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Glossary of Credit Card Terms

The World of Credit Cards | Getting Your First Credit Card | Glossary

Annual Fee
A fee charged for maintaining your account throughout the year and for any special services.

Annual Percentage Rate (APR)
This is the annual interest rate you are assessed for borrowing money on a credit card. If you pay the entire purchase balance on your monthly bill on time each month, then you will typically pay nothing (a one-month interest-free loan). Otherwise this rate is applied to your outstanding balance each month.

Available Credit
The more stuff you buy, the less available credit you have. The amount you have left (or available) is called Available Credit. If you oversee your credit card properly, you should try to keep 15% of your Credit Limit available just in case of emergencies. (Example 15% of $700 would mean that $105 should be kept available for emergency situations.)

Cash Advance
If you obtain cash from your credit card by using an ATM or walking into a bank, you are taking a cash advance. This is great for emergencies (such as a last-minute trip home), but there are usually transaction fees and higher APR's. Use this sparingly.

Credit Card Issuer
A financial institution (e.g. bank, credit union, savings and loan, or brokerage) responsible for signing up credit card users as customers.

Credit Limit
The largest amount you can charge on your credit card. On your first card, the limit is usually pretty modest (example $700), so don't go crazy. If you try to exceed your limit, you may be penalized and/or assessed an overlimit fee.

Credit Worthiness
A credit card holder’s risk profile based on capacity to repay, and track record for making on time payments.

Charges you make are deducted from your Available Credit immediately but may not show up in your balance until the transaction reaches the bank. This can take a few days. The period between the transaction posting and the time it appears on your balance is called float. If your Available Credit is less than you expected think about recent purchases that may be floating such as rental car holds. If you still have questions call your credit card issuer for more information.

Grace Period
If you pay your bill on time, you don't get charged interest on your purchases (see APR). This interest-free period of time is called the grace period.

Late Charge
If you don't pay at least a minimum credit card payment by the payment due date, you may owe a late charge.

Monthly Finance Charge
Your average daily credit card balance multiplied by your Daily Finance Charge rate (your APR divided by 365). Your Monthly Finance Charge is calculated on each statement's closing date if the balance is not paid in full.

Over-the-Limit Charge (also overlimit charge)
If you exceed your credit limit, you generally receive an overlimit charge.

Outstanding Balance
This is what you owe on your credit card. Each month, if you add your purchases, past unpaid balance, advances, transaction fees, and other fees, this will be your Outstanding Balance. You should always know approximately what this is since this is what you will pay interest on if you don't pay in full.

Payment Due Date
The date by which you must pay your credit card bill. It's on your monthly statement. It's a good idea to send your payment in one week before the due date to ensure your payment get processed in time to avoid late fees.

Personal Identification Number - PIN
The secret 4- or 5-digit identification number you use to access your accounts at an ATM for cash advances.

Prime Rate
The most favorable interest rate banks will charge on a short-term loan to other banks or major business customers. Most credit card rates (APR's) are established as the prime rate plus some additional amount (i.e. Prime + 12%).

These are credit card transactions through merchants such as Amazon, Chevron, Pizza Hut, etc. Purchases usually have a lower APR than Advances and there are no transaction fees.

Revolving Line of Credit
The amount of money your bank pre-approved for you to use in purchases or cash advances. After reaching your credit limit, you must reduce your outstanding balance before you can tap your line of credit again without incurring any penalties.

Secured Credit Card
A credit card that requires you to show assets as collateral for approval, usually by depositing cash into a associated checking or saving account.

Total Finance Charge
The sum of the Monthly Finance Charge, Minimum Finance Charge, and Transaction Finance Charge.

Transaction Finance Charge (also Transaction Fees)
These are fees that card issuers assess for handling special transactions on your credit card account. These transactions cost more to process and/or are used by borrowers who may be having difficulties with their finances. Examples include cash advances and special purchases such as casino checks and lottery purchases.

Unsecured Credit
Credit issued without collateral. Customers qualify based on credit history and financial strength.

The World of Credit Cards | Getting Your First Credit Card | Glossary

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