| Become familiar with these credit
card terms, so you will understand exactly what is
going on with your credit cards. .
ATM Card:
A card used in an automated teller machine (ATM)
which may access a credit or a debit account to
complete banking inquiries and fund transfers
between accounts.
Affinity Card:
A credit card endorsed by groups such as colleges,
sports teams, professional organizations, or special
interest groups that are offered to their alumni,
fans or members. Typically, use of the credit card
gives financial benefit to the endorsing
organization.
Annual Percentage Rate:
Often referred as the "APR", this shows how much
credit will cost you on a yearly basis.
Annual Fee:
The annual cost of membership to a
particular credit card account. Most banks now have
products without annual fees.
Bankrupt:
The status of being legally declared unable to pay
your debts as they become due. Federal bankruptcy
laws have been enacted which allow a person or
organization to liquidate their assets to pay a
reduced amount to their creditors or which allow the
rehabilitation of the debtor by requiring creditors
to accept reduced payments from future earnings of
the debtor. A declaration of bankruptcy will remain
on a person's credit report for at least 10 years
and in some cases indefinitely. Declaring bankruptcy
is generally considered a last resort.
Balance Computation Methods:
Credit card issuers assess finance charges by
applying the APR to a balance. There are several
methods for determining your balance. Two of the
most frequently used balance methods are as follows:
*Average Daily Balance Method - This balance is
figured by adding the outstanding balance and
deducting payments and credits for each day in the
billing cycle, and then dividing by the number of
days in the billing cycle. Some credit card issuers
include new transactions in this calculation while
others exclude new transactions.
*Two-Cycle (or Double-Cycle) Average Daily Balance
Method - This balance is calculated by taking the
sum of the average daily balances for two billing
cycles. The first balance is for the current billing
cycle and the second balance is for the previous
billing cycle.
Billing Cycle:
The length of time between billing statements. A
billing cycle is typically 30 days but because of
weekends, holidays, and the variance in the number
of days in a month, a billing cycle may be as short
as 27 days and as long as 33 days.
Business Card (Business Credit Card):
A bookkeeping and tax preparation tool for many
businesses, these credit cards are generally issued
to corporate executives or business owners. They
make it easy to keep business expenses separate from
personal charges.
Charge Card:
Unlike revolving credit cards, charge cards must be
paid in full every month. The American Express card
is an example of a charge card.
Chip Card:
There are various types of Chip Cards, sometimes
called Smart Cards. Electronic chips allow these
cards to function in different ways: as credit
cards, debit cards, frequent buyer or rewards
program cards, I.D. cards, or any combination. Many
college I.D. cards are chip cards. These may or may
not be credit cards.
Co-Branded Card:
A credit card sponsored by both the issuing bank and
a retail organization such as a department store or
an airline. Cardholders benefit through account
enhancements that allow discounts or free
merchandise from the sponsoring merchant based on
account usage. Consumer Credit Counseling Service (CCCS):
This is a non-profit organization that has helped
thousands of people get out of debt. CCCS counselors
can advise you on how to develop a budget you can
live with, and can be invaluable in helping you
negotiate repayment plans with your creditors. This
service is confidential. To contact the CCCS, call
1-800-388-2227.
Credit Bureau:
Credit Bureaus collect and report vital facts about
your financial habits; for instance, whether or not
you pay your bills on time. These facts are then
compiled into a "credit report," which can be
accessed by potential creditors, employers, etc. The
three major credit reporting agencies are Equifax,
Experian and TransUnion You can contact them at the
addresses below.
Equifax Information Service Center
P.O. Box 740241
Atlanta, GA 30374-0241
1-800-997-2493
Web: http://www.equifax.com
Trans Union LLC
Consumer Disclosure Center
P.O. Box 390
Springfield, PA 19064-0390
1-800-888-4213
Web: http://www.transunion.com
Experian
P.O. Box 2104
Allen, TX 75013-2140
1-888 EXPERIAN (888 397 3742)
web: http://www.experian.com/consumer/
Credit Card:
Unlike charge cards, these cards allow you to
"revolve" your charges; that is, carry over portions
of your balance from month to month. However, if you
do not pay your balance in full, you'll be assessed
finance charges. To protect your credit rating, be
sure to pay at least the minimum amount due by the
payment due date.
Credit Card Insurance:
This insurance protects you if you are unable to pay
your credit card bills because of illness,
unemployment, or other severe conditions. Under
these circumstances, the insurance provider will pay
your minimum payments.
Credit Line:
When you receive a new credit card, you're usually
issued a set "credit line." That amount is the most
you can charge on your account. Under some
circumstances, your card issuer may increase or
decrease your credit line.
Credit Report:
This is record of your credit history. It shows
whether you pay your bills on time, how much debt
you have, etc. Your report is compiled by credit
bureaus and released to lenders and others.
Debit Card:
A convenient way to "pay as you go," this enhanced
card subtracts money from your account when you use
it to make a purchase or get cash.
Equal Credit Opportunity Act
(Implemented by Federal Reserve Regulation B):
This federal law protects your rights against being
denied credit because of sex, race, color, age,
national origin, or religion. It also guarantees
your right to have credit in your given name or your
married name, the right to know why if your credit
application is rejected and the right to have
someone other than your spouse co-sign for you.
Fair Credit Billing Act:
This federal act protects many important credit
rights, including your rights to dispute billing
errors, unauthorized use of your account, and
charges for unsatisfactory goods and services.
Finance Charge:
The total cost of credit including service fees,
late fees, transaction fees, and other charges.
Fixed APR:
Unlike a "Variable APR," this type of APR does not
change based on changes in an index.
Grace Period:
If you have a credit card, a "grace period" means
the period of time your issuer doesn't charge you
interest on purchases. Be sure to read the fine
print, though. Some credit card issuers give you a
grace period only if your account is paid up and
doesn't have a balance carried over from the
previous month.
Interest Rate:
Credit is not free! When you use money provided by a
bank or financial institution, the interest rate
reflects the amount they charge you for that
service.
Introductory APR:
This is a temporary, usually low, interest rate
(expressed as a yearly rate) offered by providers to
"introduce" you to their services. It will usually
go up after a certain amount of time.
LIBOR
(London Interbank Offered Rates):
Five major London banks daily determine these fixed
rates for specific maturities. What does this mean
to you? LIBOR may be used by some banks instead of
the Prime Rate to set Annual Percentage Rates.
Minimum Payment:
You'll see this on your credit card statement. It's
the lowest amount you can pay every month, based on
that month's balance at the time of billing.
Performance (or Risk Based) APR:
A performance APR is similar to a variable APR but
it is based on your payment performance. There is a
standard APR when you open the account but that APR
will increase if you are late making a payment. If
you are late making a payment more than once within
a specified time period (usually between 6 and 12
months) the APR may increase again. If the APR has
gone up because of a late payment or late payments
it may go back to the standard APR if you are not
late on your payments for a certain period of time
(typically one year).
Previous Balance:
How much you owed your card issuer at the end of
your last billing period.
Prime Rate:
"Prime" means "best," and this rate is what banks
charge their best commercial customers for loans.
The Prime changes often, is reported daily in the
Wall Street Journal, and is used as a reference
point for many businesses. For instance, the Prime
Rate is used by some financial institutions to set
the APR for credit cards.
Principal:
Unlike interest or fees, the "principal" reflects
the actual dollar amount of the purchases you made,
or the balance that remains on your loan or credit
card account.
Purchasing Card:
A real convenience for businesses, this card
eliminates the need for time-consuming purchase
orders. A company simply places orders directly with
suppliers and charges them to the card. Usually used
for purchases of $5,000 or less.
Secured Card:
A great "first credit card" or way to re-establish
your credit rating, this kind of card is "secured"
by money you deposit in a designated savings
account. For instance, if you deposit $500, your
credit card limit generally will be for that amount.
If for some reason you cannot pay your credit card
bills, your credit card issuer will be paid from the
savings account.
Smart Card:
There are various types of Chip Cards, sometimes
called Smart Cards. Electronic chips allow these
cards to function in different ways: as credit
cards, debit cards, frequent buyer or rewards
program cards, I.D. cards, or any combination. Many
college I.D. cards are chip cards. These may or may
not be credit cards.
Transaction Fees:
Fees which are charged when you make certain types
of transactions. Transaction fees are typically
assessed on cash advances and cash-like transactions
such as money orders, wire transfers, and casino
gaming chips.
Truth in Lending Act
(Implemented by Federal Reserve Regulation Z):
This federal law protects you by making sure lenders
tell you about the costs, terms, and conditions at
the time they offer you a loan or credit card.
Variable APR:
The Variable Annual Percentage Rate (expressed in
yearly terms) fluctuates based on an index such as
the Prime Rate or LIBOR.
.
»
Back to Credit 101 Index
.
.
|
