If you’ve ever read through a cardmember agreement, you may have thought the bank was speaking a foreign language. The credit industry has its own nomenclature and tends to speak in acronyms. And while you may not fully understand everything you’re reading, I can assure you that it’s very important to your financial health. What follows is a guide to many of the credit-related terms and acronyms that you will likely see in a credit card’s terms and conditions.
Annual Fee
An annual fee is exactly what it sounds like. This is a fee charged, normally once each year, by your credit card issuer. Some subprime cards break up the annual fee into small monthly amounts paid over the course of the year. Annual fees are usually charged to your account within the first month of account opening.
APR
The APR, or Annual Percentage Rate, is the rate of interest you pay for loans or other forms of credit. The higher the rate, the more you’ll pay to service your debts.
Authorized User
An authorized user is a person added to a credit card account that belongs to another person. The authorized user has full charging privileges on the card but none of the financial liability for payments.
Average Daily Balance
The average daily balance is the method used by your card issuer to calculate interest. Card issuers divide the sum of your daily balances by the number of days in your billing cycle, which is normally around 30.
Balance Transfer
A balance transfer occurs when you move the existing balances from one or more of your credit cards to another credit card. Transferring balances can be a smart strategy to move interest-accruing debt from one or more cards to a newly opened credit card that has zero interest for a period of time.
Billing Cycle
Your billing cycle covers roughly 30 days of your credit card’s activity. This includes purchases, credits, payments, fees, and interest. The sum of these things makes up your monthly balance and payment requirement.
CARD Act
CARD Act stands for the Credit Card Accountability, Responsibility, and Disclosure Act of 2009. Among other things, the CARD Act requires a 21-day minimum on cards that offer grace periods, eliminates the issuing of credit cards to people under 21 years old unless they have a job, and all but bars over-limit fees.
