Credit Card Glossary
- Acquiring Financial Institution
- Merchants keep an account with an acquiring financial institution to receive credit for credit card transactions. Daily credit card receipts are deposited into the merchant's account less any fees.
- Adjusted Balance
- Typically, the most advantageous method for cardholders. To calculate your balance, subtract payments made during the billing period, and then add the finance charges. Does not include purchases made during the billing period.
- Affinity Card
- Offered by a non-lending institution and a non-financial group (ex. non-profit organizations, universities, airlines or celebrities). Typically, the organization solicits all of its members and affinity card gives holders special discount or deals from the non-financial group. The organization receives brand loyalty from the card users and a small percentage or fee from the credit card company.
- Air Miles
- A popular reward program by co-branded cards. Air miles are earned with every use of the card and transferred to the cardholder's account with that airline.
- APR (Annual Percentage Rate)
A yearly fixed or variable interest rate that measures the cost of credit. Reflects the total yearly cost of the interest on a loan, expressed as a percentage rate. The credit card company must inform you about the APR before you sign on for a credit card. Often the introductory APR is the first thing you see on the credit card offer, either on the envelope or the very top of the first page. Read the back of the offer for conditions of the introductory APR and how it can change.
Some credit card companies offer a variable APR that is linked to an index performance. The rate change affects the finance charge on your account.
A low fixed rate is usually better that a low variable rate. A fixed rate card must give you 15 days notice of a rate change. A variable rate moves regularly without notification of the rate change.
This is an example from the FTC (Federal Trade Commission) of how the APR affects your payment. If you have an outstanding balance of $2,000 with 18.5% APR and a low monthly minimum payment, it would take over 11 years to pay off the debt and cost you $1,934 just for interest. This almost doubles the original cost of purchase.
- Annual Fees
- Annual membership or participation fee charged by most credit card companies. On average, the fee ranges from $15 to $55. Some issuers charge no annual fee.
- Authorized User
- A person given permission to use a credit card account.
- Average Daily Balance
- Most widely used balance calculation. Credits your account from the day payment is received by the credit card company. Calculated by adding each day's daily balance then divide that total by the number of days in a billing cycle. The average daily balance is then multiplied by a card's monthly periodic rate (divide the annual percentage rate by 12). Depending on the details of your plan, new purchases may or may not be added to the balance, cash advances are usually included. The new daily balances are added for the billing cycle.