Credit Card Terms - Definitions

Adjusted Balance - A method used by some card issuers in which they subtract all payments made during the month, then add the finance charges.

Affinity Card - A card offered by a lending institution together with a non-financial group like a schools, nonprofit group, or airline. Sometimes special discounts are given by the non-finance group.

Annual Fee - A bank charge for use of a credit card levied each year, automatically billed 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.

Average Daily Balance - This is the method by which most credit cards calculate the payment due. The 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.

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.

Billing Cycle - The number of days between the last statement date and the current statement date.

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.

Cash Advance Fee - A charge by the bank for users who use their credit cards to get cash. This fee can be a flat per-transaction fee or a percentage of the amount of the cash advance. 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. Most times there is also no grace period--so you end up paying interest from the moment you receive your cash, even if you pay off your balance every month.

Cash Cards - Cash cards, similar to prepaid 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 have no built-in security so if lost or stolen they may 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.

Closed-Account Fee - A fee charged for shutting down an account. Sometimes charged if the account is closed before a certain time period has passed.

Co-branded Cards - A type of affinity card issued through a partnership between a bank and another retail company. For instance, a large department store may co-brand a card with a bank. The card would have two brand names on it -- the bank's name and the store's name. Usually, the attraction of the card is special deals with the retail partner. Many -- particularly the ones affilliated with airlines that offer air miles -- are popular enough to command a hefty annual fee.

Consumer Credit Counseling Service (CCCS) - A service that offers counseling about how to work out a realistic budget and debt repayment plan and work with creditors. The goal is to ensure that debts are paid back over time.

Cosigner - A person who cosigns a credit card application with the primary applicant. The cosigner agrees to be liable for any balance that the primary applicant allows to go into default.

Credit Bureau - 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. It is a good idea to check your credit report to know where you stand and correct any errors.

Credit Card - A plastic card that with a coded magnetic stripe that, when signed, entitles its bearer to a revolving line of credit as determined by the borrower's income and credit report.

Credit Insurance - A policy that pays off the card debt should the borrower lose his job, die or become disabled.

Credit Limit - The maximum amount of charges that can be made to the account before the credit card company cuts off service. The Consumer Federation of America suggests people carry credit lines no greater than 20 percent of their gross household income.

Debit Card - A bank card that draws funds from a card holder's bank account, usually a checking or savings account. The withdrawal of funds is immediate with online debit cards, delayed a day or two with offline debit cards.

Default - An account on which the payments have not been made according to the terms of the card holder agreement is in default.

F (Fixed Interest) - If the letter "F" appears after the annual percentage rate (APR) the interest rate is fixed and not subject to adjustment.

Finance Charge - The charge for using a credit card, consisting of interest costs and other fees.

Foreign Currency Surcharge - A charge imposed by some credit card issuers imposing 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. If you have a balance on your credit card you have no grace period.

Household Income - The total income of all members of a household.

Interest Rate - The fee charged for 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 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.

Joint Credit - Issued to a couple based on both of their assets, incomes and credit reports. If both parties have good credit, applying jointly 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 a flat per-transaction fee or a percentage of the amount of the cash advance.

Minimum Payment - The minimum payment you can make 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.

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. Like the offline card, it may have the VISA, MasterCard logo, or the issuing bank's logo. There is no delay for processing the transaction -- the money is immediately deducted from your account. If you enter 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.

Pay-down Program - Steps for paying down a credit card balance. First, you must stop charging on the card and make at least the normal monthly minimum payment by the due date. Then, two weeks later, send half the amount again, and two weeks later, half again. Repeat the half payments on the two-week schedule until the balance is paid.

Penalty Rate - Several percentage points higher than a card's current annual percentage rate, which goes into effect after two late payments.

Periodic Rate - The interest rate relative 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.

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 a store.

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. 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.

Revolving line of Credit - Most credit cards offer revolving credit--an agreement to lend a specific amount to a borrower, and to allow that amount to be borrowed again once it has been paid.

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 either new to credit or trying to rebuild their poor credit ratings.

Smart Card - Smart cards, sometimes called chip cards, contain a computer chip embedded in the plastic. 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.

Standard Card - The basic card offered by issuers. Customers with higher incomes and good credit reports can qualify for the higher-limit gold and platinum cards.

T ( tiered) - If the letter T appears after the annual percentage rate (APR), the interest rate is based on different periodic rates applied to different levels of the outstanding balance. The rate shown applies to the lowest of the balance tiers.

Transaction Date - The date that goods or services were purchased or the cash advance was made.

Truth in Lending Act - A federal law that requires lenders to provide certain information, the most important to the consumer are: finance charges as a dollar sum and as an annual percentage rate (APR), the issuer, length of grace period, minimum payment, 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. If the bill is not paid in full at the first billing, interest becomes retroactive back to the purchase date, eliminating the grace period.

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 his higher than other forms of lending.

V (variable) - If the letter V appears after the annual percentage rate (APR) the interest rate is variable and subject to change.

Warning Signs - These are the signals that credit bureaus look for in credit card customers' credit reports such as frequent late payments, over-the-limit fees, and frequent balance transfers.

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.