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Account
Number
A unique number embossed on a credit card that
associates the card with your specific credit account.
Affinity Card
A type of credit card that is associated with a
non-financial group as well as the card issuer e.g.
Walmart credit card. Discounts and special deals are
regularly offered to users by the non-financial group as
a ‘thank you’ for using their affinity card.
Annual Fee
A small fee paid once a year to the credit card issuer.
Although this type of fee was once extremely common it
is now only associated with credit cards that offer some
form of reward scheme e.g. air-miles or cash back.
Annual Percentage Rate (APR)
The interest rate charged on the outstanding balance of
a credit card over the course of a year. Interest is
charged monthly in most cases, the amount of which is
calculated according to the APR. Some credit cards offer
a lower-than-normal introductory APR for a fixed length
of time before reverting to the normal rate.
Available Credit
The difference between the fixed credit limit of a
credit card and the outstanding balance. When
calculating available credit it is important to consider
recent purchases and interest charges that may not be
showing on the outstanding balance.
Authorization (floor limit)
The total amount of credit a card holder can spend in a
single transaction before authorization is required from
the card issuer. So for example, purchasing an
automobile on a credit card would require authorization.
Balance Transfer
The act of transferring an outstanding balance from one
credit card to another in order to take advantage of a
lower interest rate. Credit card issuers regularly offer
discount rates on balance transfers either for a set
period of time or for the life of the balance.
Balance Transfer Fee
The fee charged by a credit card issuer to complete a
balance transfer (see above). This can either be a fixed
charge e.g. $50, or more commonly it is calculated as a
percentage of the balance transfer sum e.g. 2% of the
outstanding balance being transferred.
Billing Cycle
The length of time between credit card statements and
therefore required payments to a credit account. This is
normally set of either 28 or 31 days.
Card Member Agreement
The binding agreement made between a credit card issuer
and a customer. This agreement is a legal requirement
and is generally provided as a printed statement of the
terms and conditions associated with the credit account.
At the very least a card member agreement has to include
the APR, the formula used to calculate minimum monthly
payments, any annual fees and the dispute resolution
process.
Cash Advance
A cash payment made to the cardholder either via an ATM
or through bank withdrawal. Cash advances generally have
a higher than average interest charge associated with
them, plus most credit cards cap the amount of cash
available as an advance e.g. a card with a $1000 credit
limit will probably have a $200 cash advance limit.
Cash Advance Fee
Some credit card issuers charge a fee when cash is
withdrawn from a bank or ATM. The fee differs from one
issuer to another but the amount will be disclosed in
the card member agreement.
Cash Advance Interest Rate
The amount of interest charged on a cash advance. This
rate is normally higher than that charged for purchases
because of the increased risk of non-payment to the card
issuer.
Charge-back
Also known as a refund transaction a charge-back sees
the card issuer putting money back onto a credit card
e.g. when a transaction is disputed by the holder of the
credit card.
Credit Limit
The maximum amount that can be spent on a credit card
without incurring additional charges. Most credit card
issuers only offer modest credit limits to start with
however these are often quickly increased with good
account control i.e. payments are made on time, the
credit limit isn’t exceeded and more than the minimum
payment is paid towards the outstanding balance each
month.
Debt Consolidation
The act of transferring several outstanding balances or
similar debts onto a single credit card in order to take
advantage of a discounted APR.
Default APR
The normal APR associated with a particular credit card.
Introductory APRs revert to default APRs after a
specified period of time, or if the customer fails to
make the monthly payments by the requested due date.
Due Date
A specified date each month by which a customer has to
have made at least the minimum payment quoted on the
monthly statement. Payments generally take several days
to reach an account and so most statements will have a
‘pay by’ date as well as a ‘due’ date.
Finance Charge
Any charge that is mentioned on a statement and pertains
to the use of the credit card i.e. balance transfer
fees, late payment fees and charges associated with
exceeding the stated credit limit.
Grace Period
The short allowed time period between making a purchase
and making a payment during which you are not charged
interest or late charges. Most credit cards have a grace
period of between 10 and 28 days, after which interest
charges start.
Introductory APR
A lower than normal interest rate offered to new
customers as an incentive to use the credit card. These
introductory offers generally last for a specific period
of time before reverting to the normal or default APR.
Minimum Payment
The minimum monthly amount that a customer can pay to
their credit card account without incurring additional
charges. The minimum payment is clearly shown on each
credit card statement.
Monthly Periodic Rate
The formula used to determine the finance charges that
are to be applied to a customer’s outstanding credit
card balance.
Over-limit Fee
A fee charged to the cardholder for exceeding the agreed
credit limit. This fee is normally a fixed amount and is
added to the outstanding balance of the card.
PIN
PIN stands for Personal Identification Number and is a 4
digit number that is unique to a specific credit card. A
PIN is randomly generated at the time of opening an
account and is only divulged to the cardholder. PINs are
required to use an ATM or to make purchases in retail
outlets with the associated credit card.
Pre-approval
This process results in an unsolicited offer of credit
being made to an individual by a credit card issuer
based on a short credit bureau report. If the
pre-approval offer is taken up by the potential customer
a full credit check is undertaken and an APR and credit
limit for the new credit card is calculated from the
results.
Prime Interest Rate
A better than average interest rate offered to prime
customers. Such customers will have a very good credit
history, a good income and an unblemished record with a
credit card. Prime customers are also offered much
higher credit limits than the average person.
Regulation Z
Regulation Z states that credit card issuers have to
disclose all terms and conditions associated with a
particular credit card to a potential customer at the
time of opening an account. This includes the charges
that can be incurred when using the card, the interest
rates and everything else in the card member agreement.
In addition any changes to the terms and conditions have
to be conveyed to the customers at regular intervals.
Schumer Box
A fairly standard disclosure box that has to be present,
by law, on every card member agreement. The Schumer box
contains among other things information pertaining to
finances charges, interest rates for purchases, cash
advances etc. annual fees and the methods used to
calculate minimum payments. In most cases this section
of the agreement is made to stand out so that customers
can’t help but read it.
Secured Credit Cards
Secured credit cards are deigned to help people with
either a poor credit history or no credit history i.e.
young adults, build up their credit rating. Some form of
collateral is required to use the card and in many cases
money has to be ‘loaded’ onto the card before use. These
cards help customers to control their accounts because
they can only spend what is on the card at any one time.
Subprime Credit Card
Subprime credit cards are also commonly known as
bad-credit credit cards and are issued to people who
have had credit or debt problems in the past. They have
a much higher APR and lower credit limits than normal
credit cards. Even so they offer a way for people to
rebuild their credit rating over a period of time.
Truth in Lending Act (TILA)
This is the main Federal Law that governs all forms of
consumer credit in the United States. Introduced in 1968
TILA ensures that all potential consumers are made aware
of the credit terms associated with a specific form of
credit so that they can make an informed choice. The
terms in question are all contained within the card
member agreement and the Schumer Box.
Universal Default
A term of a credit agreement that allows a credit card
issuer to increase the APR on a customer’s card because
of bad financial control elsewhere e.g. if a customer
defaults on a car loan, a mortgage or another credit
card.
Unsecured Credit Cards
Credit cards that don’t require any form of collateral
to ensure approval. Customers are granted unsecured
credit cards because of their healthy credit history,
their potential to earn a qualifying salary and their
overall success with regards to their current financial
activities..
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