Wise Card Use Vocabulary
Terms in this set (40)
A unique number that identifies each cardholder account.
Getting permission to use the card you received in the mail. Activation is part of a bank's fraud protection program - they want to verify that the correct person has received the card.
Advance Fee Loan
A loan calculated so that all finance charges and other creditor expenses are deducted before the consumer receives the money.
A yearly cost you pay to have use of the card. Some companies do not charge an annual fee - look for these, they could save you money. But remember that the real cost of credit cards comes in the interest you pay on balances you "roll over' from month to month.
Annual Percentage Rate (APR)
The APR measures the interest cost charged by the bank for extending you credit (i.e. making you a loan.) The interest cost of credit cards is expressed, by law, as a yearly interest rate so that rates can be compared more easily.
An automatic transfer, authorized by you, of money from your savings or checking account to pay your credit card bill each month.
The part of your credit limit you haven't yet used.
Average Daily Balance
The usual method used by the bank for calculating interest owed on a credit card balance. The bank adds up the amount owed for each day of the billing cycle (see Billing Cycle ) and divides that number by the number of days in the cycle. On some cards, new purchases are added to the balance, making the interest owed greater. Avoid cards that do this, if possible.
The amount of money you owe a card issuer or bank. This includes purchases, fees, interest, and transaction charges.
The time between your billing statement dates; usually 28 to 31 days.
A monthly request from your credit card issuer for payment. The billing statement describes and summarizes all the activity on your account, including your outstanding balance, purchases, payments, credits, finance charges, minimum payment, payment due date, and other transactions for the month.
A cash loan taken out on a credit card. Interest for cash advances is typically higher than it is for purchases. In addition, a transaction fee may apply, and the grace period may be waived (i.e. not apply either).
Cash Advance Fee
A one-time fee for cash advances. This is in addition to normal finance charges. The Cash Advance fee is usually a percentage of the advance amount.
A card that requires you to pay your bill in full each month, and charges no interest. The original American Express Card is an example. The company makes its money not from charging you interest, but by charging higher fees to the merchants where you shop.
A company that attempts to obtain payment from you if you fail to pay a credit or charge card bill. When a certain period has elapsed after the due date without payment, the card issuer sends your overdue bill to a collection agency. Your account may then be listed as a "collection account" on your credit report.
The amount of money a bank or credit card issuer agrees to lend you. You can charge/spend any amount from your available credit to make purchases or take cash advances, as long as you pay the minimum amount due each month by the due date. The term is also used for your risk profile to the bank, as in "good credit" or "bad credit."
An identification that allows you to borrow money for purchases and make partial payments for those purchases, paying interest on the amount owed. You are also allowed to pay your balance off in full any time to avoid additional interest payments. Credit card interest rates, terms and fees are set by the issuing banks and companies.
Credit Card Debt
The total unpaid balances on all your credit cards.
A record of how a consumer has paid credit accounts in the past. E.g. has the person paid partially or in full, late or on time? Credit History is used as a guide by card issuers to determine whether or not the consumer is likely to pay future bills in full and on time.
Credit Limit/Credit Line
The maximum amount you may charge on a credit card or you can carry on a loan account. Some card issuers set separate limits for purchases and cash advances.
A report that displays the manner in which a consumer has met his or her past credit obligations. It is used to help determine creditworthiness of the potential borrower. Various people (you, a prospective lender, a prospective employer, a landlord, for example) can obtain your credit report from one of the three certified credit bureaus (Equifax, Experian and Trans Union).
Daily Periodic Rate
The interest rate charged on your credit card, expressed on a daily basis. It equals 1/365th of your annual percentage rate.
A card that causes money to be deducted directly from your bank deposit account when you make a purchase. Unlike a credit card, with a debit card, you can spend only the amount of money you have in your bank deposit account. As you are spending your own money, with a debit card here is no loan, or credit, involved.
The highest interest a credit card issuer can charge you, within legal limits. Your rate will "default" to (i.e. change to) this very high rate whenever if you make a "mistake" as defined in their long agreement; e.g., when you pay late, fail to pay the minimum, go over your limit, . You can be charged the default APR even if you have made any of these mistakes on a different card!
The cost of consumer credit expressed as a dollar amount. The finance charge includes interest charges, transaction fees, and service fees.
A period of time, from the billing date of your last credit card bill to the due date of your current bill, when you can pay in full without being charged interest. Grace periods typically last 20 to 25 days, and some cards do not offer them. Others offer a grace period only if there was no outstanding balance on the account at the start of the billing cycle. There is generally no grace period for cash advances.
A charge for borrowing money, generally a percentage of the amount owed.
T he responsibility for charges to an account. Generally, a cardholder agrees to be liable for any charges to his or her account, including purchases, fees, and finance charges. If the cardholder allows someone else to make charges to his or her account (through, for example, an additional card), the cardholder is still responsible (liable) for paying the bill. Two people who apply for a card together may both be responsible for the entire balance. You can find a description of your liability described in the cardholder agreement you received from the issuer. Be sure to read it carefully.
The minimum amount you are required to pay the credit card issuer each month. You may, of course, choose to pay more than the minimum. Paying only the minimum monthly payment can be helpful when you can only afford to make a small payment, but stretching out a loan with minimum payments leads to huge interest charges, sometimes more than you paid for the purchase!
An agreement with your bank that they will pay any charges or checks that are over the amount of money you have in your account. The banks charges the overage to your credit card account and the check will clear, and you avoid a returned check fee.
The interest rate in relation to time. E.g., the "monthly periodic rate" is the cost of credit per month; the "daily periodic rate" is the cost of credit per day.
The interest rate banks charge for loans to their biggest and highest-rated customers. The prime rate changes based on the demand for money and the rate the U.S. Federal Reserve Bank charges to its member banks. Many card rates are based on the prime rate and change when the prime rates goes up or down.
The amount of money you owe, not including any interest due on it.
To carry over a debt (or part of a debt) from month to month, paying interest on the amount still owed.
A credit agreement that allows consumers to pay all or part of the outstanding balance on a loan or credit card. As credit is paid off, it becomes available again to use for another purchase or cash advance.
Secure Electronic Transaction (SET) Protocol
An encryption technology designed to allow electronic transactions between card issuers, merchants and consumers to be secure from electronic prying. Information sent over the Internet can be intercepted, which is why confidential information is encrypted. When making purchases online, you should use only a secure browser that complies with industry standards, such as secure sockets layer (SSL) or secure hypertext transfer protocol (S-HTTP).
A card containing a chip, or Central Processing Unit (CPU) that stores and secures information and makes decisions as required by the card issuer's specific application.
Variable Interest Rate
An interest rate that changes based on fluctuating rates in the banking system, such as the Prime Rate. (see prime rate ).
What you have if you have (1) no previous outstanding balance on your card account, and (2) no new activity that month. Since you do not owe anything, you might not get a bill.
"Revolver" vs "Freeloader"
a "Revolver" is a person who carries a balance on his or her credit card, (good got the bank) and a "Freeloader" is someone who pays off his or her balance every month (bad for the bank). Freeloaders avoid paying interest by paying off everything they charge between the time they make the purchase and the time their bill is due. We strongly recommend you be a "freeloader," and pay off your cards in full every month.
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