Credit Card Glossary

A fee charged once per year simply for holding a credit card. Ranges from $0 on no-fee cards to $695+ on premium travel cards. Whether it's worth paying depends on whether the card's rewards and benefits exceed the fee cost.

The yearly cost of borrowing on a credit card, expressed as a percentage. The average US credit card APR is currently above 20%. Your card may have different APRs for purchases, balance transfers, and cash advances. You pay zero APR on purchases if you pay your full balance each month.

A person added to a credit card account who is permitted to make purchases but is not legally responsible for repaying the balance. The primary cardholder is fully responsible for all charges. Being added as an authorised user on a well-managed account can help build the user's credit score.

The method US card issuers use to calculate interest. Rather than using your end-of-month balance, they track your balance every day, add all daily balances together, and divide by the number of days in the billing cycle. Interest is then charged on this average figure.

The amount of credit remaining on your card after subtracting your current balance from your credit limit. If your limit is $5,000 and your balance is $1,500, your available credit is $3,500. Keeping available credit high (low utilisation) benefits your credit score.

A setting that automatically pays your credit card bill on the due date each month. You can typically set autopay for the minimum payment, a fixed amount, or the full statement balance. Setting autopay for the full balance is the single most effective habit for avoiding interest and late fees.

Moving debt from one credit card to another — typically to take advantage of a lower or 0% introductory APR. A balance transfer fee of 3–5% usually applies. The goal is to reduce or eliminate interest charges while paying down the principal balance.

A one-time charge applied when you move a balance to a new card, typically 3–5% of the amount transferred with a minimum of $5–$10. Even with this fee, a balance transfer almost always saves significant money compared to continuing to pay high interest.

The monthly period — typically 28–31 days — during which your credit card purchases are recorded. It ends on your statement closing date, after which a statement is generated showing your total balance due. A new billing cycle begins the following day.

A credit card designed for business use, offering features like higher credit limits, employee cards, expense categorisation, and business-specific rewards. Business cards are not covered by the same consumer protections as personal cards under the CARD Act.

The Credit Card Accountability Responsibility and Disclosure Act — a federal law that established key consumer protections including a minimum 21-day grace period, restrictions on interest rate increases, required advance notice of changes, and rules on how payments are applied to balances.

Withdrawing cash from an ATM using your credit card. Cash advances come with a fee (typically 3–5%), a higher APR than purchases (usually 25–30%), and no grace period — interest accrues from day one. Avoid cash advances wherever possible.

A rewards structure where you earn a percentage of your spending back as real money — typically 1–5%. Cashback can be redeemed as a statement credit, bank deposit, or check. It's the simplest reward type — what you earn is always worth exactly its face value.

One of three agencies — Equifax, Experian, and TransUnion — that collect and maintain credit data on consumers. Lenders report your payment history, balances, and account status to these bureaus monthly. Your credit score is calculated from this data.

The maximum amount you can charge to your credit card at any one time. Set by the issuer based on your credit score, income, and history. Exceeding your limit may result in a declined transaction or over-limit fee. Keeping your balance well below your limit improves your credit score.

The percentage of your available credit you're currently using — calculated by dividing your balance by your credit limit. Accounts for 30% of your FICO score. Keeping utilisation below 30% is recommended; below 10% is optimal for the best score impact.

The daily interest rate used to calculate how much interest accrues each day on your balance. Calculated by dividing your APR by 365. On a 24% APR card, the daily periodic rate is 0.0657% — meaning a $1,000 balance accrues about $0.66 in interest per day.

When an account becomes severely delinquent — typically after 180 days of non-payment — the issuer may declare it in default and charge it off as a loss. Defaulted accounts are reported to credit bureaus and can remain on your credit report for seven years, severely damaging your score.

A missed or late credit card payment. Accounts are typically reported as delinquent to credit bureaus after 30 days of non-payment. Delinquencies significantly damage credit scores — a single 30-day late payment can drop a good score by 50–100 points.

The electronic movement of money between accounts — used when you make a credit card payment from your bank account. Most online credit card payments are processed as EFTs. They typically take 1–3 business days to clear.

The month and year printed on a credit card after which it is no longer valid for transactions. Card issuers typically send a replacement card automatically before the expiration date. The account itself doesn't close — only the physical card expires.

The most widely used credit scoring model in the US, developed by Fair Isaac Corporation. Scores range from 300–850. The five factors are: payment history (35%), credit utilisation (30%), length of history (15%), credit mix (10%), and new inquiries (10%). Most lenders use FICO scores for credit decisions.

A fee charged when you make a purchase in a foreign currency or with a foreign merchant — typically 1–3% of the transaction amount. Many travel rewards cards waive this fee entirely. If you travel internationally or shop with overseas retailers, look for a card with no foreign transaction fee.

A notice placed on your credit file that asks lenders to take extra steps to verify your identity before opening new credit in your name. You can place a free fraud alert with any one of the three credit bureaus and they will notify the other two. Lasts one year; extended alerts last seven years for identity theft victims.

The window between your statement closing date and your payment due date — at least 21 days by law — during which no interest accrues on purchases, provided you paid your previous statement balance in full. The grace period is the mechanism that allows cardholders to use credit cards interest-free.

A person who agrees to be legally responsible for a credit card debt if the primary cardholder fails to pay. Guarantors are rare on personal credit cards but may be required for some business cards or when the primary applicant has very poor credit.

A credit check triggered when you apply for new credit — including credit cards, loans, or mortgages. Hard inquiries are recorded on your credit report and can lower your score by a few points temporarily. Multiple hard inquiries in a short period can signal financial stress to lenders. Effects typically fade within 12 months.

A credit card offering above-average rewards rates — typically 3x–5x in specific categories or 2%+ flat on all purchases. These cards often carry annual fees that are justified by the elevated earnings for heavy spenders in the right categories.

A fee charged when you fail to make at least the minimum payment by your due date. Currently capped at $30 for a first late payment and $41 for subsequent late payments under CFPB rules (subject to change). Some cards like the Citi Simplicity charge no late fees at all.

A system where spending earns points or miles that can be redeemed for travel, cash, gift cards, or merchandise. Major programmes include Chase Ultimate Rewards, Amex Membership Rewards, and Capital One Miles. Value per point varies significantly by redemption method.

A rewards currency tied to airline or travel programmes. Miles can be redeemed for flights, hotel stays, or transferred to airline loyalty programmes. Value varies widely — economy redemptions typically yield 1¢ per mile, while premium cabin redemptions can exceed 3¢ per mile.

The smallest amount you must pay each month to keep your account in good standing and avoid a late fee. Typically 1–3% of your balance or $25, whichever is greater. Paying only the minimum is the most expensive way to carry a balance — interest compounds on the remaining amount.

The cycle where paying only the minimum keeps a balance alive for years due to daily compounding interest. Because minimum payments shrink as the balance falls, the payoff timeline extends dramatically. Breaking out requires fixing a higher monthly payment and sticking to it.

A fee charged if your balance exceeds your credit limit — but only if you've opted in to over-limit transactions. Under the CARD Act, issuers must get your permission before allowing over-limit transactions and charging this fee. Most issuers simply decline transactions that would exceed your limit instead.

The total amount currently owed on a credit card, including any charges, interest, and fees that haven't been paid. This is the total you would need to pay to bring your balance to zero. Distinct from your statement balance, which is a snapshot taken at the end of your billing cycle.

The deadline by which you must make at least your minimum payment to avoid a late fee. Must be at least 21 days after your statement closing date by law. Pay your full balance by this date each month to benefit from the grace period and pay zero interest.

A higher interest rate — up to 29.99% — that some issuers apply after missed payments. Under the CARD Act, penalty APR can only be applied to new charges after a 60-day delinquency, not retroactively to your existing balance. Must be reviewed after 6 months of on-time payments.

A rewards currency earned through credit card spending, redeemable for travel, cashback, gift cards, or merchandise. Value per point varies by redemption method and programme. Transfer to airline and hotel partners typically yields the highest value — often 1.5¢–2¢+ per point.

The interest rate applied to standard purchases on your credit card. This is the rate quoted prominently in card marketing. If you pay your full statement balance by the due date every month, you never pay purchase APR — the grace period eliminates it entirely.

A type of credit where the available credit replenishes as you repay it, up to a set limit. Credit cards are revolving credit. Unlike an instalment loan with fixed payments, you can carry any balance up to your limit and make varying payments each month.

The amount of rewards earned per dollar spent, expressed as a multiplier (2x, 3x) or percentage (2%, 3%). Higher rates in specific categories — dining, groceries, travel — are common on premium cards. A flat-rate card earns the same rate on all purchases regardless of category.

A fee charged when your credit card payment is rejected because of insufficient funds in your bank account. The payment bounces, your balance is not reduced, and you may also face a fee from your bank. Can also trigger a late fee if it causes you to miss your payment due date.

A credit card that requires a refundable cash deposit — typically $200–$500 — which becomes your credit limit. The deposit protects the issuer, making these cards accessible to people with poor or no credit history. Used responsibly, secured cards build credit scores effectively. The deposit is fully refunded when you close or graduate the account.

A one-time rewards bonus earned by meeting a minimum spend requirement — typically $3,000–$5,000 in the first 3 months after account opening. Sign-up bonuses are often worth $200–$1,000 in rewards value and represent some of the best short-term value in the credit card market.

A credit check that does not affect your credit score. Soft inquiries occur when you check your own credit, when a lender pre-approves you for an offer, or during background checks. Checking your own credit score is always a soft inquiry and never hurts your score.

The total balance on your credit card at the end of your billing cycle — the amount shown on your monthly statement. This is the amount you need to pay in full to benefit from the grace period and avoid interest on purchases. New purchases made after the statement closes are not included.

An airline or hotel loyalty programme to which you can transfer credit card points, usually at a 1:1 ratio. Transfer partners dramatically increase the potential value of points — transferring to an airline partner for a premium cabin flight can yield 2¢–3¢+ per point versus 1¢ for cashback.

A fee charged on specific types of transactions — most commonly cash advances (3–5%), balance transfers (3–5%), and foreign purchases (1–3%). Transaction fees are charged as a percentage of the amount, usually with a minimum dollar amount. They appear on your statement immediately.

An annual statement credit on premium travel cards that automatically offsets eligible travel purchases — flights, hotels, airport lounge fees, or TSA PreCheck. Travel credits are one of the primary ways premium cards justify their higher annual fees. They must typically be used within the calendar year.

A standard credit card that does not require a cash deposit. The issuer extends credit based on your creditworthiness — your credit score, income, and history. Most credit cards are unsecured. Requires a credit history to qualify; applicants with no or poor credit are typically directed to secured cards first.

See Credit Utilisation Ratio — the percentage of your available credit currently in use. One of the two most important factors in your FICO score (alongside payment history). Lower is better: below 30% is recommended, below 10% is optimal. Measured at your statement closing date each month.