ReferenceCredit card glossary
Credit card glossary
for beginners.
The terms you'll encounter while applying for, using, and managing your first credit card, defined in plain English. Bookmark this page; you'll need it.
- Adverse action notice
- A federally required letter that any lender must send within thirty days of denying a credit application. It tells you the specific reasons for the denial and which credit bureau the issuer pulled, and gives you the right to a free copy of that report within sixty days.
- Annual fee
- A yearly charge the issuer adds to the card account, regardless of usage. Beginner-friendly cards typically have $0 annual fees. Premium cards may charge $95 to $695 annually in exchange for richer rewards.
- Annual Percentage Rate (APR)
- The yearly interest rate charged on balances carried month-to-month. Most beginner credit cards have APRs between 18% and 29%. Interest only accrues if you carry a balance past the statement due date, paying the full statement balance every month means you never pay interest.
- Authorized user
- A person added to someone else's credit card account who can use the card but isn't responsible for paying the bill. Authorised-user status can build the user's credit if the primary cardholder has a long positive history, but is not a substitute for opening your own card.
- Balance transfer
- Moving debt from one credit card to another, usually to take advantage of a 0% promotional APR period on the new card. Usually carries a 3–5% transfer fee. Generally not relevant to beginners until they have established credit.
- Cash advance
- Borrowing cash from your credit card via ATM or convenience check. Cash advances usually have no grace period (interest accrues immediately), a higher APR than purchases, and a separate fee (3–5%). Avoid as a beginner.
- Charge-off
- When an issuer writes off an unpaid debt as a loss, typically after 180 days of non-payment. Charge-offs stay on your credit report for seven years and severely damage your score.
- Credit bureau
- A company that collects and stores credit information about consumers. The three major US credit bureaus are Experian, Equifax, and TransUnion. Lenders report account activity to one or more bureaus, and they use the data to generate credit reports and scores.
- Credit limit
- The maximum amount you can charge to your card. On a secured card, the limit usually equals your deposit. On unsecured cards, the limit is set by the issuer based on your creditworthiness and income.
- Credit utilisation
- The percentage of your total available credit that you're currently using. FICO weights utilisation as the second-largest scoring factor. Aim for under 30% at statement-close; under 10% is associated with the highest scores.
- FICO score
- The most widely used credit score in the US, ranging from 300 to 850. Five components: payment history (35%), credit utilisation (30%), length of credit history (15%), credit mix (10%), and new credit (10%). Most lenders use FICO; some use VantageScore (a competing model).
- Grace period
- The window between your statement closing date and your payment due date, typically 21 to 25 days. If you pay the full statement balance during the grace period, no interest accrues on purchases.
- Hard inquiry
- A credit-report check that occurs when you formally apply for credit. Hard inquiries lower your score by 2–5 points and stay on your report for two years. Unlike soft inquiries, hard inquiries are visible to other lenders.
- ITIN
- Individual Taxpayer Identification Number. A nine-digit IRS-issued tax ID for individuals not eligible for an SSN. Widely accepted by US credit-card issuers as an SSN substitute, particularly Capital One, Discover, and American Express.
- Late fee
- A fee charged when a payment is received after the due date, typically $25 for the first late payment and up to $40 for subsequent ones. The CARD Act caps late fees and prohibits them from exceeding the minimum payment due.
- Minimum payment
- The smallest amount you can pay to keep the account in good standing for the month. Typically 1–3% of the balance plus any interest accrued. Paying only the minimum keeps you out of delinquency but compounds interest charges quickly.
- Nova Credit
- A service that translates credit reports from supported countries into a US-readable format. Used in partnership with American Express to evaluate immigrant applicants based on home-country credit history. Currently supports India, Mexico, Canada, UK, Australia, and several other countries.
- Payment history
- The record of whether you've paid your accounts on time. Largest single FICO factor (35% of your score). One missed payment (30+ days late) can drop your score 50–100 points and stays on your report for seven years.
- Pre-qualification
- A soft-pull credit check that lets you see whether you're likely to be approved for a specific card before you formally apply. No score impact. Offered by Discover, Capital One, Chase (limited), and American Express.
- Refundable deposit
- The cash you provide to a secured-card issuer when you open the account. Typically $200–$500. The deposit becomes your credit limit and is returned in full when you close the account in good standing or graduate to an unsecured card.
- Secured credit card
- A credit card backed by a refundable cash deposit you provide upfront. The deposit becomes your credit limit. Behaves identically to an unsecured card for credit-building purposes. Near-guaranteed approval because the deposit eliminates issuer risk.
- Soft inquiry
- A credit-report check that doesn't affect your score. Pre-qualification, your own checks of your credit, and certain employer checks are all soft inquiries. Visible only to you, not to other lenders.
- Statement closing date
- The day the issuer takes a snapshot of your balance and reports it to the credit bureaus. Different from the payment due date, which is typically 21–25 days later. Utilisation is calculated as of the statement closing date, not the due date.
- Thin file
- A credit report with limited account history, typically fewer than five accounts or fewer than three years of history. Thin-file applicants are accepted by beginner cards but rejected by most premium cards.
- Unsecured credit card
- A standard credit card that doesn't require a deposit. The issuer extends credit based on your credit history, income, and other underwriting factors. Most cards in the market are unsecured.