Credit Dictionary

All things credit can get pretty complicated in a hurry.

It almost seems like the terminology was created intentionally to confuse the layman, which in turn costs consumers money.

My goal has always been to empower consumers so they don’t make financial missteps, while getting the most out of the products available to them.

Below is a glossary of credit terms you may come across when reviewing your credit card statement, checking your credit scores, or reading your credit report.

Hopefully learning a bit about each topic will help minimize mistakes and save you money!

0% APR credit card – a credit card that offers 0% APR, or no interest, for an introductory period to lure in new cardholders. – the official website created by the credit bureaus where you can get your credit reports (not scores) for free.

Annual fee – a fee charged for certain credit cards that must be paid annually on a recurring basis.  Some are waived the first year.

Balance transfer fee – the transaction fee charged for transferring a credit card balance, which typically ranges from 0-5%.

Cash back credit card – a credit card that offers a certain percentage of cash back for purchases made using the card.

Charge card – looks and works similar to a credit card, but all purchases must be paid off in their entirety each month. Essentially a safer alternative to cash.

Charge-off – if a debt cannot be collected, the issuing bank will write it off, typically after a certain numbers of days of non-payment. 180 days is the norm for credit card debt.

Convenience checks – checks sent by credit card issuers that can be used as blank checks to pay for anything. Once cashed, they appear as a charge on your credit card statement.

Collection – once a credit account is several months delinquent, a creditor may enlist a collection agency to recoup the debt on their behalf by placing it in “collection” status.

Credit bureaus – also known as credit reporting agencies, these companies collect consumer credit information (such as payment history) from lenders and issue credit scores to measure risk.

Credit card – a piece of plastic used to make payments based on an agreed upon line of credit. Consumers can make purchases and pay later, even if they don’t have the funds in an associated account.

Credit card APR – the APR, or annual percentage rate of a credit card is the interest rate you are charged for carrying a balance.

Credit card balance transfer – the transfer of existing credit card debt from a high-APR credit card to a low APR credit card.

Credit card cash advances – allows credit cardholders to withdraw cash from ATMs using their credit card. The APR is generally very expensive, and begins accruing interest immediately!

Credit card churning – the act of quickly opening and closing credit cards to earn bonuses such as cash back.

Credit counseling – a third-party service designed to help individuals with large amounts of unmanageable debt. These can actually do more harm than good.

Credit card finance charges – the amount of interest due, based on the APR, for carrying a credit card balance, which is paid monthly.

Credit card grace period – the time between when your billing cycle ends and when the payment is due, in which you can avoid paying interest.

Credit card roulette – a game played by co-workers or friends to determine who pays for the entire meal.

Credit freeze – the process of blocking access to a credit file, usually to prevent or stop identity theft.

Credit history – all credit-related information that shows up on your credit report. Good history will lead to a good credit score, and vice versa.

Credit inquiries – requests for new lines of credit that show up on your credit report. Too many inquiries in a short period of time can lower your credit score.

Credit limit – the dollar amount of credit available for spending on a credit card.

Credit report – an in-depth report that details a consumer’s credit tradelines, public records, credit inquiries, aliases, and address and employment history. The information herein is used to issue credit scores.

Credit score – a three-digit, numerical representation of your credit default risk. The higher your score, the less risk you present to creditors.

Credit score range – the numerical range of a credit-scoring model.

Debit card – a plastic payment card that withdraws money immediately from an associated checking or savings account, and does not build credit.

Debt collector – an employee of a debt collection agency that attempts to collect delinquent debt owed by individuals.

Debt validation – a process in which a debt collection agency must prove you owe the money they claim you do.

FICO score – the leading credit score used by most banks and creditors, issued by Fico, formerly known as Fair Isaac and Co.

Fixed-rate credit card – a credit card with an interest rate that will never change.

Foreign transaction fee – a percentage (typically 3%) charged on credit card purchases made in foreign countries.

Late fee – a fee assessed for missing the minimum credit card payment due date.

Low interest rate credit card – a credit card that offers a relatively low APR, that may or may not be fixed.

Minimum payment – the absolute minimum you must pay each month when carrying a credit card balance.

No fee balance transfer – a balance transfer that does not charge a transaction fee.

Prepaid credit card – a plastic payment vehicle that must be loaded with cash before first use.

Rapid rescoring – a paid service that can make changes to your credit history very quickly in the hopes of raising your credit scores.

Revolving credit card – a credit card in which the holder can carry a balance and pay it back over time on their own terms.

Secured credit card – a credit card that is secured by a checking or savings account, typically reserved for those unable to qualify for a standard credit card.

Statement balance –  the total amount of charges, plus any fees/interest, less any payments or credits at the end of a billing cycle.

Student credit card – a credit card designed specifically for college students, which typically comes with easier qualification requirements and a low credit limit.

Tradeline – a credit account that shows up on your credit report, meaning it can affect your credit score.

Universal default – a now outlawed credit card practice that allowed issuers to raise rates on any of your accounts if you missed a payment on an unrelated account.

Unsecured credit card – a standard credit card in which no collateral is necessary for use.

VantageScore – a credit score developed by the three major credit reporting bureaus.

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