• Important credit card terminology

    Credit cards let you make a purchase or borrow funds for free for a certain period. Most of the residents of the UAE have a credit card or two. The credit cards are used often for making purchases. But, how many of you understand the terminologies related to the credit card or the ones used in the credit card monthly statements? This article will help you understand the terms that are so often used.

    Credit card Glossary

    Following is the list of the terminologies used when you are talking about a credit card:

    Term Meaning
    Annual fee This is the most important term when you are getting a credit card. A certain amount is charged annually for the use of the credit card.
    Annual percentage rate This is the interest charged on the credit card for the whole year. The rate is standardized and annualised.
    Introductory APR Introductory APR is usually a low interest rate on the credit card by the credit card companies. This is just an initial offer and it will eventually be changed after a certain period of time.
    Authorized user Authorized user is a user who is authorized to use the credit card but it is not his responsibility to make the payment on the card.
    Joint credit Credit used by two or more people. Most often married couple prefer joint credit to make big purchases. They will be jointly responsible to pay the debt.
    Card member agreement This is an agreement that contains the terms and conditions of the account. The agreement includes the annual fees charged, APR, formula to calculate the monthly payment, the process to resolve disputes, etc. The provider can make changes to the terms and conditions with a written advance notice.
    Co-signer Co-signer is a guarantor who takes the responsibility to pay off the loan if the other person fails to repay. It is a kind of a protective measure adopted by the bank to reduce the risk related to lending the money. If there is a default, the guarantor will also be in trouble as it will affect his or her credit rating.
    Credit bureau Credit bureaus are credit reporting agencies that collect and compile credit details of an individual. The information is sold to the creditors for a fee. The creditors provide credit cards based on the credit report of the individual. They use it to determine the interest rate and line of credit. UAE’s credit reports are generated by Al Etihad Credit Bureau.
    Credit report The credit report generated by the credit bureau is the summary of the individual or company’s credit history. The report will include the repayments, past borrowing, late payments, etc.
    Credit score Credit score is a numerical result of the person’s performance in handling his debt. The score determines a person’s creditworthiness. A person with a high score is considered to be highly creditworthy. The person will also be in a position to negotiate the terms of the credit card.
    Credit history Credit history is the track record of a person’s borrowings and repayments. Credit history helps the credit card companies decide whether to extend the credit or not. It also helps them determine the terms.
    Convenience cheques It is associated with the credit card amount. It is also called as cash advances. The interest rates are higher than the normal rates.
    Credit utilization ratio or balance-to-limit It is the ratio of the credit card balance against the credit card limit. A low credit utilization ratio is ideal for a higher credit score. You can get a good credit score by maintaining the ratio below 35%.
    Credit inquiry This is the inquiry that the issuing bank makes. Even the individual applying for a credit card can make an inquiry to pull out the copy of the credit report.
    Hard inquiry This inquiry is made by the third party. They make an inquiry on an individual who has applied for a credit card. This inquiry will be recorded in the credit report. The hard inquiry will remain on the credit report for 2 years. If there are too many hard inquiries, it will affect the credit scoring.
    Soft inquiry This is when the individual is pulling out his or her own report. The report is usually taken to check for errors and to get them rectified. This inquiry will not be recorded in the credit report.
    Credit line This is the maximum amount that can be utilized on your credit card. The credit score is influenced by the way you utilise your credit.
    Credit limit This is the maximum amount utilized by an individual. The amount is fixed by the credit card company after taking into consideration the various factors.
    Subprime credit limit Subprime credit cards are issued by big and small credit card companies to individuals who have poor credit score. The APRs attached are high and the credit limits are lower.
    Available credit This is the amount that can be utilized to make a purchase. It is the difference between the credit card limit and the outstanding balance.
    Balance transfer Balance transfer cards enable an individual to transfer their credit card balances. This card is taken with an intention to transfer the balance from one or more than one credit card with the aim to consolidate the debt.
    Cash advance This is an advance taken on credit card through ATM or over the counter machines. There is usually a fee charged. The interest charged is high and there is no grace period to make the repayment.
    Charge back This is reversal of funds to the credit cardholder. If you have been overcharged or fraudulently charged, you can raise a dispute and up on investigation, the charge will be refunded to you.
    Finance charge This is the cost of credit. It includes interest and other charges applicable.
    Foreign transaction fee This is the fee charged by the credit card companies for making a purchase outside your home country. The rate usually ranges from 2-3% on the total amount.
    Minimum finance charge This is the minimum charge that is charged by the issuing company for carrying the balance on the card. Even if your monthly charge is lower than the minimum charge, you will still be charged the minimum finance charge.
    Minimum monthly charge This is the monthly charge that the credit cardholder has to pay every month for using the facility of credit card payments.
    Minimum payment This is the payment that cardholder has to pay to the issuing bank every month. The amount is usually 2% of the total outstanding amount at the end of the billing cycle.
    Over limit This is the limit to what you can charge on your credit card. This limit is set by the issuing bank. When you exceed the maximum limit, you will be charged an over limit fee. You transaction may also be declined based on the agreed terms.
    Non-dischargeable debt This is a kind of debt that can’t be done away with when you file for bankruptcy filing. The borrowings of credit card cannot be eliminated through the bankruptcy proceeding.
    Over limit fee This is the fee that is charged when a cardholder uses his card over and above the limit issued by the bank.
    Over limit charge This is a fee charged by the credit card companies on transactions that are made over and above the limit on your credit card. You can avoid this by having an agreement with the credit card company to decline the transaction once you have maxed out on your credit card.
    Prepaid card This is pretty much like a debit card. Prepaid cards are backed by the deposit account you have in the issuing bank. You are not borrowing funds from the bank, you are using the existing funds. This card ensures you don’t get in a bad debt. This card is ideal to give for your children. If you think you are spending too much, you can use this card as you won’t be borrowing from the bank.
    Reward credit card This card comes with perks like cashback, flier points, travel, etc. These cards are meant for particular use only. You can use a store card while making purchases at the retail stores.
    Secured credit card This type of card is supported by a cash deposit account. The deposit account acts as a collateral against the credit available on your card. People who have a bad credit history or no credit can opt for this. This helps you rebuild your credit history. These cards may charge heavy fees and charges.
    Unsecured credit card This card has no collateral attached to it. These are the most common types of credit cards. There is a higher risk attached to it.
    Terms and conditions It is a fine print or a document which contains the details of the terms of use of the card and other practices followed by the credit card company.
    Credit fault alert This is a security measure that is taken to protect you from identity theft and fraud. You can place this security measure on your card at the credit bureau when you suspect fraud. You will be contacted when a new line of credit is initiated.
    Credit freeze This is a facility available to the cardholders so that they can freeze the credit and lock down the account.
    Credit monitoring service This is a service where your credit card account will be monitored and you will be alerted if there are any discrepancies. There is an annual fee charged for this service. Some companies may provide this service for free.
    Default Failure to pay the credit card debt before the due date. One time default will attract a penalty or the interest rate may be increased or the line of credit may be cut. This affects your credit score in a negative way. One way to avoid default is to make minimum payments.
    Default or Penalty APR This is the rate of interest charged against the part or the entire credit card balance up on default. This is applicable if you are late for the payment by 60 days and above.
    Debt collection Debt collection or collectors are individuals or agencies that recover the past due amount on the delinquent credit card accounts. A fee will be charged by the debt collection agency. Some agencies also buy the debt by paying a lesser face value of the debt and collect the whole amount from the delinquent credit cardholder.
    Debt consolidation This is when you take a loan to pay off other loans. You can avail a balance transfer card with a lower interest rate and transfer the balances from the other credit cards that charge a high interest rate. This is helpful when you have several credit cards and are unable to keep track of them all.
    Grace period This is the extended period beyond the due date where in you can pay your credit card bill in full and you won’t be charged interest. The grace period is typically 21-55 days, it will vary from bank to bank. Grace periods won’t be offered for cash advances and balance transfers.
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