Financial Glossary
Last updated: 2nd June 2008

Affinity Card

A credit card that is offered jointly by the credit card issuer and another organization or company. For example, Diners Club and the Institution of Engineers (IES) sponsor the DC/IEC Affinity Credit Card.

A small percentage of everything you spend on the card goes to the latter. An Affinity Card offers similar benefits to a normal Credit Card such as Cash Advance and merchants discounts.

 

Annual Fee

A yearly fee charged by some credit cards for use of the card . Some credit card providers offer cards with no annual fee. The annual fee, with interest and other fees are part of the total cost of credit.

 

Annual Percentage Rate (APR)

The periodic rate, expressed as an annual percentage, used to compute the finance charge on an outstanding balance.
To calculate the amount owed in interest each month divide the APR by 12.

For example, if the APR is 24% the monthly rate is 24/12 = 2%.
For daily periodic rate, divide the APR by the number of days in a year. Daily Periodic Rate = 24/365 = 0.066%

Anti Fraud Guarantee

This guarantee means that should someone obtain your card details and use them to fraudulently buy goods or services, you won't be liable for the costs involved. Anti fraud guarantees are sometimes used as a marketing ploy, promoting their cards as 'internet safe'.

 

Available Credit

The difference between the outstanding balance on your credit account and your credit limit; the amount of credit you have left. If you oversee your usage of credit card properly, you should try to keep 15% of your Credit Limit available for emergencies.

 

Average Daily Balance

The average daily balance is a method used to calculate finance charges.

It is calculated by adding the outstanding balance on each day in the billing period, and dividing that total by the number of days in the billing period. The calculation includes new purchases and payments.

 

Bad Credit

A term used to describe a poor credit rating. Common practices that can damage a credit rating include making late payments, skipping payments, exceeding card limits or declaring bankruptcy.

Bad Credit can result in being denied future credit.

 

Balance

An outstanding amount of money. In deposit banking, balance refers to the amount of money in a particular account. In credit, balance refers to the amount owed.

 

Balance Transfers

Moving an unpaid balance from one open credit account to another. You will save money if you transfer balances to a credit account with a lower interest rate.

But beware, some credit cards charge a fee to transfer your balances.

 

Balance Transfer Fee

A fee charged by a credit card company to transfer a balance from one account to another. This fee can be anywhere from 1%-5% of the balance amount.

However, many credit card companies do not charge this fee. Contact the credit card issuer for their specific fees.

 

Billing Cycle

The time between billing statements, usually 28-31 days.
 

Business Card (Business Credit Card)

Usually issued to corporate executives or business owners in order to more easily keep business expenses separate from personal charges.

 

Cash Advance

If you get 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 but there are usually transaction fees and high interest rates.

It's best not to rely on cash advances. Use them only for emergency situations.

 

Cash Back

Cash back returns to you a percentage of the total amount spent on your credit card over a specific period of time, usually monthly or quarterly.

This feature is particularly useful if you normally pay your credit card bills in full each month, as it means you get an effective discount on the products bought with your credit card.

 

Charge Card

A card which can be used just like a normal credit card, that requires payment in full upon receipt of the statement, where no interest is charged.

 

Charity Cards

A variety of Affinity Cards - a small percentage of everything you spend using the card will be donated to whichever charity the card is linked to.

 

Collateral

Property or asset (eg. car or house) that is offered to secure a loan or other credit that becomes subject to seizure on default.

 

Credit Bureau

A credit-reporting agency that checks credit information and keeps files on people who apply for and use credit.

The Credit Bureau produces a Credit Report, which is a record of a consumer's level of indebtedness and bill paying behavior. The agencies compile the report and release it to lenders and others as permitted by law.

 

Credit History

A partial profile of your financial life, given within a particular timeframe (usually measured in years). Your credit history shows the extent to which you pay your bills on time and how much you may owe particular parties.

Credit card issuers use this information to decide whether to provide customers with credit cards.

 

Credit Limit

The maximum amount that you can charge on your credit card.

 

Credit Rating

A financial institution's evaluation of whether a person qualifies to receive credit. It is necessary to have a good credit rating if you intend to borrow money.

 

Credit Scoring System

A statistical system utilized to determine whether or not to grant credit to a borrower by assigning numerical scores to various characteristics connected to creditworthiness.

 

Credit Worthiness

A creditor's measure of a borrower's ability and willingness to repay debts on the basis of past and present credit activities.

 

Debit Card

A card issued by a bank that directly accesses available funds from a bank account, typically a savings or checking account.

Default

When a customer doesn't make a required payment to a credit card account, or otherwise violates the terms of the agreement between the credit card company and the customer.

 

Finance Charges

Certain charges that can be incurred when using a credit card. Finance charges include interest costs.

 

Fixed Rate

An interest rate which is fixed for the term of the loan or credit. Payments as well are fixed at one amount.

 

Floor Limit

An amount that Visa and MasterCard have established for single transactions at specific types of merchant outlets and branches, above which authorization is required.

 

Grace Period

The period between the date of the credit card billing statement and the date payment in full must be received before interest begins to accrue on purchases.

 

Handling Fee

See Balance Transfer Fee .

 

Interest Rate

The percentage (per unit of time) charged by a bank or financial institution for the use of their money.

 

Introductory Rates

Credit cards may use the introductory balance transfer rates as a promotional offer. After a period of time, the rate usually returns to the standard rate.

It's important to read the fine print of all credit card offers to fully understand how long the introductory rate will last and what the rate will be at the end of the introductory period.

 

Late Fee

Late fee is a charge your bank may assess to your account when the minimum payment is not received by the payment due date.

 

Minimum Payment

The lowest dollar amount that must be paid each month at the due date to keep the account from going into default. It's important to pay at least the minimum payment to keep your credit rating in good standing.

 

Overlimit Fee

Your credit card has a credit limit. If your balance exceeds your credit limit, your bank may charge you a fee for spending beyond that limit. It's a good idea never to let your balance exceed the credit limit.

 

Overdraft Protection

A benefit available that involves linking your credit card to your checking account.

If you overdraw your checking account, money will be transferred from your credit card account to cover the overdraft, or bounced checks (up to the available credit on your credit card account).

There is typically a fee for this service, so it is important to monitor your checking account balance.

 

Overlimit Charge/Fee

If you exceed your credit limit, you generally receive an overlimit charge.

 

Payment Due Date

The date when your payment must reach your bank to avoid late charges (if any apply). This is usually stated on your monthly statement.

 

Penalty Rate

A higher APR the credit card company charges after the customer has made late payments, exceeded their credit limit, or otherwise did not abide by the terms of the Cardmember Agreement.

 

PIN (Personal Identification Number)

The confidential identification number you use to access your accounts at an ATM.

 

Prime Rate

An interest rate a bank will charge their best or most credit-worthy customers.

 

Purchase Protection

This means that goods you buy using your credit card are insured against accidental damage, theft, or similar, for a period of time after purchase.

 

Secured Credit

Credit that requires you to show assets as collateral for approval. Assets include savings, stocks, bonds or real estate.

 

Supplementary Cardholder

When you have a credit card, it is often possible to add an additional card to the account for use by someone else.

The main cardholder holds responsibility for ensuring payments on the additional card are made. Purchases are shown on the credit card statement, which is sent monthly.

 

Variable Rate

An interest rate that may fluctuate during the term of a loan, line of credit or deposit account according to changes in an index rate, such as the prime rate.