Credit Terms
The world of finance and credit can be mind boggling if you are not used to it. This glossary gives you some of the more common terminology that you are likely to encounter when dealing with credit card companies and banks.
Account Number - A unique number assigned by a financial institution to an individual who has a credit card from that institution, The number on the card belongs only to the cardholder and is printed on the credit card with raised figures and encoding.
Acquiring financial institution – This is a bank whose job it is to process the daily credit card receipts they receive from the stores that offer credit services to their customers. The credit card slips are then sent to the card issuer, either a bank or other licensed financial institution. The acquiring financial institution takes its fees for the work it has done and sends the balance to the credit card issuer. Acquiring financial insitutions are sometimes referred to as “intermediaries”.
Adjusted balance – The adjusted balance is a technique used to figure out charges on a credit card and the balance remaining once a payment(s) has been made on the credit card balance by the cardholder.
Additional Cardholder – This is the term used to refer to individuals who have access to your credit card or credit card account. It is the person to whom the credit was extended, the cardholder, who is liable for any and all charges made to that account. All purchases made on the credit card show on the credit card statement that is typically issued monthly.
Affinity card –An affinity card is actually issued by two organizations. There is the credit card company or other financial institution and a non-financial organization. Examples include non-profit organizations or sports teams who can then offer their members special discounts and incentives to do business with the card issuer.
American Express - Also known as AMEX, this company is one of the world’s leading credit card issuers.
Annual Fee- An annual (yearly) fee levied for the use of a credit card. This is a separate fee from interest rate on purchases.
Annual Percentage Rate (APR)- If you do not pay your credit card balances off every month and on time, you will be charged an interest rate known as the APRApproval Response - An approval response is authorization from the credit company that the transaction has been approved.
ATM – This is short for Automated Teller Machine. See Automated Teller Machine below.
Authentication – This is a business practice used by financial institutions to verify the identity of a person through the use of user names and passwords to protect the data.
Authorization – Most credit cards are issued with a maximum dollar amount that can be charged to the card and every retailer has a purchase limit over which they will not accept a credit card without the authorization of the credit card company.. Authorization is used to control credit card fraud. The cardholder’s available credit limit is immediately reduced by the authorized amount.
Authorization Amount – This refers to the amount of money approved to make the transaction complete..
Authorization Code – The authorization code is usually a number which denotes or denial for an authorization request.
Authorization Date – This is the date and time when the transaction was authorized by the lending institution.
Authorization Only - A transaction that is created to hold an amount against a credit card’s available limit for specific purchases; the actual settlement may occur within three to five days, depending on the card type.
Authorized Amount – This is how much you are permitted to spend on credit based on the contract with the card issuer.
Authorized Transaction - Transaction that has been approved.
Automated Teller Machine (ATM) – This is the machinery that allows you to conduct banking or credit card business virtually anywhere in the world.
Automatic payment – Automatic payment enables a person to have regular withdrawals from a checking or other deposit account to pay bills, usually regular fixed periodic payments like a mortgage or car payments.
Average daily balance - This will be the amount that the credit card company has determined a person owes them based on the balance on the credit card. An average daily balance is calculated by adding each day's balance and then dividing that total by the number of days in a given billing cycle.
Balance Transfer – This is the process of transferring the balance of one or more credit cards to another credit card. This is often done as an incentive by financial institutions and credit card issuers to entice new business and to promote credit spending.
Balance Transfer Fee – This is a fee charged by some credit card companies for the privilege of transferring a balance from an existing account to a new one. This fee can be anywhere from 1%-5% of the balance amount but many credit card companies do not charge this fee. Contact the credit card issuer for their specific balance transfer fees.
Bad Credit –This term applies to a poor credit rating. Late monthly payments on credit, or missed payments and declaring bankruptcy automatically give a person a rating of bad credit.
Bank Account – This refers to a bank account number used by the store merchant/owner for the depositing of funds.Bank Identification Number (BIN) - The BIN is always the first six digits of a Visa or MasterCard account number. This number is used to verify the card-issuing institution.
Bankcard – This is a credit or debit card issued from a bank or credit card company.
Bankruptcy - A legal process for the protection of consumers or businesses seeking federal protection from creditors when the borrower is unable to repay the debt.
Billing Cycle - The billing cycle refers to how often billing statements are issued. Typically it is 28-31 days, sometimes as long as 45 days.
Billing statement – This is typically a monthly statement sent to a customer which shows all transactions that took place during the billing month. The monthly statement includes deposits, withdrawals, checks, electronic transfers, fees and other charges, as well as interest credited or earned.
Business Card (Business Credit Card) - Usually issued to corporate executives or business owners in to be used for business only expenses and purchases.
Card Holder – This term refers to the person who has a credit or debit card.
Card Issuer – The card issuer can be a bank, a credit card company or trust company that is in the business of issuing credit to customers.
Cardmember – This is the same as Card Holder.
Cardmember agreement – It is a Federal Reserve banking law that all lenders provide each card holder a written contract that details the terms and conditions of a credit card account. . The cardmember agreement must include the Annual Percentage Rate, the monthly minimum payment formula, annual fees and dispute resolution processes. The card issuer can change the terms of the agreement with written advance notice.. Cardholders have the right to cancel their cards if they do not accept such changes in terms. Since the original agreement is binding, the customer must pay off existing balances under the previous account terms in such instances. The laws of the state in which a bank or financial institution is chartered apply to card member agreements.
Card Reader - A device that reads the data encodeded on plastic cards.
Cash Advance - A cash loan from a credit card using an ATM or bank withdrawal is a cash advance.
Cash advance fee – This fee is charged when a card member access cash on an account or credit card. For cash advances, the interest is charged from the date the advance was granted without a grace period as applies to regular expenditures on the card.
Cash advance rate - Cash advances attract higher interest rates than regular use of a credit card. For the financial institution, the risks associated with cash advances are higher and therefore the interest rate reflects this.
Cash Back – The Cash back incentive pays the card holder a percentage of credit card balances and this rebate is shown on your monthly statement. If a person pays the full balance every month, there are no interest charges to pay. So with the cash back incentive plan you can actually make money in a credit card situation.
Chapter 11 Bankruptcy - A bankruptcy classification that usually involves reorganization of a corporation or other business entity that needs to protect the organization while seeking protection from creditors.
Chapter 7 Bankruptcy - A classification that means liquidation of a company’s or individual’s assets to settle debts with creditors.
Chargeback - A chargeback transaction what happens when the card issuer refuses the transaction after it has already been completed. . A transaction may be refused because of it was non-compliant with the contract terms and regulations or because it was disputed by a cardholder.
Charge card - A payment card that does not allow outstanding balances at the end of every billing cycle. Therefore, it does not attract interest charges. American Express was the first such financial institution to offer charge cards and continues to offer these and other credit card types.
Chargeback Period - The chargeback period refers to the number of days from the transaction’s processing date during which the card issuer may initiate a chargeback.
Co-Branded Card - A co-branded credit card is sponsored by both the lending institution and a retail organization, such as a department store or an airline. Cardholders may qualify for benefits, such as discounts or free merchandise from the sponsoring merchant based on the terms of the agreement,
Co-signer - A person who signs a credit card agreement (or bank loan) along with another account holder/borrower who may not be of legal age to enter into a legally binding credit contract.. The co-signor is ultimately responsible for paying the debt back to the lender.
Commercial Cards - A general name for cards issued for business use and which may include Corporate Cards, Purchase Cards, Business Cards, Travel and Entertainment Cards.
Credit bureau - A company that gathers information regarding the payment behavior of consumers. The credit bureau sells or makes this data available through credit reports with related information. The three major national credit bureaus are, Equifax, Experian and TransUnion.
Credit card - A plastic payment card that has an encoded magnetic strip that when scanned sends data to a network that captures the transaction at the point of sale. Credit Cards offer cardholders the ability to pay balances over time by paying an interest rate to the lender on outstanding balances.
Credit Card Number – This is a unique number given to a credit card.
Credit freeze - A credit freeze places a hold on usage of a card if there are security concerns.
Credit History - A person’s credit history is a record of a person’s ability to pay their bills when they are due on a regular basis. Credit card issuers and other lending institutions use the information to determine if the person borrowing is a suitable risk.
Credit life insurance – Credit card life insurance ensures that in the event of the borrower’s untimely death, any remaining debt will be paid for by the insurance company.
Credit Limit – This is the maximum amount a person can spend using a particular credit card.
Credit monitoring service - A credit monitoring service is a company that offers analyzing credit card usage for anything unusual that could mean fraudulent activity. There is usually a fee for this type of security service.
Credit rating – Credit bureaus use this rating when assessing a person’s history pertaining to ability to pay bills regularly, income, employment history and other relevant factors that indicate an individual’s standing as an acceptable or unacceptable risk..
Credit report - A credit report address three main financial areas: a person’s credit history, any public records and the person’s credit rating.
Credit score – As defined by the Fannie Mae Corporation, a credit score is a numerical value that ranks a borrower's credit risk at a given point in time based on a statistical evaluation of information in the individual's credit file that has been proven to be predictive of loan performance (sometimes referred to as the FICO score).
Debit – A debit is a charge to a person’s bank account through the use of a debit card and requires that the funds be available at the point of sale.
Debit card - A debit card is most often a plastic card that is directly linked to the person’s bank account. . The debit card holder uses a protected pass word known only to him/her to access money at ATMs or to make purchases. There is no credit involved since the money comes right out of the bank account.
Debt consolidation – In debt consolidation, the borrower combines all loans and credit card balances in order to reduce his/her overall monthly payments into one and/or to get a better interest rate.
Debt-to-income ratio – This is the calculation that compares a person’s total debt with gross income.
Discount rate - The fee, usually between 1% and 3% of each transaction paid by merchants to credit card processors that enables them to accept general use credit cards, such as Visa and Mastercard.
Discover Card - Discover Card is one of the four major credit card brands issued primarily in the United States.
Encryption - The process of encoding personal data for secure transmission through the Internet.
Expired Card - A credit/debit card that is no longer valid beyond the date printed on the card.
Finance Charge - Fees and associated costs charged for the privilege of using a credit card and are shown on the monthly statement. Examples are cash advance fees and overdraft fees.
Fixed Rate (or Fixed APR) -An annual percentage rate that does not change during the term in the contract. .
Floor Limit - An amount that some credit card issuers use as a limit for single transactions is known as a floor limit. Transactions above that limit require the authorization of the credit issuer..
Fraud alert – Also known as a credit freeze, the fraud alert advises when there has been fraud or suspected fraud on the account. Fraudulent Transaction - A transaction on a bank or credit card that has not been authorized by the cardholder. Fraudulent
User – A person l who is not the cardholder or designee and who uses a credit card to illegally obtain goods and services.
Grace Period – The grace period is the number of days that a person has to make a payment on a credit card statement. If the balance is paid in full there are no accrued interest fees. Generally the grace period is 28 to 30 days..
Gift card - A gift card can be a pre-paid general use credit card or a store card that is redeemable only at that store.
Interchange - Interchange is a fee paid by the Visa or MasterCard member institution that processes the transaction on behalf of a merchant (the acquirer) to the member institution that issued the card to the consumer (the issuer).
Interest rate cap – The interest rate cap is a government regulated maximum that can be levied to consumers.
Index - An index rate is calculated monthly and is the basis for many adjustable loan payments. For example, adjustable mortgage payments are made up of a margin rate plus an index rate. Index rates are a measurement of financial markets and based on the averages of various financial instruments such as treasury bills, COSI, COFI and LIBOR.
Introductory Rate (or Intro APR) - An introductory rate is a lower annual percentage rate offered by lenders to entice more business. After a specified period of time, the APR is increased to the lender’s usual rates.Issuer - Any association member financial institution, bank, credit union or company that issues, or causes to be issued, credit to cardholders.
LIBOR – This acronym stands for London Inter-Bank Offer Rate. This group is actually controlled by the Rothschild family.. Every seat is a Rothschild or is related to a Rothchild. It is the interest rate that the banks charge each other for loans. This rate is applied to the short-term international market, and applies to very large loans borrowed for anywhere from one day to five years. The LIBOR is officially set once a day by a small group of large London banks and the rate can fluctuate during the banking day. .
Line of credit - A line of credit is a credit type that allows a borrower to take advances, during a defined period, up to the preset "line limit" . The borrower is given flexibility in the repayment terms of the contract.
Magnetic Stripe - A magnetic stripe on the back of a credit or debit card that stores information by modifying the magnetism of tiny iron-based magnetic particles. The magnetic stripe, sometimes called a magstripe, is read by swiping a card through a reading machine The physical and magnetic characteristics of this stripe are specified in the International Organization for Standardization standards 7810, 7811 and 7813.
Mail/Phone Order Merchant - A merchant that transacts business by mail or by telephone.
Mail/Phone Order Transaction - A transaction that occurs over the phone or through the mail using the credit card number without actually using the card.
MasterCard - MasterCard is a global bank card brand and network that provides services to banks and merchants.
Franchisor: The "franchisor" authorizes the use of its trademarks and networks of his business to the "franchisee" for a franchise fee which may include a percentage of gross monthly sales. Agreements usually run from five to twenty years, with penalties associated for breaching the terms of the agreement.
Processor: A company, like MasterCard, that facilitates financial transactions.
MasterCard Acquirer - An acquirer is an organization licensed as a member of MasterCard as an affiliated bank or bank/processor.
MasterCard Card - A credit card that shows the MasterCard logo and enables the cardholder to purchase goods, services or to get cash from a MasterCard merchant or acquirer.
MasterCard Issuer - A member of the Mastercard network that issues MasterCard credit cards.
Merchant - In the US, a merchant is defined (under the Uniform Commercial Code) as any person while engaged in a business or profession or a seller who deals regularly in the type of goods sold. The Uniform Commercial Code in the U.S. requires that merchants engage in business to a higher standard in the selling of products than those who are not engaged in the sale of goods as a profession.
Merchant Agreement - A written agreement between a merchant and a lending institution that outlines their respective rights, duties and warranties, with respect to use of a bankcard..
Merchant Bank - A merchant bank is a financial institution primarily engaged in international finance and long-term loans for multinational corporations and governments.
Minimum Payment – The minimum payment is shown on the monthly credit card statement and represents the lowest amount of money that must be paid each month.
Monthly periodic rate - On a credit card statement, the monthly periodic rate is the account's interest rate expressed on a monthly basis on the balance. It is usually computed by dividing the annual percentage rate (APR) by 12..
Office of the Comptroller of the Currency (OCC) - The OCC is a division of the Treasury Department, responsible for regulating the national banks that issue credit cards in the United States.
Online bill presentment and payment - A process that allows consumers to receive, view and pay bills online from their checking accounts or through a credit card.
Online Financial Transaction - A transaction that is conducted over the Internet.
Overlimit – Overlimit is a common term that means a cardholder has exceeded the credit limit on a card..
Overdraft – This is the same as overlimit in that an individual has taken out more money than was available in the bank account.
Overlimit Fee - A fee charged by a bank when the balance in your account exceeds the preset limit. ( (also known as Overdraft fee.
Password – An alphabetical or numerical sequence that enables access to banking networks such as debit machines. Per Transaction Fees – Each transaction made has a fee that a merchant pays to the lending institution. It can be either a flat amount or a percentage of the transaction amount. PIN (Personal Identification Number) – The PIN is a password used by a cardholder to conduct financial transactions in a secured network.
Plastic (Card) - This is a generic term used to identify the various types of cards issued by banks..
Point Of Sale (POS) – POS transactions are sales of goods and services that are paid for by the consumer when they are received.
Policy - A policy is a written description of the terms and conditions of an agreement between parties. Examples are confidentiality agreements or the safety policy of a manufacturer.
Posting – Posting occurs when records of financial transactions are entered into a company’s computer system..
Pre-approved - A conditional offer of credit from a credit card issuer based on a pre-qualification of a person’s credit based on an overview a credit bureau report. Upon acceptance of such an offer, the issuer makes a credit decision (usually after obtaining more detailed credit information) and assigns an annual percentage rate based on the most recent credit profile of the customer.
Primary Account Number (PAN) - The number that is embossed and/or encoded on a plastic card that identifies the issuer and the particular cardholder account.
Prime Rate (or Prime Interest Rate) - The prime rate reflects the lending institution’s best interest rate on loans and credit offered to the most credit worthy customers.
Processing Date - The date on which a a transaction is entered into the records of a lending institution. .
Receipt - A paper that includes details of a transaction when a purchase is made.
Recurring Billing - Recurring billing means that the cardholder has given written permission for the payment of goods and services from an account number on a regular, usually monthly basis.
Reference Number – A unique number assigned to each monetary transaction in the statement that the customer receives.
Refund – The return of funds to a cardholder’s account, usually as a result of a product return or to correct an error.
Regulation Z – Regulation Z is a consumer protection law that governs the federal Truth in Lending Act. It requires lenders and credit card issuers to disclose in writing the terms and conditions of the lending contract to the consumer. The disclosure must include the interest rate charged on purchases and cash advances and how long the cardholder has to repay the debt
Retail Merchant - A store owner that provides goods and/or services in the retail industry, but is not a mail/phone merchant, a recurring services merchant or a travel and entertainment (T&E) merchant.
Revolver - A credit card issuer term for customers who pay their balances off over time, thus “revolving” their balances.
Sales Draft - A paper record that shows the details of a purchase of goods or services by a cardholder.
Schumer Box – In the U.S. this box appears on the back of the letter credit card companies send out to entice business. It is sometimes send as a separate document along with the letter. This activity is governed by the Truth in Lending Act and was introduced by Senator Charles Schumer, after whom it is named. Specific terms and conditions such as purchase and cash advance interest rates, annual fees and rate calculation methods must appear in plain language in the letter that offers credit..
Secured Credit Cards - Credit cards that require a deposit of funds in to the credit card account before the card is issued. These are helpful for people with poor credit or for repairing bad credit or for building credit for first time borrowers. Service Charge - A service charge is an administration fee charged to a customer for covering an overdraft..
Settlement – Settlement in a financial context means the buying and selling of transactions between merchants, processors and acquirers and lending institutions.
Settlement Bank - The institution that maintains cash accounts used to settle payment obligations associated with transactions. The settlement bank may be either a commercial bank, the settlement system itself or a central bank.
Smart Card - A smart card, also known as a chip card or integrated circuit card (ICC) is any plastic card with embedded microchips that can process information about the cardholder. The card may be embedded with a hologram that serves as a deterrent to counterfeiting. Common uses of the smart card include verification of a person’s identity and storage of health information.
Standard Floor Limit - A floor limit is the maximum amount that a merchant is willing to accept without authorization from the lending institution.
Statement - A statement is a written record detailing all transactions that took place over a specified period of time. This can be a bank statement about activity on a person’s accounts or it can be a billing statement, such as the credit card companies issue on a monthly basis.
Stored-value Card - A stored-value card is a credit-card-sized plastic card that has a computer chip with stored money value. A reloadable stored-value card can be reused by adding more money to it through transfer from an ATM or directly through the issuing merchant. . A disposable card cannot be reloaded.
Subprime credit card – This is a credit card that carries higher than normal interest fees to those with poor credit or to those with little or no credit history. The higher fees are intended to offset the substandard risk in this type of market.
Tiered rewards - Tiered rewards offered by credit card companies in the form of cash back when certain pre-defined spending activities take place. Rewards programs are usually offered to the best customers with excellent credit track records.
Transaction - A transaction is an agreement, communication, or action carried out between separate entities, usually involving the exchange of items of value, such as information, goods, services and account.
Transaction Identifier - A unique 15-character value used by credit card companies for each transaction to track activity on purchases, adjustments and so forth. Truth in
Lending Act (TILA) – TILA is a consumer protection federal law that governs lenders of credit to consumers in the U.S. The regulation that initiates the TILA is Regulation Z and requires full disclosure by the lender of all credit terms.
Two-cycle billing - With two-cycle billing, the credit card company uses two months to calculate the average daily balance and interest applies to two full cycles of balances..
Universal Default - Universal default is the term used when a particular lender changes the terms of a loan from the original normal terms to less favorable terms because the borrower has missed payments. This can also happen even if the customer has missed payments on a loan with a different bank or credit card company.
Unsecured Credit Cards - Credit cards that are issued based on a customer’s credit history, net worth and income.
User Authentication – This is a security measure to validate a user's identity or authorized user status.
Usury - The lending of money at higher than usual interest rates.
Validation Code - A unique 4-character value that VISA uses as part of the CPS/ATM program in each authorization response. This code ensures that key authorization fields are retained in the clearing or settlement record.
Variable Interest Rate – The variable interest rate is also called a floating rate and changes when interest rates or other economic indicators change.
Visa - Visa is an international lending organization that offers credit cards and other services to consumers. In the U.S. it is one of the leading brands of credit cards. Visa
Card - A plastic credit card with the Visa trademark that enables a cardholder to buy goods, services or cash from a Visa approved affiliate.
Visa Issuer – An institution in the Visa network that issues plastic cards. Visa Merchant – A store that accepts all visa cards. The Visa symbol is usually displayed indicating the acceptance of Visa cards. s the Visa symbol and accepts all Visa cards.
Voice Authorization – This approval process uses communication by telephone, fax or telex for a purchase.
Void Transaction - A transaction that has been deleted as though it never occurred.
Void(ed ) – Voided refers to a a transaction that has been recorded but not settled.
