periodic
rate |
The interest rate described in relation to a specific
amount of time. The monthly periodic rate, for example,
is the cost of credit per month; the daily periodic rate
is the cost of credit per day. |
| Personal
Identification Number (PIN) |
As
a security measure, some cards require a number to be
punched into a keypad before a transaction can be completed.
The number can usually be changed by the card holder. |
| Point
of sale (POS) |
An increasingly popular way for consumers to avoid ATM
surcharges is to get cash returned from their online debit
card via a cash return at the point of sale -- such as
a grocery store. |
| Pre-approved |
A
credit card offer with "pre-approved" only means that
a potential customer has passed a preliminary credit-information
screening. A credit card company can reject the customers
it invited with "pre-approved" junk mail if it doesn't
like the applicant's credit rating. |
| Previous
balance |
A
method used by some card issuers where they base their
finance charges on the amount owed at the end of the previous
billing cycle. |
| Prime
rate |
The
interest rate a bank charges to its best or "prime" customers.
Each bank will quote a prime lending rate. Many institutions
quote prime rates established by large money center commercial
banks such as Citibank or Chase Manhattan. There is also
a prime rate average listed in the Wall Street Journal
that is an average of the largest commercial banks. The
rate given to consumers on their credit cards is often
based as the prime rate plus a certain percentage, which
represents the lender's assessment of the risk in lending,
plus its profit margin. |
| Revolver |
A
term credit card issuers use for card holders who roll
over part of the bill to the next month, instead of paying
off the balance in full each month. About seven out of
10 card holders revolve the debt. |
| Revolving
line of credit |
An
agreement to lend a specific amount to a borrower, and
to allow that amount to be borrowed again once it has
been repaid. Most credit cards offer revolving credit. |
| Secured
card |
A
credit card that a card holder secures with a savings
deposit to ensure payment of the outstanding balance if
the card holder defaults on payments. It is used by people
new to credit, or people trying to rebuild their poor
credit ratings. |
| Smart
card |
Smart
cards, sometimes called chip cards, contain a computer
chip embedded in the plastic. Where a typical credit card's
magnetic stripe can hold only a few dozen characters,
smart cards are now available with 16K of memory. When
read by a special terminals, the cards can perform a number
of functions or access data stored in the chip. These
cards can be used as cash cards or as credit cards with
a preset credit limit, or used as ID cards with stored-in
passwords. While fairly common in Europe, the United States
has been slower to embrace them -- Americans are happy
with their ATMs and POS terminals, so merchants haven't
seen the need to make the expensive switch to smart card
terminals. |
| T
(tiered) |
If the letter T appears after the annual percentage rate
(APR), the interest rate is based on tiered pricing, with
different periodic rates applied to different levels of
the outstanding balance. The rate shown applies to the
lowest of the balance tiers. |
| Teaser
rate |
Often called the introductory rate, it is the below-market
interest rate offered to entice customers to switch credit
cards |
| Truth
in Lending Act |
A
federal law that requires lenders to provide certain information
so borrowers can compare one loan to another. The most
important facts lenders must provide are: finance charges
in dollars and as an annual percentage rate (APR); the
credit issuer or company providing the credit line and
the size of the credit line; length of grace period, if
any, before payment must be made; minimum payment required;
any annual fees; and fees for credit insurance, if any. |
| Two-cycle
billing |
With the two-cycle method, the average daily balance is
calculated from two billing cycles rather than one and
finance charges are typically higher This method, in effect,
wipes out the grace period for customers who carry a balance.
If the bill is not paid in full at the first billing,
interest becomes retroactive back to the purchase date.
Most credit card issuers use the single-cycle average
daily balance method to calculate finance charges. |
| Unsecured
debt |
Debt
that is not guaranteed by the pledge of any collateral.
Most credit cards are unsecured debt, which is a main
reason why their interest rate is higher than other forms
of lending, such as mortgages, which employ property as
collateral. |
| V
(variable |
If the letter V appears after the annual percentage rate
(APR) the interest rate is variable and subject to change.
|
| Zero
balance |
What
shows on a credit card customer's bill when the outstanding
balance has been paid and no new charges have been incurred
during the billing cycle. |
Add to del.icio.us
