Credit Card Glossary

A

Affinity card: A card that offers rewards that benefit groups and organizations.

Annual fee: A yearly fee that may be charged for having a credit card. Some card issuers assess the fee in monthly installments.

Annual percentage rate (APR): For credit cards, the APR is the cost of credit expressed as a yearly interest rate. Each billing period (usually about a month), the company charges a fraction of the annual rate, called the periodic rate.

Application fee: A fee charged when you apply for a credit card

B

Balance transfer: The act of transferring debt from one credit card account to another. Balance-transfer fees may apply.

Balance-transfer fee: A fee charged when you make a balance transfer. It may be a flat fee or a percentage of the transfer.

C

Cash-advance fee: A fee charged when you use a credit card for a cash advance, such as withdrawing cash from an ATM. This may be a flat fee or a percentage of the amount of the cash advance.

Credit bureau: An agency that keeps a record of your credit; also called a credit-reporting agency. To learn more about credit bureaus, visit our Consumer’s Guide to Credit Reports and Credit Scores.

Credit card: A payment device that allows you to make a purchase when you don’t have cash on hand. Your card’s terms and conditions and any additional features will be outlined in your credit card agreement.

Credit card agreement: A document that outlines the terms and conditions for using your credit card. It is your contract with your credit card company.

Credit counseling service: A service that employs credit counselors who will look at your financial situation and help develop repayment options. They may be able to negotiate with your credit card company. They may charge a fee for their services.

Credit history: See credit report.

Credit limit: The maximum amount that may be borrowed on a credit card.

Credit-limit-increase fee: A fee charged if you ask for and receive an increase in your credit limit.

Credit report: A history of loan and bill payments, kept by a credit bureau and used by financial institutions and other potential creditors to determine the likelihood that your future debt will be repaid. Lenders and insurers use information from credit reports, along with your credit score, to set loan and insurance rates. Also called a credit history. To learn more about credit reports, visit our Consumer’s Guide to Credit Reports and Credit Scores.

Credit reporting agency: See credit bureau.

Credit score: A number that summarizes your credit record and history. The score is based on several factors, including whether you pay your bills on time, your current level of debt, the types of credit and loans you have, and the length of your credit history. Lenders and insurers use your credit score and information from credit reports to set loan and insurance rates. To learn more about credit scores, visit our Consumer’s Guide to Credit Reports and Credit Scores.

D

Debt cancellation coverage: Cancels your debt if you become unemployed, disabled, or meet other criteria covered by your contract.

Debt suspension coverage: Stops your payments during periods of unemployment, disability, or other situations covered by your contract. You will still need to pay back the debt after the situation ends.

Default APR: See penalty APR.

E

Everyday debit card transactions: Purchases made with your debit card on a day-to-day basis (excludes all checks and automatic bill payments)

F

Fixed-rate APR: An APR set at a certain percent that cannot change during the period of time outlined in your credit card agreement. If your company does not specify a time period, the rate cannot change as long as your account is open.

G

“Go-to” rate: Interest rate you are charged after the introductory rate.

I

Index: The reference point used to calculate interest-rate adjustments for adjustable-rate APRs on credit cards. The index rate can increase or decrease at any time. Common indexes include the prime rate and the one-, three- , and six-month Treasury bill rates.

Interest-free period: The number of days you have to pay your bill in full before an interest charge is assessed on purchases. It is the period of time between the date of a purchase and when the payment is due. This period typically does not apply to cash advances.

Interest rate: The price paid for borrowing money. For credit cards, the interest rate is usually stated as a yearly percentage rate, called annual percentage rate, or APR.

Introductory APR: The APR charged during the credit card’s introductory period after a credit card account is opened. The card will have a different APR after the introductory period ends.

L

Late-payment fee: A fee charged if your payment is received after the due date.

M

Membership fee: See annual fee.

Minimum interest charge: The minimum amount of interest you will be charged if you are charged any interest. For example, if your total interest charge is $0.75 but the credit card company’s minimum interest charge is $1.00, you will be charged $1.00.

O

Opt-in: Giving your credit card company or bank permission to include you in a particular service.

Opt-out: Declining a particular service offered by your bank.

Over-the-limit fee: A fee charged if your account balance goes over your credit limit. You will not be charged this fee unless you have authorized your credit card company to permit transactions that exceed your credit limit.

Overdraft: An overdraft occurs when you write a check, make an ATM transaction, use your debit card to make a purchase, or make an automatic bill payment or other electronic payment for an amount greater than the balance in your checking account.

P

Participation fee: See annual fee.

Penalty APR: The APR charged on new transactions if you trigger the penalty terms in your credit card contract. Your credit card issuer may consider you in default if you pay late, go over your credit limit, or if your check is returned. These rates usually are higher than your standard or introductory rates. If you become more than sixty days late, the penalty APR may be applied to your existing balance.

Penalty fees: Fees charged if you violate the terms of your cardholder agreement or other requirements related to your account. For example, your credit card company may charge a penalty fee if you make a late payment or if you exceed your credit limit.

Periodic rate: The rate you are charged each billing period. For many credit card plans, the periodic rate is a monthly rate, calculated by dividing the APR by twelve. For example, a credit card with a 24 percent APR has a monthly periodic rate of 2 percent.

Premium credit card: A credit card that offers high credit limits and often has additional features like product warranties, travel insurance, or emergency services. It may also offer rewards, such as cash back or frequent-flier miles.

Prime rate: An index that represents the interest rate most banks charge their most credit-worthy customers. See index.

Purchase APR: The APR you will pay for purchases if you carry a balance on your credit card. For many cards, you only have to pay interest on purchases if you carry over a balance.

R

Retail credit card: A credit card associated with a retail store. Depending on the type of card, you may be able to use it at locations other than the one where you received the card.

S

Secured credit card: Secured cards typically require a cash security deposit. The larger the security deposit, the higher the credit limit. Usually, secured cards are used to build credit by those who don’t have a long credit history, like young people, or those who have had credit problems in the past.

Set-up fee: A fee that may be charged when you open a new credit card account.

T

Treasury bill rate: The rate paid by the government on its short-term borrowing. See index.

V

Variable-rate APR: An APR that may change depending on other factors, such as the prime rate or Treasury bill rate.

W

Workout agreement: A type of debt management plan.