Credit Card Glossary
Below you’ll find definitions on all things credit card. And there are a lot of them! To help you find what you need, use the following alphabet to jump to the correct section.
Notice that some are red? That’s a good thing; it means there are no terms in that section that you need to know.
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Additional cardholder – Someone other than the original account holder that has a credit card attached to the same account. Unlike a joint account, the additional cardholder is not responsible for repaying debt incurred, but can still use the card to purchase items. See “Authorized User”
Annual fee – A yearly fee added to the account for use of the credit card, separate from interest. Once common, few cards still have a yearly fee.
Annual percentage rate (APR) – The total interest on a credit card for a year, based on your credit rating from your initial application. The interest rate is applied each month to your outstanding balance.
Authorized user – Someone with permission to use a credit card account, often with a credit card in their name, but not responsible for paying the balance. See “Additional cardholder”
Automatic payment – Recurring payment withdrawn every month from a bank account. This can be for a set amount, such as $100, or for the minimum payment based on the outstanding balance of the account.
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Balance transfer – A debt consolidation tactic in which the balance of one or multiple cards is transferred to another credit card account with a lower interest rate. Companies often offer a lower introductory APR, but also have a balance transfer fee (See below).
Balance transfer fee – A fee incurred for transferring the balance of one or several credit cards to another credit card account, usually with a lower APR.
Card skimming – Illegally copying the magnetic data stored on a credit or debit card, usually through a false scanner front on an ATM or gas pump. A small camera placed near the machine may also capture PINs.
Chargeback – Often part of a disputed charge, a chargeback returns credit to a credit card account from a merchant. This often involves multiple parties, including the customer’s bank, the merchant’s bank, and the credit card company, if applicable.
Charge-Off – Also known as bad debt, a charge-off occurs when a lender no longer expects to collect on the debt, usually due to delinquency. However, charge-offs can be sold to a collections agency, and will appear on your credit report for seven years, harming your credit.
Collateral – Items or property you have put up in order to secure a loan, or back a secured credit card. Should you default on the loan or fail to pay the card, the lender will take possession of the collateral, usually selling it to pay for your debt.
Collection – The action taken by a credit card’s collection department or a third-party agency to recoup your outstanding debt. Having debt in collection will show up on a credit report, and harm your score.
Consumer Financial Protection Bureau (CFPB) – The federal agency that conducts research and oversees financial companies like banks and lenders. The CFPB’s job is to ensure fairness and accuracy in lending and credit scoring.
Co-signer – A second party on your credit card account, responsible for paying for the balance should you fail to make payments. A common option for opening an account when your credit is low, but the co-signer’s is not.
Credit bureau -Any of three major agencies (Equifax, Experian, and TransUnion) that tracks credit scores, and will provide one free credit report per year on request.
Credit card – Essentially a short-term loan, a credit card allows you to defer payment on an item, instead paying once per month against the balance of debt on the card.
Credit freeze – Restricts access to your credit report through the three bureaus, hampering identity thieves from opening more accounts in your name. This does not harm your credit score, nor does it prevent access to your free yearly report. It may take time and cost money to temporarily lift a freeze, such as if you are applying for a loan or renting an apartment, so plan ahead.
Credit history – Your entire record of debt payments, including car loans, mortgages, and personal loans, tracked by the credit bureaus. This factors into your credit score.
Credit inquiry – A request for your credit information. For example, a landlord you are attempting to rent an apartment from may perform a credit inquiry in order to see whether you have paid debts in a timely manner. A hard inquiry, or multiple inquiries, may impact your credit score, while a soft inquiry will not.
Credit line – The full amount a lender is willing to offer you on credit, and how much has been used. If your credit line is $3,000, the lender will allow you to charge up to $3,000 on the card, and may charge overage fees for a larger balance. Also known as a credit limit.
Credit monitoring service – A program or company that tracks changes in your credit report, or any uncharacteristic actions – such as applying for a number of new credit cards on the other side of the country. While some credit card companies offer this service for free as an incentive, others charge for monitoring.
Credit score – A three-digit score that represents your ability to pay back loans. A high credit score enables you to receive lower APRs on loans. Credit scores are tracked by the three credit bureaus.
Credit repair – Counseling that is often illegal, because it promises the impossible, such as removing portions of credit history from your credit score.
Credit report – Details your credit score and history, whether as an individual or business. A lender can receive a credit report through a credit inquiry to judge your payment behavior when you apply for a loan.
Credit utilization ratio – The current balance on your credit account vs. your line of credit. A good credit utilization ratio is 30 percent or under, e.g. a balance of $3,000 against a credit line of $10,000.
Debt consolidation – Merging different loans or accounts into one, single account usually with a lower APR, in order to pay off debt. See balance transfer.
Debt Counseling – Services that offer advice on how to repay debt at a reasonable cost. However, there are some that are expensive, unscrupulous, and will damage your credit score – See credit repair.
Debt Settlement – An agreement with a lender to not pay off the full balance of debt, but usually a portion instead. This will be reflected on your credit report and score.
Debit card – A form of paying that directly draws from a bank account, rather than making a borrowed payment like a credit card.
Default – Failing to pay a loan by its due date. If a minimum payment, for example, is not paid on a credit card by the due date, your interest rate will increase or your credit line will decrease. In case of multiple defaults resulting in serious delinquency of payment, the account may go to collections and the lender may take legal action.
Deferred Interest – A promotional interest rate that allows you to reduce or avoid interest fees for purchases on a specific card, provided that all charges made under the promotion are paid off in full prior to its expiration. After expiration, the full amount of interest from the start of the promotional period becomes due if any charges remain.
Due date – The monthly date when a minimum payment is due. Failing to make a minimum payment is a default, and could result in higher interest rates.
EMV – Eurocard, Mastercard, and Visa. A chip that is embedded in all new credit and debit cards that makes it harder for identity thieves to steal your information, as it creates a new code for the card every time it is used.
Equifax – One of the three credit bureaus.
Experian – One of the three credit bureaus.
Federal Trade Commission – The government body that oversees consumer protection, while preventing monopolies. If you suspect your credit card has been stolen, or are the victim of identity theft or fraud, the FTC is who to turn to.
FICO – Fair Isaac Corporation. The first company to create a formula for measuring credit.
FICO score – A specific credit score based on the formula devised by Fair Isaac Corporation. It takes into account your income, credit usage ratio, credit lines, and more.
Finance charge – The cost of using credit as a whole, including interest charges and other fees, such as transaction fees or overlimit fees.
Fixed rate – An APR that does not change throughout the year. The opposite of a variable rate.
Foreign transaction fee – A fee for using your credit or debit card in a foreign country.
Fraud alert – A type of security notice that is activated by atypical actions on your credit card, such as types or locations of purchases. This is put in place on the credit card account or at a credit bureau either due to suspected or actual fraudulent activity.
Garnishment – After default and delinquency, a lender can obtain legal permission to take funds, such as from a bank account or paycheck, to pay back the debt.
Grace period – A period of time after a due date during which, if you pay, no finance charge penalties are incurred.
Hard inquiry – An inquiry into your credit score for a loan, such as for a car loan or mortgage. While a hard inquiry can deduct up to five points from your credit score, don’t fret if you are shopping around for a new car or the like – multiple hard inquiries in a short period of time for a similar loan shows the credit bureau you are weighing options and showing good financial sense.
Introductory rate – A lower-than-normal APR offered by a lender as an incentive for opening an account. Per your contract, it will last a set period of time – legally at least six months.
Joint account – An account that is shared by two or more people, each with equal responsibility in paying off the balance.
Lender – An individual, bank, or company that offers a loan.
Linked transfer account – An account linked to a second account at the same bank, usually for overdraft protection.
Minimum finance charge – The smallest amount you will pay should your calculated finance charge be less than a set amount. For example, if your minimum finance charge is $1.00 for the billing cycle, but your finance charge calculation only comes to $0.50, you will still pay $1.00. This only applies to a rotating balance.
Minimum payment – The smallest amount of your debt you must pay back each month.
Nondischargeable debt – Debt that will not be forgiven following a bankruptcy. Though each chapter of bankruptcy has different nondischargeable debts, they have a few in common: family support, such as child support or alimony; unpaid taxes; and legal fines from criminal charges.
Overdraft protection – A service where a bank will pull money from a linked account in case a check or debit charge overdraws the primary account.
Over-the-limit fee – A fee for spending more than the credit limit on a credit card account. Not as common with modern credit card accounts.
Payday Loan – A high-interest, short-term loan, usually due on your next payday. Typically for $500 or less, you often must give the lender access to your checking account or write a check for the full amount, which the lender can then pull from or cash on the due date.
PIN – Personal Identification Number, a security feature for paying with a debit card or drawing from an ATM.
Predatory lending – Loans made with terms that are highly unfavorable or abusive. These terms may be deceptive or even fraudulent, but still convince the borrower to take the loan.
Refinance – Negotiating an active balance at a lower interest rate.
Revolving account – A credit card account that is not fully paid off each month, and thus has a rotating balance. This is the case if you simply pay the minimum payment each month until it is fully paid off.
Reward card – A credit card with a reward attached, either for cash back, or for credit at the company that holds the credit card account. Typical examples are banks offering cash back; companies offering in-store credit based on how much you spend; or airlines offering “miles” that can be exchanged for airfare.
Secured credit cards – Much like a debit card, a secured credit card pulls directly from an account, rather than accruing debt like a credit card. It is backed by collateral, and can help borrowers with low credit increase their credit scores.
Soft inquiry – Soft inquiries into your credit score, unlike hard inquiries, do not harm your credit. Examples include your current car loan lender checking on your credit score to make sure you are still loan-worthy. Sot inquiries can result in being pre-approved for credit cards and loans. Requests related to employment and insurance also fall under this category.
Subprime credit – Having a credit score under 640, which typically flags borrowers as being higher risk from a lender’s perspective.
Subprime credit card – Available to borrowers with subprime credit. These typically have very high interest rates – sometimes 10 times that of a super prime account – and there may be other stipulations to the account, such as requiring collateral or a co-signer.
Super prime credit – A credit score of 740 or above. This is the highest tier of credit, offering borrowers the lowest interest rates and other benefits.
Term – The length of a loan. For example, a car loan may have a 5-year/60 month term to completion.
Time-barred debt – Sold to a third party are governed by a statute of limitations. Once this runs out, the debt is categorized as a time-barred debt, and debt collectors can no longer sue you for the debt. The length of the statute differs state to state, and the clock can be reset.
TransUnion – One of the three credit bureaus.
Unsecured credit cards – A typical credit card, not secured by collateral. This is the most common type of credit card.
Variable interest rate – An APR that can change throughout the year. Usually, the APR is tied to an index, and the index rises and falls with the federal funds rate, set by the Federal Reserve. Often, the borrowing contract will stipulate “Prime rate plus (base percentage.)” The prime rate is the current index rate. So, “Prime rate plus 6 percent,” at an index rate of 4 percent, would result in a current APR of 10 percent.