The Ultimate Guide to Credit Card Lingo
A Complete Credit Card Glossary that you can Actually Understand!
Affinity Credit Card – These credit cards are offered by a credit card company in conjunction with a professional organization – for example a college, airline, automobile manufacturer or retail store. Affinity cards often offer rewards type programs to their clients.Amortization – You will often hear this term used when you are approved for a loan, for example a mortgage. The amortization period is the timeframe you have to pay you’re your debt and interest off in installments. For example a mortgage might have an amortization period of 25 years with $800 monthly installments.
Appraisal – An estimation on the value of your home, car or property.
Appraisal Fee - The fee that an appraiser charges to make an estimation on your personal assets – such as a home, car or property.
Annual Fee – The yearly fees that bank or credit card company pays you for use of their account or credit card use. You will typically have an annual fee attached to most bank accounts; however credit cards often wave the annual fee as an incentive to clients. Credit cards rarely have annual fees, however air miles credit cards do charge cardholders a yearly fee to use the card.
Annual Percentage Rate (APR) – What it will cost you in interest to carry a balance on a long-term loan, for example the annual percentage rate on your car loan might be 0.9% - this is a great APR. To calculate the monthly interest you will pay on your loan, divide the APR by 12.
Assets – Any property, automobiles, valuables, savings accounts, checking accounts of investments that are owned by you. Your personal assets are a calculation of your overall financial value.
Average Daily Balance – is the method that credit companies use to determine your debt. To get your average daily balance credit companies take your outstanding balance for each day of your monthly billing period, this includes a running total of new charges, and then they divide it by the number of days in your billing period. This equation gives them your average daily balance for that month of credit spending.
Bad Credit – Is simply a poor credit history. Please read our article entitled How Credit Cards Affect your Credit Score to learn about how late or ignored credit card payments, going over your credit card limit, and carrying a hefty balance on your credit card from month to month can have you deemed a high credit risk by lenders. If you have a poor credit score (less than 600 according to FICO) you could be denied for a personal loan, business loan or credit card. If you declare chapter 7 bankruptcy liquidation, you will have bad credit for 8 to 10 years.
Balance - The debt on your loan or credit card statement. Basically your balance is any amount you owe lenders in:
- Unpaid credit card bills
- Purchases charged
- Services charged to your credit card – mechanic or medical.
- Cash advances
- Outstanding yearly fees
- Late penalties or interest
Balloon Payments – If you are approaching the end of your loan, you may make one large payment, more than your typical monthly payment, in order to pay out the balance of your loan.
Bankruptcy – If you are unable to pay off your debts, you may declare bankruptcy in one of 2 ways:
- Chapter 7 Bankruptcy – liquidates your debts in return for selling most of your personal assets. In a chapter 7 bankruptcy case, the court will agree to sell of your personal assets, which are any property, car, home, furniture, jewelry and valuables in exchange for a fresh financial start. Basically your assets are used to pay off your debt. If you wish to withhold some of your personal assets, say your home, you can repay a portion of your car loan in payments under a new contract. This is called a reaffirmation contract, and allows you to keep some of your personal assets.
- Chapter 13 Bankruptcy – Your bankruptcy case let’s you keep your personal assets, but involve a debt repayment schedule. You must have a stable job to declare chapter 13 bankruptcy because the courts will garnish a portion of your income.
Bill Cycle – This is the length of time between your credit card statement dates. Your billing cycle ends with a credit card statement in the mail, and allows you to make new purchases when it begins again. It is typically a month in length.
Closed-end Agreement – Typical of mortgages and car loans, closed-end agreements charge you the loan amount plus any extra finance charges (interest rates, fees), and give you an definite time frame (or amortization) to pay it off.
Collateral – personal assets (car, home, property or valuables) that are offered to a creditor in order to get a loan. The creditor has rights to your collateral if you default on your loan or credit agreement.
Co-signer – Any person who takes financial responsibility for your loan should you default payment. Typically a landlord will ask that parents act as co-signers for students renting apartments, so if the student doesn’t pay the rent, the landlord can legally go after their parents for it.
Credit – A legally binding contact that allows a credit card or loan holder to buy now and pay later.
Credit worth – is dependant on your credit history and determines if you will responsibly repay your debt.
Credit Card – plastic money, that allows you to make purchase and pay later.
Credit History – A record of your borrowing and repayment history. Your credit history determines if you are high risk (irresponsible with credit) or low risk (responsible with credit), and can affect your financial future when it comes to getting a mortgage, securing a car loan or a personal line of credit.
Credit Score – Is dependant on your credit history. FICO uses your credit history to determine if you are a high or low credit risk. FICO stands for the Fair Isaac Corporation, the company that developed the mathematical equation used by credit bureaus to evaluate you as a lending risk. Those with a FICO score over 700 are considered low risk, meaning they are responsible credit users; while those with FICO scores under 600 are considered high risk, meaning they have poor credit history. Your credit score is used by financial institutions to approve your for a mortgage, credit card or personal loan. A low credit score can prevent you from getting loans, mortgages and personal lines of credit.
Default – Your failure to repay a loan or credit agreement in part or full.
Discount Credit – Many credit card companies offer discount incentives. These apply discounts to your purchases when you use your credit card to make purchases.
Finance Charge – The fees charged in order for you to secure a loan or credit.
Fixed Rate – This is your “fixed” rate of interest applied to your principal loan (what you owe). A fixed rate of interest doesn’t change over time.
Graduated Re-payments – Refers to payments that increase over time on your loan.
Open Credit – Refers to a line of credit that can be used in a revolving door fashion – so if you pay it off you can use it again – it has the same loan amount and credit limit.
Overdraft – Refers to a checking account that allows you to withdraw funds from the account that exceeds your balance in the account. An overdraft account is handy if you have multiple payments coming out of your account and you’re unsure if you have enough money in the account to cover them all. The bank will agree to cover the extra amount for a small overdraft fee.
Security – is the same as collateral. Security is anything of value – your home, car, investments or valuables - that are offered to creditors should you default payment on a loan.
Service Charges – Monthly finance charges applied to your bank account or credit card – they can include debit fees or overdraft fees.
Statement – your month credit card or loan bill that indicates outstanding balances due and purchases made for that billing cycle.
Statement Date – is the due date on your credit card or loan statement. If you don’t pay by the statement date you will be charged interest.
Variable Rate – The opposite of a fixed rate, refers to fluctuating interest rates that can change over the amortization (payback period) of your loan.
