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Credit Cards Glossary: Understand Common and Essential Credit Card Terms

As a credit card user, you may have come across some terms that you’re not familiar with. There are also many more that you’ll probably come across in the course of time. However, knowing common terminologies that banks and lenders use in their official communiques, correspondences or monthly statements means that you’ll have a better understanding of the state of your finances.

The following are some of the most commonly used terminologies that every cardholder must know:

  1. Account number: It is a unique number that is assigned by an issuing bank to the credit cardholder. It can be found embossed on the card with the date of issue and the date of validity. This number is necessary for authorising transactions through your card.
  2. Acquiring bank: An acquiring bank is a financial institution that processes and settles a merchant’s daily credit card transactions. After processing these, an acquiring bank settles these transactions with the card issuing bank.
  3. Adjusted Balance: After you have made payments on your outstanding balance at the end of the month, you’ll see a new balance on your card which reflects the change in outstanding balance in addition to the finance charges.
  4. Affinity card: An affinity card is usually jointly offered by a bank and a charitable or a non-profit institution. An affinity card usually carries the logo of an institution on the card issued by a bank and usually a percentage of every transaction made on the card goes towards charity.
  5. AIR: The applied interest rate (AIR) is the nominal rate you’ll have to pay for borrowing through your credit card.
  6. Air miles: Air miles, also known as frequent flyer miles, are reward or loyalty points that are credited to the cardholder’s account for every dollar spent through the card. If you have accumulated enough points, you can redeem these points to upgrade your plane ticket or get a free flight with a partner airline. Air mile cards are ideal for those who undertake frequent domestic and overseas flights.
  7. Annual fee: An annual fee is a service fee that the issuer will charge you. It’s charged directly to the card every card anniversary year.
  8. Annual fee waiver: If a card issuer decides to forgo the annual fee chargeable on the card, it is known as an annual fee waiver. Many card issuers offer annual fee waivers for the first and/or second year. Thereafter, it is done at the sole discretion of the issuer. If you’re someone who charges his card frequently, you’ll stand a better chance of getting a waiver than someone who only uses it occasionally.
  9. APR: APR or annual percentage rate is the same as AIR and represents the yearly interest rate that you’ll be paying on your borrowing. This rate excludes the processing fees, service fees and fees charged for approving your application.
  10. Alerts: Many banks send updates in the form of SMS and email alerts every time your card is charged. Every time a transaction is made with the help of your card, you’ll get an almost instantaneous update.
  11. Authentication: Authentication is the process by which the bank verifies your details before allowing you to carry out a transaction. It is usually needed for transactions carried online or through phone banking. It is used as protection against fraud and identity theft.
  12. Authorisation code: It is a code that is sent by the issuing bank or authorisation processor to indicate approval or rejection of your authorisation request.
  13. ATM: An ATM or an automated teller machine is a terminal where you can carry out transactions using your credit or debit card. You can withdraw cash, deposit cash, check your balances or carry out other banking transactions. These machines are interconnected through networks which means you can carry out ATM transactions anywhere in the world with your card.
  14. Balance transfer: This is a process through which you can transfer balance from one credit card to another. You can transfer balance between cards offered by the same issuing bank or different banks. It is usually carried out for debt consolidation and easier debt management.
  15. Bad credit: Bad credit indicates a bad credit score. Bad credit increases your risk rating and can get your future card applications rejected. Late payments, missing deadlines for payments repeatedly and overcharging can get you a bad credit rating.
  16. Business credit card: Business credit cards are issued by lenders to businesses of different sizes including sole proprietorship. If you’re a holder of one, the transactions carried out with your business card won’t affect your individual credit score or risk rating.
  17. Billing cycle: The billing cycle is the period that the statement deals with. The billing cycle can vary from bank to bank but is mostly 28 to 31 days.
  18. Cardholder: The owner of a credit card is known as the cardholder or the cardmember. If you’re one, you can borrow money to finance your purchases and make periodic payments to settle the dues.
  19. Card issuer: The financial institution or the lender which issues a credit card is known as the card issuer. The card issuer decides the credit limit for a card and is responsible for processing the transactions made with the card.
  20. Card reader: This is a technology that is used to read encoded information on the card.
  21. Card payment network: A credit card payment network is a system that facilitates financial partnerships between merchants and card issuers. Usually, you can make online payments with the help of these payment networks. Visa, Mastercard and American Express are some of the most well-known payment networks in Singapore.
  22. Cash advance: If you’re withdrawing cash using your credit card from your bank teller counter or an ATM, you’re asking for a cash advance.
  23. Cashback: It is a form of loyalty bonus whereby an amount is credited back to the account of the cardholder by the issuing bank after a purchase is carried out successfully with the help of the card.
  24. Chargeback: A chargeback usually occurs when a customer disputes a purchase made on the card. It can also occur if the customer alleges that a fraudulent transaction has been carried out without his consent. Once a request for a chargeback is raised, it is reviewed by the issuing bank and investigated upon. After the customer’s claim has been validated, the issuing bank starts the process for a chargeback and the money is credited back to the customer’s account. The acquiring bank, on behalf of the merchant, starts the process of returning the money back to the issuing bank which then credits it to the customer’s account.
  25. Charge card: A charge card is similar to credit cards in many respects but there is a fundamental difference. A charge card won’t charge you interest on your borrowings. However, you have to pay off the entire outstanding balance at the end of the month as soon as the statement is issued. Some charge cards don’t have a pre-set credit limit. You’ll also enjoy benefits like reward points, cashback and discounts on your charge card.
  26. Chip and PIN card: A chip and PIN card is considered to be an extremely secure credit card because it uses advanced technology stored in the microchip that makes it difficult to forge the card and because you have to key in a unique PIN at your point of purchase.
  27. Credit builder card: A credit builder card is a credit card which helps you improve your credit score. Usually these cards have high APRs and low credit limits. If you have defaulted in the past or your credit reports aren’t very encouraging, getting a credit building card may be one of the best ways to rebuild your credit score as well as regain the lender’s trust.
  28. Credit bureau: A credit bureau is an organisation that researches and collects credit information of an individual. A creditor or a lender can approach a credit bureau for buying this information for a fee and use it for customer profiling and risk analysis which are essential prerequisites for granting a loan.
  29. Credit limit: Credit limit is the maximum amount that can be charged to your credit card. The limit is set by the issuing bank. Credit history, annual income and risk profiling are some of the parameters which are used when deciding the limit.
  30. CVV: CVV is a three-digit code that is used for authentication purposes, especially when you’re trying to carry out an online monetary transaction. As a cardholder, only you’re privy to this code and you’re expected to keep it guarded.
  31. Default: A credit card default can occur if you breach the terms and conditions set by your credit card issuer. A default may be triggered if you repeatedly miss out on payments or overcharge your card. Maxing out your card can also constitute a default. A default can leave a nasty mark on your credit report till the time the credit bureau chooses to keep it.
  32. Direct debit: Direct debit is a provision by which a fixed amount is charged to your card automatically on a predetermined date to pay for your utility bills, monthly instalments and other purchases. In most cases, you’ll have to sign a direct debit authorisation form to authorise the bank to debit the fixed amount from your credit account.
  33. EIR: EIR or the effective interest rate is the actual economic cost that you have to bear on your borrowing. It includes the cost of borrowing along with the rate charged as processing fee. It is usually higher than the APR that banks charge and it takes into account the effect of compounding. As long as you continue to make full payment on your outstanding balance at the end of each month, you won’t be charged an EIR as you have paid down the debt already.
  34. Encryption: Your credit card chip contains information that is encoded so that transactions can be carried out safely.
  35. Expiry Date: Every card comes with a date of expiry i.e. a date till which it is valid and can be used for transactions. It is embossed on the plastic face of the card in the MM/YY format where MM and YY stand for month and year, respectively.
  36. Expired card: An expired card is one that is no longer valid. Once a card expires, it can’t be used for financial transactions.
  37. Fee for cash advance: When you withdraw money with your credit card, your issuing bank will charge a processing fee for extending you a line of credit. Cash can be withdrawn over the teller window of your issuing bank or through an ATM.
  38. Finance charges: Finance charges represents the cost of borrowing through your credit card. These include the interests, processing fees and other financial transaction fees you pay for using your card.
  39. Fraudulent transactions: Fraudulent transactions are all those transactions that are carried out without your authorisation or knowledge. If a card is charged without your consent or somebody tries to steal your identity to carry a fraudulent transaction, you have the right to file a complaint with your issuing bank. You can also get your card blocked so that no further transaction can be carried out till investigations are over or the issue has been suitably redressed.
  40. Grace period: Grace period is offered by most card issuers at their discretion. If you fail to settle your outstanding balance within the actual due date but pay it off within the extended deadline, you can escape without paying an additional interest.
  41. Interest-free period: An interest-free period is a period during which the lender won’t charge you an interest even if you fail to settle the full outstanding balance at the end of a billing cycle. You’re, however, expected to make the minimum payments during this period. Some of the cards offer extended interest-free periods to new customers, especially during the introductory period.
  42. Interest rate: If you fail to pay off the full outstanding balance at the end of each month, your card issuer will charge an interest on the balance that you’re carrying forward. The rate at which the interest is charged is called the credit card interest rate. The rate can vary from card to card and issuer to issuer.
  43. Introductory period: Most issuers offer special benefits on a card during the introductory period. It is usually a period of low interest rates and annual fee waivers. The introductory APR is usually applicable till the end of the period following which the rate may be revised upwards.
  44. Joint account: A joint credit card account offers equal access, responsibility and authority to the credit card co-holders.
  45. Late payment fee: An issuer may decide to levy a late payment fee if you fail to pay off the minimum sum by your payment due date. This is in addition to the interest payment you’ll have to make on the outstanding balance.
  46. Magnetic strip: Some credit cards store information about the cardholder in magnetic bands or strips embedded in the card. Card readers at POS terminals are designed to read the encrypted information before authorising payments.
  47. Merchant: A merchant site is a business establishment which offers you a safe platform to carry out financial transactions, usually in the form of purchase of goods and services.
  48. Minimum payment: The minimum payment on your credit card is the smallest portion of the total outstanding balance that you’re required to pay once the statement is generated. The remaining balance can be rolled over and will attract interests. However, if you fail to pay off even the minimum amount due, you’ll be liable to pay a late fee in addition to the interests levied on the outstanding balance. Usually, the minimum amount due is 3% of the total outstanding balance.
  49. Net banking: Net banking or online banking is a facility that is provided by most lenders. If you have subscribed for net banking, you’ll be able to access information regarding your banking transactions including credit card transactions, online. You can download past monthly statements, change PINs and authorise automatic payments among other things.
  50. Online transactions: Online transactions constitute online payments made on ecommerce sites and other online portals using credit cards.
  51. Outstanding balance: An outstanding balance is the total amount that you owe to the issuing bank at the end of a billing cycle.
  52. Password: Your credit card issuing bank will share a default alphanumeric code with you that would allow you to access various electronic services offered by your bank. Mobile and net banking are some of the common services that require a password. You’re expected to change the default password after your first log-in and keep it a secret.
  53. Payment due date: It is the date within which you’re required to make the minimum payment once the statement has been generated at the end of a billing cycle. However, you can choose to pay more than the minimum amount and even settle the entire outstanding balance. Paying off the entire balance would mean that you won’t be charged an interest.
  54. Phishing: Phishing is a form of online fraud. Emails with counterfeit images and logos of an issuing bank are sent to its cardholders. The cardholder is then coaxed to share sensitive credit card details and personal information after he has been convinced of the need to share the details. Using the details, the malefactor tries to steal the cardholder’s identity and carry out unauthorised financial transactions.
  55. PIN: A PIN is your unique personal identification number that can be used for withdrawing cash through an ATM. If you’re the owner of a microchip credit card, you’ll have to use it to make a payment at POS terminals, too.’
  56. Promotional rate: Lenders often run promotional campaigns to advertise lower rates of interest. However, these offers are usually valid for short durations and as soon as the offer period ends, an APR at a higher rate is levied.
  57. Rebates: Rebates are incentives paid to cardholders by the issuing bank whenever you purchase a merchandise or a service from a partner merchant. Rebates could be in the form of refunds, discounts and vouchers.
  58. Reward programs: Most card issuers run a number of reward programs. The aim is to incentivise a cardholder so that more purchases are made with his credit card. Rewards in the form of cashback, discounts, air miles and vouchers are provided. Sometimes, the cardholder has to accumulate a certain number of points before it can be redeemed for air miles or something else.
  59. Secured credit card: Some issuing banks offer secured credit cards. It doesn’t come with a minimum income criteria but entails the cardholder to maintain a collateral with the bank worth a certain predetermined amount. The money is held in the account as a collateral for the line of credit that is extended, without the possibility of withdrawal. The credit limit is usually equal to or less than the deposit amount.
  60. Statement: A financial statement is sent to a cardholder at the end of each month and is a detailed report of your expenditures, debts and minimum due amount. The statement helps you keep a tab on your spending and debts. It also informs you about the due date within which you’re expected to settle the minimum due amount.
  61. Temporary authorisation: Temporary authorisation or temporary hold may appear on your statement if you decide to make a purchase through an ecommerce site. When checking out, the amount may be set aside as a temporary hold even before the transaction is completed. If for some reason the transaction isn’t completed, the amount may still appear as a ‘hold’ on your statement for a few days before the issuing bank changes the status.

Having a basic understanding of the most common and essential credit card technologies will make your life easier as a cardholder. You’ll be better prepared to handle jargons on your statement, next time.

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