When applying for your first credit card, it’s easy to become overwhelmed with all the terminology in the application. There will probably be words that won’t make sense or could be confusing if new to the credit card world. Don’t worry! With this terminology cheat sheet, you will be prepared for any credit information that is thrown your way. Your own personal guide to understanding APR, variable rates, credit limits, and more is below in our financial dictionary.
1. Account activity
Account activity is a list of all transactions (purchases, cash advances, payments, credits, and fees) that occurred since your last statement.
2. Annual fee
An annual fee is a fee charged on a yearly basis for having the credit card. Annual fees are typically implemented for account maintenance.
3. Annual percentage rate (APR)
An annual percentage rate (APR) is the interest rate charged on unpaid debt stated as a yearly percentage rate. If your balance is $0 at your due date, no interest will be charged. A single card may have multiple APRs. For example, purchases, cash advances, and balance transfers may all have different APRs. Also, a card may have an introductory APR that converts to a regular APR after a specific length of time.
A balance is the total of what is owed to the credit card issuer. For instance, if you spend $50 on groceries that month, your balance for that month will be $50 plus interest.
5. Balance transfer
A balance transfer is when you pay off all or part of what you owe on one credit card by transferring the amount to another credit card.
6. Balance transfer fee
A balance transfer fee is a charge for transferring the balance (or portion of a balance) from one credit card to another.
7. Card issuer
A card issuer is a bank or credit union that issues credit cards. For instance, 1st Financial Bank USA is a credit card company that issues credit cards for students and first time cardholders.
8. Cash advance
A cash advance is an on-the-spot cash loan charged to your card. Banks provide printed checks you can use for this purpose or you can use your card at an ATM. Cash advances may have fees, higher interest rates, and no grace period.
9. Contactless payment
A contactless payment is a secure method of payment for customers that uses RFID technology of near-field communication (NFC). Customers only need to tap, wave, or hover their card near the payment technology to complete the transaction.
10. Credit available
The credit available is the amount of credit remaining on your card after your balance and your current charges are subtracted from your total credit limit.
11. Credit history
Your credit history is a record of your payment behavior used by credit card companies to determine how responsible a cardholder will be in repayment of debts.
12. Credit limit
A credit limit is the maximum amount a credit card company will allow you to borrow on a single credit card at any one time. Sometimes called a "credit line." If this limit is passed, a fee may be charged.
13. Credit report
A credit report provides the credit history of an individual including inquiries for credit, payment behavior, and borrowing history.
14. Credit score
A credit score is a three digit number based on one’s credit report that is used by card issuers to determine how likely an individual is to pay his or her debts on time or become delinquent. There are different reporters of credit scores, but scores range from 300-850; the higher the number, the more likely you are to be approved for a credit card.
15. Due date
A due date is the date by which your minimum monthly payment is due. Your due date will determine when a certain part of your balance is due, so if your due date is January 31st, your minimum balance that must be paid by then.
16. Finance charge
A finance charge is the cost of using the credit card during a billing cycle, made up of interest costs and other fees.
17. Fixed interest rate
A fixed interest rate is an interest rate on your credit card account that will not change. If you have an interest rate of 13%, then your rate will never increase.
18. Fraud alert
A fraud alert is an alert placed on a credit card account by the cardholder or card issuer when fraudulent card activity is suspected.
19. Grace period
A grade period is an amount of time you have to pay for purchases before interest charges apply. There is usually no grace period for cash advances or balance transfers. A grace period typically applies if you have paid off your previous balance on your card.
20. Late payment fee
A late payment fee is a fee charged to a credit account when the bill is not paid by the due date. In addition, your interest rate may increase, and your account will be considered "past due." Your account may also be reported as delinquent to the credit reporting agencies.
21. Method of payment
Method of payment is a way in which your credit card bill is paid. Depending on the bank, you may have multiple payment options, such as mailing a check, sharing your account information over the phone, or submitting an eCheck.
22. Minimum payment
A minimum payment is the smallest amount you must pay by your due date. You can pay a larger amount, or even pay off the entire balance. You will typically be charged interest on your remaining unpaid balance and all new charges until the entire debt is paid off. If you do not pay the minimum by the due date, you will likely be charged a late fee.
23. New balance
A new balance is the amount of money you owe at the end of a billing cycle. The new balance is the sum of all the previous balance and payments made during that billing cycle, as well as any other transactions on the account. It represents the total of your previous balance, any new purchases, cash advances, and other transactions—minus any payments and credits.
24. Other fees
Other fees are charges associated with specific actions. For instance if you pay late, get a cash advance or exceed your credit limit, you may receive an additional fee.
25. Past due
Past due means a minimum payment has not been made by the assigned due date. For instance, if your due day is on January 31st and you submit a payment after that, your balance is past due.
26. Payment due date
A payment due date is the day that your payment must be received by the card issuer. For example, if your balance is due at the end of each month, your payment must be received by then in order to avoid a late fee.
27. Terms and conditions
Terms and conditions is a formal statement of rules and guidelines in regards to the relationship between a credit card issuer and a credit cardholder. It explains the fees and interest charges you will face as a cardholder.
28. Variable interest rate
A variable interest rate is an interest rate that can increase or decrease based on changes in market interest rates.
We hope these credit card definitions have helped you improve your financial literacy and understand how your credit card works. To best understand all terms and conditions, rates, and more, always keep yourself informed of the terminology. Credit issuers expect their cardholders to understand their lingo. Also, make sure to be aware of your credit card balance at all times and always pay the balance in full.