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TIPS ON TERMS: CREDIT CARDS Adjusted Balance – The credit issuer computes your balance or finance charge by subtracting the payments received during the billing period from the balance at the beginning of the billing cycle. New purchases are not included. Annual Fee – The amount credit card issuers charge for annual membership or participation fees. Annual Fees tend to range from $25 to $50, sometimes up to $100 depending on the card. Some credit cards do not charge an annual fee. However, some low-fee or no-fee credit card issuers often charge high APRs, raising them over time. This can offset a low or nonexistent annual fee. Consumers should be sure to check the fine print. Annual Percentage Rate (“APR”) – A measure of the cost of credit expressed as a yearly rate, taking into account interest, transaction fees and other service charges. Usually a lower APR is more advantageous for the consumer. Average Daily Balance – Computational method utilized by most credit card issuers to calculate finance charges. The outstanding balances for each day in the billing cycle are added, and the total is divided by the number of days in the cycle. Balance Transfer – The ability to transfer a credit card balance from one card to another. If applicable, interest on balance transfers begins to accrue immediately. Cash Advance – An instant loan given to a cardholder by a creditor. These are usually more expensive than standard credit charges, as banks typically charge high interest and fees from the date of the advance. Charge Card – A plastic card that gives access to a line of credit. Unlike credit cards, consumers are expected to repay their balance in full every month. Credit History – A record of your borrowing and paying habits. Credit reporting agencies track your history and supply this information to credit card companies, banks and other lenders. Credit Limit – A limit applied by the credit card issuer capping how much you can charge on the card for purchases, cash advances and balance transfers. Credit Rating – A published ranking by a credit bureau or another institution which determines whether a person is suitable to receive credit. Credit ratings are based on a detailed analysis of one’s financial history, ability to meet debt obligation and capital assets. Lenders use this information to determine whether or not to approve a loan or mortgage. Default or Penalty Rate – A higher interest rate charged if you pay late, bounce a check or your credit gets worse. The penalty is also charged by some credit card issuers if you pay late on credit cards or loans with other banks. Finance Charge – The amount you are charged for having credit, usually in the form of a fee the consumer pays after not paying off the entire credit card debt within a single payment period. Fixed Interest Rate – The APR is set on your card; the rate does not change during the time of the loan unless the credit card issuer sends you a 15-day notice. A fixed rate is also subject to change if you pay late, bounce a check, or do anything else to expose yourself to a penalty rate increase. Fixed Introductory Rate – A rate that is fixed only for the introductory period, such as six months. The rate will change after that time and may even become a variable rate (see below.) Grace Period – The time between the date of the credit card purchase and the date the company begins charging you interest. Interest – The fee paid for the use and /or loan of money. Expressed in terms of the annual percentage rate (“APR”). Minimum Monthly Payment – This is the smallest amount of money the cardholder may pay each billing cycle to keep their account in good standing. Payment Due Date – The last day that payment will be accepted without penalty. Your payment may be required to arrive by a deadline on the due date, such as 1 p.m. Periodic Rate – The rate applied to your outstanding balance to determine the finance charge for each billing period. Pre-approved – This means that a consumer was selected to receive a credit offer based on certain criteria. The consumer is not automatically guaranteed to receive the card. Every applicant is still subject to a credit check. By signing the offer, you authorize the company to review your credit report, upon which actual approval for the card is based. Previous Balance – A credit issuer’s method of calculating your finance charge using the balance outstanding at the end of the previous billing period. Revolving Credit Card – A plastic card that gives access to a line of credit. Users are limited in how much they can charge but are not required to pay the full amount owed each month. Instead, the balance accrues interest with only a minimum payment due. Secured Credit Card – A type of credit card linked to a bank account or something of value as collateral. The issuer of the card can claim the funds in the account or seize the collateral in the event the cardholder fails to make a necessary payment. This type of arrangement allows credit card issuers to take on riskier customers. Store Charge Card – A card issued by a retail store which can only be used to make purchases at that particular store. Stored-Value Card – A card with a pre-paid amount of money or benefits. These cards are sometimes referred to as “gift cards” and are often used by consumers as gifts in lieu of an actual purchased item. The value of the card decreases according to purchases made or benefits used. Unsecured Credit Card – Most credit cards are unsecured. The opposite of the secured card, this type of card generally provides credit without a guarantee. The card is not backed by the collateral of the cardholder or borrower. An unsecured credit card is generally issued by a financial institution, such as a bank or a credit card company. Unlike the charge card which requires consumers to pay their balance in full every month, the consumer is allowed to pay a minimum amount of the balance on a monthly basis. Interest is charged on any unpaid balance. Variable Rate – An interest rate that changes according to a set formula. Some credit card issuers adjust your APR when interest rates or other economic indicators, called indexes, change. If your card has a variable rate, the APR changes when interest rates change.