Econ - Credit Card

Test Prep

Annual Fee

A once-yearly charge for having a credit card charged by the credit issuing company. Cards with annual fees sometimes have a lower interest rate.

Annual Percentage Rate

Expressed as a percentage that represents the actual yearly cost of funds over the term of a loan. APR includes annual interest and any fees associated with the loan.

Balance transfer

Moving debt from one credit card to another usually for a fee.

Bankruptcy

A court-approved plan by a person or organization that cannot pay its  creditors, with the goal of satisfying creditors and giving the debtor a  fresh start

Credit Bureau

Consumer reporting agencies, which are private companies that collect and maintain consumer credit data including credit reports and credit scores

Credit limit

The maximum amount of credit a borrower can use on a particular line  of credit (e.g., a credit card). Exceeding the limit usually involves a  penalty fee

Credit score

A number, typically ranging from 300 to 850, that represents your creditworthiness. It is a snapshot of your credit risk

Default

Failure to pay a debt per the finance agreement.

Default rate

A particular interest rate charged when a consumer fails to pay on time and reneges on a credit agreement. Usually much higher than normal rate.

Fixed rate

An interest rate that does not vary during the life of a loan

Grace period

A period of time when no interest is charged on a credit card

Interest Rate

The charge for borrowing a sum of money, usually expressed as a percentage of the original loan charged annually

Introductory APR

A lower interest rate offered on a new credit card to incentivize prospective borrowers. After the introductory period, the interest rate increases to the normal rate

Late fee

A fee assessed for paying the minimum balance of a credit card after the due date

Minimum Monthly payment

The smallest amount of money a borrower can pay monthly toward their credit card; usually 2-4% of the balance

Rewards

Customer loyalty benefits that serve as an incentive to get and then use the credit card. Ex. airline miles, cash back, discounts on gas, groceries, etc., dining discounts, and more.

Secured credit cards

A kind of credit card where a borrower makes a deposit of collateral in  the amount of credit that she is seeking. Secured credit cards are good  for those who are building or rebuilding their credit histories

Transaction fees

A fee assessed for using a credit card for certain types of transactions. Cash withdrawals are a prime example of these fees

Unsecured credit card

A standard credit card that does not require a security deposit. The lender assumes a higher risk because the credit line is not backed by collateral, but simply by a borrower’s history

Variable rate

An interest rate that changes based on the moves of another rate index; usually the federal prime rate set by the Federal Reserve