Creditology
Creditology is our online glossary of credit terms, designed to help you make sense of the credit world. If there are additional terms that you would like to see included in our Glossary, please let us know.
Definition Search
You can scroll through the glossary, or click a letter below to find your definition faster.
A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z
A
- Acquiring financial institution
- A bank that acts as the intermediary between a merchant, the credit card associations (MasterCard or VISA), and the issuing credit card companies. This intermediary is responsible for capturing, processing and settling the merchant's daily credit card activity. The merchant receives the money associated with that day's credit card sales receipts, minus a fee paid for the service.
- Adjusted balance
- Also reflected on the current credit card statement as the New Balance, this figure generally reflects the payments made since the last statement, plus any charges for interest or fees.
- Affinity card
- A credit card that is offered by a bank in conjunction with a group or association. Common affinity cards are sponsored by universities, professional associations, sports teams, and non-profit organizations. Often the sponsoring organization receives a financial benefit.
- Annual Percentage Rate (APR)
- The cost of borrowing money on a credit card, expressed as the rate charged to the cardholder for those funds over the course of a year. The rate is charged when the balance is not paid in full.
- ATM
- An automated teller machine, enabling access to one's bank accounts or credit card cash line of credit. By inserting a debit card or credit card, one can check on an account balance, and withdraw cash. When retrieving cash through the use of a credit card, interest is often charged from the day the money is withdrawn, and normally at a higher rate of interest than the standard APR for that card.
- Authentication
- The process of verifying that a person is who they say they are, or the process of assuring that data has come from its claimed source.
- Authorization
- Generally an automated process to prevent credit card fraud, where at the point of sale, the retailer is seeking approval to accept the card as payment
- Authorized Transaction
- A credit card transaction that has been approved.
- Average Daily Balance
- Used to determine the payment due and any interest that may be due if the prior statement's balance had not been paid in full. An average daily balance is computed by adding the outstanding balance for each day in a billing cycle and then dividing that sum by the number of days in the billing cycle.
B
- Balance Transfer
- The movement of an outstanding balance due on one or more credit cards to a different card. This is often initiated by the cardholder in order to receive a lower interest rate (APR) and reduce one's monthly payments. The credit card company that accepts the transferred balance pays off the debt obligation at the other credit card companies, and then assumes the responsibility for collecting the outstanding balance from the cardholder.
- Balance Transfer Fee
- Banks or card companies often encourage cardholders to transfer balances by promoting a special lower rate (APR) for balances that are transferred from one credit card to another. However, there is often a one-time fee associated with the balance transfer. This fee can vary from company to company, but it is normally expressed as a percentage of the amount transferred. The fee sometimes is capped not to exceed a certain dollar amount. The fee details are required by law to be disclosed by the bank or credit card company in advance of performing a balance transfer.
- Bank Identification Number (BIN)
- The first six digits of a Visa or MasterCard credit or debit card account. This six digit number identifies the bank that issued the card.
- Bankruptcy
- Established laws that help individuals and businesses who can no longer pay their creditors, by liquidating their assets to pay their debts, or by creating an approved repayment plan.
- Billing Cycle
- The number of days between one billing statement and the following month's statement. This can vary slightly from month to month and by credit card issuer. A billing cycle normally is between 25 and 31 days.
- Billing Statement
- Either delivered by mail or, at the customer's option, electronically, a monthly accounting of the card's activity and status. It reflects the change in the outstanding balance from the previous statement, by reflecting any payments made by the cardholder, any purchases which occurred during the most recent billing cycle, and any interest charges or fees, if appropriate.
- Borrowing Agreement
- The terms and conditions of a loan between the borrower and the lender.
- Bounced Check
- A check for which there are not sufficient funds in the account on which it is written or drawn. Also referred to as a Non Sufficient Funds or NSF.
- Business Card (also, known as a Business Credit Card)
- Most commonly issued to small business owners and people in their company whom the owner designates. These are credit cards designed to facilitate record keeping and the separation of personal expenses from business related expenditures. Often business cards contain rewards and features designed specifically to meet business requirements.
C
- Card Issuer
- Any bank, credit union, or other financial institution that makes credit or debit cards available to consumers or businesses.
- Card Member
- An individual, authorized cardholder.
- Card Member Agreement
- A binding agreement containing the legal terms and conditions of use associated with a card account. By law these terms must be disclosed in writing to a cardholder. Also, any changes or additions to a cardholder agreement must be disclosed in advance and in writing to the cardholder. If the new terms are not acceptable, the cardholder has the right to "opt out" of the agreement by notifying the card issuer and by closing the account. The cardholder then has the right to repay any outstanding balance under the previous terms and conditions. No additional charges may be put on that card, however.
- Cash Advance
- A cash loan from a credit card using an ATM or bank withdrawal, generally at higher rates than the base APR.
- Cash Advance Fee
- The cost associated with accessing cash through the card's credit line. Most frequently cash is accessed by checks that are included with the monthly statement, or from an ATM. Once the cash has been received, a fee, expressed as a percentage of the money withdrawn is charged - usually between 2 and 5%. Also, interest is charged immediately on the cash, with no grace period.
- Cash Advance Limit
- The maximum amount of money available through a cash advance. This amount is generally only a portion of the overall credit limit associated with the card, because the cash usage is regarded as risky by the card companies.
- Cash Advance Rate
- The annual percentage rate (APR) charged for the cash. Typically, a rate that is higher than the rate charged for purchases made on the card.
- Cash Back
- One common type of reward for the usage of a credit card is the return of a portion of the total amount spent on that card. This effectively reduces the cost of the items purchased. There are many different cash back programs available from the competing card issuers. Be certain to read the disclosures about the specific rules for each. There may be caps on the amount that one can earn in any specified period (usually annual limits, but some have monthly limits) or they may have a tiered structure that only awards the highest advertised cash back rate for limited purchases.
- Chapter 11 Bankruptcy
- Generally a bankruptcy classification that is associated with the reorganization of a business entity that seeks to keep the organization in tact while seeking protection from creditors.
- Chapter 13 Bankruptcy
- A personal bankruptcy proceeding where the debtor usually remains in possession of the property (for example a house) and makes payments to creditors, based on the debtor's anticipated income over the life of a pre-arranged term. Unlike Chapter 7, the debtor does not receive an immediate discharge of debts. The debtor must complete the payments required under the plan before the discharge is granted.
- Chapter 7 Bankruptcy
- Chapter 7 is a personal bankruptcy designed as a court-supervised process where the debtor's assets are reduced to cash, and then distributed to creditors. There is certain exempt property that can be withheld from the process.
- Charge Card
- A payment card that requires full payment of the outstanding balance each and every month and offers no opportunity to pay a partial amount and extend repayment over time. The primary benefit of such a card is the convenience of not needing to carry cash or write a check when purchasing an item. Since these cards do not facilitate borrowing, there is no interest rate charged. Then, there is usually an annual fee associated with charge cards.
- Check Card
- Also referred to as a debit card. A card which can be used for purchases at locations where Visa and Mastercard are accepted, but rather than creating a loan obligation, funds are withdrawn from an associated checking account at the time of the purchase.
- Co-Branded Card
- A co-branded credit card is endorsed by a company partnering with the card issuer. The endorsing company generally brings added value to the card through discounts, or rewards. In return, the endorser gets customer loyalty. Airline cards represent a very large and successful group of co-branded cards.
- Commercial Cards
- An industry term for the broad classification of credit cards issued to businesses, non-profits, and governmental agencies. The sub
- Credit Bureau
- Any of three major companies within the US that capture individual credit information on consumers, and makes the information available to financial institutions to aid them in making lending decisions and pricing decisions. The data captured and reported on individuals and households, includes the amount of debt outstanding (mortgage, auto, credit card, etc.), the timeliness of payments, applications for additional credit, bankruptcy filings, and much more. The three major national credit bureaus are Experian, Equifax and TransUnion. It is important to know that the data housed at the bureaus is not always correct. Each person is eligible to receive a free credit bureau report from each bureau once a year.
- Credit card
- A card issued by a bank that can be used for purchases from merchants who accept the card for payment. The customer is given the ability to pay a credit card balance over time, and will pay interest on any balance that is rolled over from month to month.
- Credit counseling
- Education on how to improve bad credit and reduce debts.
- Credit freeze
- A status that prevents the additional extension of credit. This is usually placed on a credit card account by a bank that suspects fraudulent activity. A consumer may also request a credit freeze on their credit bureau, which will prevent new credit accounts from being opened in their name without their consent.
- Credit History
- A summary of a consumer's (or business') experience with credit, usually as reported by a national credit bureau. This can include information on loan activity, payment behavior, and any public record data that has occurred over a period of years.
- Credit life insurance
- An insurance program offered by lenders which will repay the outstanding loan balance in the event of the death of the customer.
- Credit Limit (Credit Line)
- The maximum balance permitted on a credit account.
- Credit report
- A report generated by a credit bureau that contains a person's credit history. The report contains details regarding loan activity, payment behavior, public records, and credit inquiries.
- Credit score
- A number that represents a person's likelihood of repaying a loan. Credit scores are calculated by credit bureaus using the credit history in a credit report, and by banks using a combination of credit report data and other information provided by the customer. The FICO score is the most common example of a credit score.
D
- Debit card
- A card issued by a bank that can be used for purchases from merchants who accept the card for payment. The card is linked to the customer's checking account so that funds are transferred directly from the checking account to pay the merchant.
- Debt-to-income ratio
- The amount of all loans divided by annual gross income.
- Debt consolidation
- A new loan that is used to pay off several existing loans. This is usually done to lower the overall interest rate or to lower the total monthly loan payment.
- Discount rate
- The fee paid by the merchant to their credit card processor, expressed as a percentage of the credit card transaction amount.
F
- FACT Act
- The Fair and Accurate Credit Transactions Act of 2003. This Act provides consumers with certain protections against identity theft. Also, this is the act that allows you to obtain a free copy of your credit bureau reports from each of the three nationwide consumer credit bureaus (Experian, Equifax and Trans Union).
- FICO score
- A credit scoring algorithm developed by Fair Isaac Corporation. The score is calculated by the three national consumer credit bureaus and predicts the likelihood that someone will repay a loan.
- Finance Charge
- The interest and fees that are assessed on a loan balance.
- Fixed Rate (Fixed APR)
- An interest rate that remains constant from month to month.
- Fraud alert
- A status that prevents the additional extension of credit. This is usually placed on a credit card account by a bank that suspects fraudulent activity. A consumer may also request a fraud alert on their credit bureau, which will prevent new credit accounts from being opened in their name without their consent.
- Fraudulent Transaction
- A credit card transaction that was not performed or authorized by the customer.
G
- Gift card
- A card that can be used for purchases, up to a pre-determined limit.
- Grace Period
- The period of time during which no interest will accrue following a credit card purchase.
H
- Home equity loan / line of credit
- A loan for which the equity in one's home is used as security.
I
- Interchange
- A fee received by the credit card issuer, expressed as a percentage of the credit card transaction amount.
- Interest
- A fee charged by a lender for borrowing money.
- Interest rate
- The amount of interest charged, expressed as a percentage of the loan amount.
- Introductory Rate
- A temporary annual percentage rate offered by lenders as an enticement to open an account.
- Issuer
- Any bank, credit union, or other financial institution that makes credit or debit cards available to consumers or businesses.
L
- LIBOR
- The "London InterBank Offered Rate" is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market). Many U.S. banks set interest rates for their loans based on LIBOR.
- Line of credit
- The ability to borrow funds from a bank up to a specific limit; funds are typically accessed through the use of checks.
M
- Magnetic Stripe
- The stripe that appears on the back of a credit (or debit) card, and is encoded with information about the account which is necessary to complete a transaction.
- Merchant Bank
- The bank whose customer is the merchant that is accepting bank card transactions.
- Minimum Payment
- The lowest payment amount that will keep an account from entering delinquency.
- Mortgage
- A loan in which a borrower's home is used as collateral.
O
- Office of the Comptroller of the Currency (OCC)
- The government agency that regulates national banks in the U.S.
- Online bill presentment
- A process through which a biller presents a consumer with a bill that is due through an online interface rather than the traditional mailing of a billing statement.
- Online bill payment
- A process that allows consumers to pay a bill online via computer, by transferring money from a checking account or charging bills to their credit card.
- Overdraft
- Generally associated with a checking account, it is when a bank honors a check written against and account that has insufficient funds. Often times there are fees and interest associated with any amount over the checking account balance.
- Overdraft Fee
- A fee associated with an overdraft.
- Overlimit
- This term is typically associated with a credit card. An account is considered overlimit when the balance on the account exceeds the assigned credit limit on the account.
- Overlimit Fee or Over the Limit Fee
- A fee charged to a customer when the balance on a credit card account goes over the assigned credit limit. This fee may be charged despite the fact that the credit card company allowed the transaction that put the account over the limit.
P
- PIN (Personal Identification Number)
- A series of digits used to verify the identity of a credit or debit cardholder. During a debit card transaction or a credit card cash advance, the cardholder is often required to enter his or her PIN through the use of a keypad in order to verify his or her identity.
- Posting Date
- The date on which a credit card transaction is debited or a payment is credited to a credit card account. In many cases, this is the same date the transaction actually takes place, but it may be up to several days later.
- Pre-approved Credit Card Offer
- An offer of credit extended based upon a review of a person's credit bureau report. Once an individual chooses to accept such an offer, the credit card company typically reviews the individual's credit bureau again. If there has been a change in the individual's credit profile, indicating a higher level of risk, or if the credit card company learns additional information from the individual, the account may still not be approved.
- Prime Rate
- A commonly used short term interest rate which is often used as an index on which various loan products are priced. For example, a home equity loan priced at Prime + 1% or a credit card priced at Prime + 8%.
- Promotional Rate
- A special APR or interest rate on a credit card for particular purchases or balance transfers made during a particular time. Often, these are introductory rates that apply to balance transfers or purchases made during the early months of an accounts existence.
R
- Recurring Bill Payment Arrangement
- An arrangement by which a credit or debit card customer gives a vendor or merchant the right to charge his or her credit or debit card account on a defined periodic basis for recurring bills. Often times this type of arrangement is set up for utility and other monthly bills.
- Regulation Z (Reg Z)
- The Federal Truth in Lending Act. The act governs the disclosure of credit card terms and conditions to credit card holders, applicants and potential applicants.
- Residual Finance Charge (Residual Interest)
- For credit card balances that are accruing interest, this is the amount of finance charges accrued between the time the billing statement is produced and the date the balance is paid off.
- Revolver
- A term typically used by credit card companies to describe customers who pay their balances off over time rather than paying in full each month. Balances for customers like this are said to revolve.
S
- Schumer Box
- A disclosure "box" that provides the terms and conditions for credit card offers. Generally the box includes purchase APR, cash advance APR, details on any promotional APRs, annual fees, the grace period and how interest is calculated. This box is required to be in all consumer credit card solicitations.
- Secured Credit Cards
- Credit cards that require collateral as a condition of approval, The collateral is typically a deposit in a bank account with the issuing bank. This type of card is generally opened by people who are trying to rebuild their credit.
- Smart Card
- Sometimes referred to as a chip card. This is a card that contains a computer chip on which data can be stored.
- Statement
- Also called a billing statement, it is a document sent by a financial institution, such as a credit card company, that contains all of the transactions that occurred on a particular account during a month.
- Stored-value Card
- A card that can keep a record of stored money to be used at retail establishments. Typically these cards can be reloaded with money and reused. Some are one time use cards that are not reloadable.
- Subprime credit card
- A credit card for people who are new to credit or have had credit problems that have hurt their credit bureau report. Subprime cards typically have higher APRs and fees than regular credit cards.
T
- Tiered rewards
- This is a typical rewards structure when credit card companies advertise "up to X% rewards". Typically, a customer will earn a lower percentage of rewards on their first tier of purchases over a period (typically a year) and a higher percentage as the level of spend increases.
- Transaction
- An event between a credit card customer and a merchant or a card customer and the credit card company. A transaction may be a purchase, a cash advance or a convenience check, among other things.
- Transaction History
- The portion of a billing statement that contains the transactions that occurred during the billing cycle.
- Truth in Lending Act (Regulation Z)
- The Federal Truth in Lending Act. The act governs the disclosure of credit card terms and conditions to credit card holders, applicants and potential applicants.
- Two-cycle billing
- A method for computing the balances used to determine finance charges (interest charges) on a credit card This method uses two full cycles of daily balances to calaculate the average daily balance rather than just the most recent billing cycle's daily balances.
U
- Universal Default
- When a credit card issuer reserves the right to increase a customer's interest rated if they default with another credit provider, such as another credit card company, auto lender or mortgage company.
- Unsecured Credit Card
- A credit card that is not secured by collateral of any kind. This is the typical credit card arrangement. Most credit cards are unsecured loans.
- Usury Law
- A law, typically set by a state, that places a cap on the level of interest rates a lender can charge. Because these laws vary by state and federal law allows lenders to "export" the usury laws of the state in which they are located, lenders, like credit card companies, typically locate in states that either have no usury laws or very high caps.
V
- Variable Interest Rate
- An interest rate that adjusts or "floats" with an index such as the Prime Rate or the LIBOR Rate.
W
- Wire Transfer
- A transaction in which money is transferred electronically from one financial institution to another.