Credit card glossary
We sort through the credit card jargon so you don’t have to. We compiled a list of commonly used terms to help you understand credit cards better and give you the information you need to pick the right card.
Additional cardholder
Another designated user, such as a spouse, on the credit card account of the primary cardholder. The additional cardholder uses a standard card, which bears their name and has regular charging privileges. Only the primary cardholder is responsible for paying and maintaining the account.
Affinity card
A card issued in conjunction with a credit card company and a business or organization that the customer has a connection to, like a university, sports franchise, or charitable group. These cards generally offer special deals or discounts related to the organizations that sponsor them.
Air miles rewards
A loyalty rewards program. Symbolic ‘miles’ are awarded relative to the amount of money you charge to your credit card. You can use these miles for travel, entertainment, merchandise, or other goods and services.
Annual fee
A fee for maintaining a credit card account and any special privileges it may include. Not all credit cards charge an annual fee.
Annual percentage rate (APR)
The rate of interest, expressed as an annual amount, charged on outstanding credit card balances. APR is stated in the account agreement and on the account’s monthly statements.
Authorization
When a credit card issuer approves a credit card transaction made by a merchant or other legitimate party. The cardholder’s available credit is reduced by the authorized amount charged to the card.
Automatic funds transfer
An arrangement that automatically moves money from one account to another on a pre-determined schedule.
Automatic payment
An arrangement that authorizes payments to be deducted automatically from a bank account to pay bills or outstanding balances. Automatic payments usually occur in regular intervals.
Available credit
The amount of unused credit left on a credit card. Calculate your available credit by subtracting the outstanding balance from your total credit line.
Average daily balance
The average amount of daily charges on your card. Your average daily balance is calculated by combining all your daily balances and dividing the total by the number of days in the given period.
Balance
The total amount owed on a credit card at a given time.
Balance transfer
The transfer of outstanding debt from one credit card to another, ideally to one with a lower interest rate or another perk.
Billing cycle
The number of days in the billing period, usually 28-31 days. Billing is cyclical in the sense that when one billing period ends, another begins.
Cardholder agreement
Details the terms and conditions of your credit card account. You’ll find information about interest rates, fee structures, and legal obligations in your cardholder agreement.
Cash advance
The withdrawal of cash from a credit card account. Interest is charged from the day of the transaction and may be higher than on regular card purchases.
Cash advance fee
A fee charged to your account when a credit card is used for a cash advance. The fee may be a flat amount or a percentage of the total advance.
Chip-enabled credit card
Providing enhanced security, this type of credit card uses embedded computer chip technology to store your personal identification number (PIN). Your PIN is used to authorize transactions.
Credit line
Sometimes also called credit limit, this is the maximum dollar amount you can carry on your credit card balance.
Credit score
Also known as a credit rating, lenders use this numeric calculation to obtain an objective measure of a borrower’s credit risk.
Debt consolidation
The act of paying off multiple loans with a single loan that offers a lower monthly interest rate or a longer repayment period.
Discount rate
A fee merchants pay to credit card companies for processing their transactions. This fee usually runs between 1% to 3% of the total purchase, depending on the nature of the transaction and the type of credit card used.
Electronic funds transfer
Transfer of funds initiated via an electronic terminal, or a telephone, computer, or ATM.
Grace period
An interest-free period on a balance. A grace period usually lasts from the day of a purchase until the payment due date.
Guaranteed credit card
A card that offers guaranteed and near instant approval, usually online or over the phone. Some cards require a deposit prior to activation.
Interest rate
A rate of interest charged for the use of a credit card or line of credit. Interest rates are usually expressed as a percentage of the total amount loaned.
Introductory rate
A temporarily lower annual interest rate that credit card providers offer to customers who open a new credit card account. After a pre-determined period of time, the interest rate resets to a higher standard APR.
Minimum monthly payment
The minimum dollar amount that you must pay toward your credit card balance each month. The amount is based on a percentage of the outstanding balance or a minimum fixed amount. If you don’t cover the minimum payment, your credit card account becomes delinquent.
Non-sufficient funds fee (NSF)
A fee charged to your account if the account doesn’t have enough money to cover a transaction.
Outstanding balance
The amount owed on a credit card. This is the number used to calculate minimum payments and interest charges.
PIN (personal identification number)
A password that protects your credit card. The PIN is a sequence of digits the user enters to authorize their PIN-enabled card.
Pre-approval
An evaluation of an individual’s credit. The card issuer usually bases pre-approval on an abbreviated credit bureau report.
Recurring billing
A type of payment schedule wherein a vendor periodically charges a cardholder’s account for goods or services. Recurring billing is most common among vendors that charge monthly amounts for ongoing services, like utilities companies, telecom providers, or fitness clubs.
Secured credit card
A card that requires the cardholder to pledge collateral to get credit. The borrower’s credit line is usually equal to the amount deposited into the collateral account, minus any fees.
Transaction
The sequence of events involved in performing a purchase, cash advance, or other action with your credit card.
Travel protection
A travel insurance feature available on many credit cards. Travel protection provides emergency medical coverage, trip cancellation/interruption protection, lost baggage compensation, and auto rental insurance coverage. Cardholders generally have to pay for their flight, rental car, and other travel costs with their credit card to activate this insurance feature.
Unsecured credit card
A credit card that’s not secured with collateral. Customers qualify for unsecured credit depending on the state of their credit history and overall finances.
