Credit card terminology 101

Credit, Financial education

There’s a lot of special terminology used with credit cards, and it can be confusing. What’s zero liability protection? What’s the difference between balance and average daily balance? Before you apply for a credit card, it’s smart to get familiar with some common words and phrases.

We’ve put together this list to help. You can read each entry, or just refer to the ones you want to understand better. And remember, you can always call the customer service number on the back of your credit card if you have questions about your specific account terms.

Here’s what we’re going to cover:

  • Account agreement
  • Account holder
  • Account statement
  • Annual percentage rate (APR)
  • Authorized user
  • Automatic payment (ACH)
  • Average daily balance
  • Balance
  • Balance transfer
  • Billing cycle
  • Cardholder
  • Cash advance
  • Credit limit
  • Creditor
  • Due date
  • Grace period
  • Interest
  • Interest rate
  • Joint account
  • Late payment
  • Minimum payment
  • Secured credit card
  • Transaction
  • Unauthorized transaction
  • Zero liability protection
Key takeaways:

  • Credit card agreements may use terms people are unfamiliar with. If you haven’t had a credit card before, it’s a good idea to get familiar with some common words and phrases before you apply for one.
  • Understanding key terminology can help you manage your credit card account with confidence.
  • If you’re not sure what something means in your credit card agreement or statement, you can always call the customer service phone number on the back of your credit card.

Account agreement

After you’ve been approved for a credit card, the creditor will send you an account agreement. You may even be able to review a sample agreement online before you apply. The agreement lists the conditions of your credit card account, which may include:

  • Annual percentage rate (APR)
  • Minimum monthly payment
  • Credit limit
  • Fees
  • Penalties

Account holder

The named person on a credit card account is called the account holder. The account holder is responsible for making payments on the credit card and keeping the conditions of the account agreement.

Account statement

Each month, you should receive a credit card account statement showing all your transactions during the most recent billing cycle. It will also list the payments you’ve made and any interest, fees, or penalties you have been charged.

Be sure to review your statement to see your current balance and the due date for your next payment. It’s also a good idea to check regularly for fraudulent transactions. If you find one, you should report it to your creditor right away.

Annual percentage rate (APR)

The annual percentage rate (APR) tells you the total annual cost of using your credit card. It includes all your card’s interest and fees. The higher your APR, the more expensive it is to carry a balance on your credit card.

Authorized user

If you want, you can sometimes add another person’s name to your account and allow them to make charges to your credit card. This person is called an authorized user. They’ll usually receive a credit card showing their own name and your account number.

Authorized users are allowed to spend money with your credit card account, but they’re not responsible for making payments.

Automatic payment (ACH)

Many creditors allow you to set up automatic payments to keep your credit card bill paid on time each month. With this method, money is automatically deducted from your bank account on the schedule you choose. You can pay off the entire balance on your credit card each time or make
just the minimum monthly payment.

Average daily balance

The average daily balance on your credit card is the outstanding balance each day of a billing cycle, divided by the number of days in the cycle.

Your creditors may use your average daily balance to determine how much interest you will be charged.

Balance

Your credit card balance is the total amount of money you currently owe on your card. It can include:

  • Purchases made with your credit card
  • Cash advances
  • Interest
  • Fees and penalties
  • Balance transfers

Balance transfer

A balance transfer is an amount of money owned on one account that you move to another one. If you transfer a balance between credit cards, then the new card pays off the balance on the old card or cards. People usually do this to when they can move a debt to a credit card with a lower APR, or to take advantage of an introductory period when no interest is charged.

Billing cycle

A billing cycle is the time between two credit card account statements. Most billing cycles last from 28 to 31 days, or roughly a month.  

Cardholder

Account holders and authorized users of a credit card are sometimes called cardholders.

Cash advance

When you withdraw money from an ATM or a bank using your credit card, it’s called a cash advance. Your credit card agreement will tell you the maximum amount you can withdraw with a cash advance.

Cash advances typically have higher APRs than your credit card’s regular APR. There is also no grace period for cash advances, so you’ll start being charged interest right away on the money you get from a cash advance. There may also be a cash advance fee.

Credit limit

Your credit limit is the maximum amount of money you can borrow using your credit card. Once you have reached this limit, you must pay back some of your balance before you can use your credit card again.

Creditor

The company that issues you a credit card is your creditor. Often this is a bank, but it can also be a credit union or state licensed lender.

Due date

Your due date is the day by which you must make a minimum payment on your credit card account. By law, your credit card due date must always fall on the same day each month. This date must be at least 21 days after the end of your billing cycle.  

If you don’t make your minimum payment, or a larger payment, by the due date, you may be charged a late or past due fee.

Grace period

The grace period on your credit card account usually runs from the end of one billing cycle until the payment due date listed on your statement and only applies to new purchases. If you pay off your entire credit card balance within the grace period, you will not be charged interest on your new purchases.

However, you will owe interest on any balance carried from the previous month and on cash advances, even those made during the grace period.

Interest

Interest is the amount of money you pay your creditor to use their money. This is in addition to paying back the amount you charge to your credit card. The interest you owe is determined by the interest rate.

You can avoid owing interest on new purchases by paying off your credit card balance in full and on time each month.

Interest rate

The interest rate is the cost you will pay to borrow money expressed as a percentage rate. This determines how much you will owe in interest each month

Interest rates can be either fixed or variable. Fixed interest rates stay the same as long as your credit account is open. Variable interest rates may go up or down as the index changes.

Joint account

A joint account is a credit card account that has two or more account holders. Each account holder is equally responsible for making payments. 

Late payment

A late payment is a credit card payment made after its due date or a payment that has been returned. You may be charged a fee for late payments.

Minimum payment

The minimum payment on your credit card is the smallest amount you can pay each month to avoid penalty fees. If you don’t make at least the minimum payment on time, you may be charged a late fee.

Secured credit card

A secured credit card requires you to make a cash deposit when you open the account.

If you have a secured credit card and don’t make your payments on time, your creditor can take the money you owe out of your cash deposit. When you close a secured credit card account or upgrade to an unsecured credit card, you may get your deposit back.

Most credit cards are unsecured, meaning that no deposit is required.

Transaction

A credit card transaction is a payment, purchase, or cash advance made using your credit card.

Unauthorized transaction

An unauthorized transaction is any transaction that you didn’t make or didn’t permit someone else to make with your credit card. If you see a charge you don’t recognize on your credit card statement, call your creditor right away. It could mean that someone has stolen your credit card number and is using your account without your permission.

Zero liability protection

 If your credit card comes with zero liability protection, you won’t be responsible for any fraudulent charges made on your account. You just need to be sure you report any suspicious activity to your creditor right away.

Oportun: Affordable credit cards, no credit history required

Before you open a credit card account, it’s important to understand the words and phrases used with credit cards. Now that you’re familiar with some of the more common ones, you can apply for a credit card with confidence.

Here at Oportun, we offer credit cards with credit limits up to $1,000. Our credit cards are accepted worldwide and come with zero liability protection. Best of all, you don’t need any credit history to apply.

Find out if you prequalify for an Oportun credit card today.

 

Sources:

Experian. Should I pay my credit card bill early?

 

The information in this site, including any third-party content and opinions, is for educational purposes only and should not be relied upon as legal, tax, or financial advice or to indicate the availability or suitability of any Oportun product or service to your unique circumstances. Contact your independent financial advisor for advice on your personal situation.

Ready to build a better future? Apply now.

Personal loans

Ready to build a better future? Apply now.

Personal loans Credit cards

We use cookies to bring you the best experience on our site. We never sell your information to third parties. When you use our site, you agree to our cookies policy. Find out more.