Glossary

Annual Percentage Rate:
Often referred as the "APR", this shows how much credit will cost you on a yearly basis.

Annual Fee:
The annual cost of membership to a particular credit card account. Most banks now have products
without annual fees.

Balance Computation Methods:
Credit card issuers assess finance charges by applying the APR to a balance. There are several
methods for determining your balance. Two of the most frequently used balance methods are as
follows:

Average Daily Balance Method -
This balance is figured by adding the outstanding balance and deducting payments and credits
for each day in the billing cycle, and then dividing by the number of days in the billing cycle. Some
credit card issuers include new transactions in this calculation while others exclude new
transactions.

Two-Cycle (or Double-Cycle) Average Daily Balance Method -
This balance is calculated by taking the sum of the average daily balances for two billing cycles.
The first balance is for the current billing cycle and the second balance is for the previous billing
cycle.

Billing Cycle:
The length of time between billing statements. A billing cycle is typically 30 days but because of
weekends, holidays, and the variance in the number of days in a month, a billing cycle may be as
short as 27 days and as long as 33 days.

Charge Card:
Unlike revolving credit cards, charge cards must be paid in full every month. The American
Express card is an example of a charge card.

Credit Card:
Unlike charge cards, these cards allow you to "revolve" your charges; that is, carry over portions of
your balance from month to month. However, if you do not pay your balance in full, you'll be
assessed finance charges. To protect your credit rating, be sure to pay at least the minimum
amount due by the payment due date.

Credit Line:
When you receive a new credit card, you're usually issued a set "credit line." That amount is the
most you can charge on your account. Under some circumstances, your card issuer may increase
or decrease your credit line.

Credit Report:
This is record of your credit history. It shows whether you pay your bills on time, how much debt
you have, etc. Your report is compiled by credit bureaus and released to lenders and others.

Debit Card:
A convenient way to "pay as you go," this enhanced card subtracts money from your account when
you use it to make a purchase or get cash.

Finance Charge:
The total cost of credit including service fees, late fees, transaction fees, and other charges.

Fixed APR:
Unlike a "Variable APR," this type of APR does not change based on changes in an index.

Grace Period:
If you have a credit card, a "grace period" means the period of time your issuer doesn't charge you
interest on purchases. Be sure to read the fine print, though. Some credit card issuers give you a
grace period only if your account is paid up and doesn't have a balance carried over from the
previous month.

Interest Rate:
Credit is not free! When you use money provided by a bank or financial institution, the interest rate
reflects the amount they charge you for that service.

Introductory APR:
This is a temporary, usually low, interest rate (expressed as a yearly rate) offered by providers to
"introduce" you to their services. It will usually go up after a certain amount of time.

Minimum Payment:
You'll see this on your credit card statement. It's the lowest amount you can pay every month,
based on that month's balance at the time of billing.

Prime Rate:
"Prime" means "best," and this rate is what banks charge their best commercial customers for
loans. The Prime changes often, is reported daily in the Wall Street Journal, and is used as a
reference point for many businesses. For instance, the Prime Rate is used by some financial
institutions to set the APR for credit cards.

Principal:
Unlike interest or fees, the "principal" reflects the actual dollar amount of the purchases you
made, or the balance that remains on your loan or credit card account.

Transaction Fees:
Fees which are charged when you make certain types of transactions. Transaction fees are
typically assessed on cash advances and cash-like transactions such as money orders, wire
transfers, and casino gaming chips.

Variable APR:
The Variable Annual Percentage Rate (expressed in yearly terms) fluctuates based on an index
such as the Prime Rate or LIBOR.