Key Terms and Definitions Related to Credit Cards:
1. Credit Card: A plastic card issued by a financial institution that allows the cardholder to borrow funds to make purchases or obtain cash advances on credit. The cardholder is required to repay the borrowed amount along with any applicable interest and fees.
2. Cardholder: The individual who owns and uses a credit card. The cardholder is responsible for making payments, managing the credit limit, and adhering to the terms and conditions set by the credit card issuer.
3. Credit Limit: The maximum amount of credit that a cardholder is allowed to borrow on a credit card. It is determined by the credit card issuer based on factors such as the cardholder's creditworthiness, income, and repayment history.
4. Annual Percentage Rate (APR): The annualized interest rate charged on outstanding balances or new purchases made using a credit card. The APR represents the cost of borrowing and is expressed as a percentage of the total amount owed.
5. Minimum Payment: The minimum amount that a cardholder must pay each month to keep the credit card account in good standing. It is typically a small percentage of the outstanding balance or a fixed amount, whichever is higher.
6. Grace Period: The period during which a cardholder can avoid paying interest on new purchases if the outstanding balance is paid in full by the due date. Grace periods usually range from 21 to 25 days and are applicable only if the cardholder has no outstanding balance from the previous billing cycle.
7. Billing Cycle: The time period between two consecutive credit card statements. It typically ranges from 28 to 31 days and includes all transactions made during that period.
8. Statement Balance: The total amount owed by the cardholder at the end of a billing cycle. It includes purchases, cash advances, fees, and any interest charges accrued during that period.
9. Minimum Due: The minimum payment required by the cardholder to avoid late fees and penalties. It is usually a small percentage of the statement balance or a fixed amount, whichever is higher.
10. Late Payment Fee: A fee charged to the cardholder if the minimum payment or the full statement balance is not paid by the due date. Late payment fees can vary depending on the credit card issuer and the outstanding balance.
11. Credit Score: A numerical representation of an individual's creditworthiness based on their credit history. Credit scores are used by lenders to assess the risk of lending to a borrower and determine the terms and conditions of credit card applications.
12. Credit Utilization Ratio: The ratio of the total credit card balances to the total credit limits available to a cardholder. It is an important factor in calculating credit scores and indicates how much of the available credit is being utilized.
13. Cash Advance: A feature that allows cardholders to withdraw cash from an ATM or obtain cash equivalents using their credit card. Cash advances usually have higher interest rates and may be subject to additional fees.
14. Balance Transfer: The process of transferring an outstanding balance from one credit card to another, often with a lower interest rate or promotional offer. Balance transfers can help consolidate debt or save on interest charges.
15. Credit Card Rewards: Incentives offered by credit card issuers to encourage card usage. Rewards can include cashback, travel points, airline miles, or discounts on specific purchases.
16. Credit Card Fraud: Unauthorized use of a credit card or its information for fraudulent purposes. It can involve stolen cards, counterfeit cards, or unauthorized online transactions. Cardholders are protected against liability for fraudulent charges under federal law.
17. Credit Card Issuer: The financial institution or bank that issues credit cards to consumers. They set the terms and conditions, interest rates, fees, and rewards associated with the credit card.
18. Credit Card Network: The payment processing network that facilitates transactions made using credit cards. Examples include Visa, Mastercard
, American Express, and Discover.
19. Credit Card Statement: A monthly or periodic statement provided by the credit card issuer to the cardholder. It includes details of transactions, outstanding balances, minimum payment due, and other important information.
20. Credit Card Terms and Conditions: The legal agreement between the cardholder and the credit card issuer that outlines the rights, responsibilities, and obligations of both parties. It includes information about interest rates, fees, dispute resolution, and other important aspects of credit card usage.
Understanding these key terms and definitions related to credit cards is crucial for users to make informed decisions, manage their credit effectively, and avoid potential pitfalls associated with credit card usage.