Glossary of Terms
Having trouble understanding the terms and phrases in the financial world? It is important to understand the terms of a particular offer before you are committed to it. We have compiled a list of most common terms and their definitions below to help you better understand the financial world and to help choosing the right offer easier.
APR
The interest rate charged on a loan, credit card, or mortgage over a year’s time
Annual Fee
The fee charged annually by a credit card company to its cardholders. This amount is added to the cardholder’s statement every year and must be paid by the cardholder by the statement’s due date.
Balance Transfer
The act of transferring the whole or partial balance of one credit card to another credit card. This is usually done if the balance is being transferred to a card with a lower annual percentage rate.
Balance Transfer Fee
A fee that may be charged to cardholders for transferring a balance from one card to another.
Bankruptcy
A legal declaration of one’s inability to pay his/her creditors. In most cases, voluntary bankruptcy is initiated by the individual in debt (the debtor); in rare cases, creditors may file a bankruptcy petition against a debtor to initiate an involuntary bankruptcy.
Billing Cycle
The days between the last statement and the current statement. Billing cycles generally range from 20 to 32 days.
Cash Advance
Obtaining cash from the card instead of using it to make a purchase. The Grace Period does not apply to cash advances. See “Grace Period” for more information.
Cash Advance Fee
A fee charged for using your card to obtain cash. The fee will be a percentage of the transaction or a flat fee. Higher interest rates generally apply to cash advances.
Cash Out Loan
A refinanced mortgage loan that allows the borrower to receive cash at closing. The amount of the new loan is larger than the balance on the previous loan, thus allowing the borrower to receive the cash difference, minus fees and closing costs.
Chapter 7 Bankruptcy
A bankruptcy status in which the individual is allowed to retain certain property, while other property (if any) is sold in order to pay the individual’s outstanding debts.
Chapter 13 Bankruptcy
A bankruptcy status in which an individual can undergo a financial reorganization as supervised by a bankruptcy court, enabling the individual to get out of debt by following the court-approved plan.
Credit Bureau
A company that collects information from lenders and other sources about individual borrowing and payment histories. The information is then used to help lenders asses an individual’s credit worthiness and ability to pay back a credit line or loan.
Credit Limit
The maximum amount that a lender or credit card company will lend a borrower on a particular loan or line of credit.
Credit Rating
An estimate of the credit worthiness of an individual and his/her ability to pay back a loan or credit card. Credit rating is often measured by FICO score, among other factors.
Credit Report
A record of an individual’s borrowing and payment histories as reported to one or more credit bureaus.
Credit Score
The numerical value assigned to an individual’s past history of borrowing and repaying debts. Higher numbers are generally assigned to those who have borrowed and paid debts on time. Also see: FICO score
Debit Cards
A type of card that can be used to make purchases like a credit card, but with the amount of each purchase deducted directly from the cardholder’s bank account.
Debt Consolidation
Taking out a loan to pay off other smaller debts, usually on better payment terms than those offered by the smaller debts on the whole.
FICO Score
A number, generally ranging from 300 to 900, that is used to assess the creditworthiness of an individual. The number is statistically generated from information about the individual collected by credit bureaus.
Fixed APR
An APR (annual percentage rate) that does not change so long as payments are made on time and the account is kept in good standing.
Instant Approval
An application process that allows the applicant to know whether they are approved in a short amount of time, usually in less than one minute.
Loan Modification
A process in which the terms of an existing loan are changed from the terms originally agreed to by the lender and the borrower.
Minimum Monthly Payment
The minimum amount of the balance a cardholder is required to pay to keep the account in good standing.
No Credit
A credit rating which indicates that an individual has never had a loan or credit card in his/her name.
Over-Limit Fee
An amount charged by a credit card company when an individual’s account balance exceeds his/her credit limit.
Payday Loan
A small, short-term loan intended to help cover the borrower’s expenses until his/her next payday.
Purchase Loan
A type of mortgage loan that enables the borrower to buy a home.
Refinance Loan
A type of loan that gives the borrower different loan terms on his/her current loan, such as a different interest rate, a new monthly payment amount, and/or cash out from equity.
Reports to Credit Bureaus
Indicates that a loan or credit card issuer will share an account holder’s payment history with a credit bureau, an agency that collects such data to assess an individual’s credit worthiness and ability to pay back a loan or credit line.
Bad Credit
An individual’s credit rating is typically considered bad or poor if their FICO score falls below 620. Issues that drop a FICO score to such a level include defaulting on (failing to pay back) loans and credit cards, making payments past their due date, and/or carrying a high level of debt.
Secured Credit Card
A card that is secured by a savings account opened with the issuer. The card is designed for people who are looking to rebuild their credit, but are having trouble getting an unsecured card. See “Unsecured Card” for details. Click here to find a secured credit card.
Prepaid Card
A card issued by the cardholder’s bank that may be used to make purchases or get cash from ATMs. Each purchase will deduct money from the cardholder’s checking account and works much like a check.
Standard Card
The Mastercard version of a basic credit card. Generally has a lower credit limit. The Visa version is a Classic Card.
Unsecured Credit Card
A type of credit card that does not require the credit line to be backed by a corresponding bank deposit. Some unsecured cards charge monthly and/or annual fees for usage.
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