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Credit Card Glossary: Terms and Definitions for Credit and Credit Cards

2 min read

Last Updated: October 10, 2024

Table of contents

Key Takeaways

A credit card glossary is a good way to learn the fundamentals of credit card accounts.
Credit card terms aren’t always obvious, so don’t feel bad if you aren’t familiar with the credit card vocabulary.
The more you understand about how credit card accounts work, the better you can be at managing your own.

Credit card basics

Credit cards may be a universal financial tool, but anyone who’s tried to understand credit card terminology (like “pre-approval,” “APR,” and “cash advance”) knows that credit cards aren’t necessarily as straightforward as they seem.

The good news is that once you grasp common credit card definitions, it’s a lot easier to understand how the credit process works and how you can be a good credit card user. We’ve put together a short credit card glossary to cover some basic credit card terminology to help you better understand the ins and outs of credit—and maybe even choose the best credit card for you.

The account holder, sometimes called the primary account holder, cardholder, or cardmember, is the person who opened the credit card account. That’s also the person whose credit score will be affected by activity on the account.

When a credit card has an annual fee, every year there will be a charge of a set dollar amount to keep the credit card open (even if the card just sits unused in a drawer) that appears on the statement. The annual fee isn’t added to the credit line or considered a purchase, but it is included in the account balance and will accrue interest if not paid.

Every transaction on a credit card is added to the account balance. The credit card balance represents how much the cardholder owes to the credit card company at any given time: the balance increases with purchases and decreases with returns, credits, or payments. If a monthly statement balance is not paid in full, the remaining amount will accrue interest.

Each billing cycle is approximately one month long, with a clear start and end date. All transactions that happen between those two dates are captured as part of that billing cycle and appear on that cycle’s statement. (Charges or credits outside of that time frame are shown on their respective billing cycles.)

Credit card acceptance just means what credit card issuers a merchant will take for payment. (Remember that this isn’t always the same thing as the bank brand: a credit card issuer is a company like Discover, Visa, Master Card, or American Express.)

A chargeback is one of the ways that a credit card can help protect cardholders from dishonest merchants. If there’s a transaction dispute (like, a seller charged the card twice for an item that was only bought once) in which the merchant is liable, the credit card issuer forces that merchant to pay back the money. It might look like a refund on the credit card statement, but it’s actually a transaction initiated by the credit card issuer.

If a customer carries a balance on their card every month, fails to make the minimum payments, and accumulates credit card debt that is loaded with late fees and late payment penalties, they may find themself subject to a “charge off.” This is when a credit card company closes an account and reports it as a loss for their financial records. But the account holders still owes the amount of their credit card debt—sometimes sold off to a debt buyer or collections agency—and the negative impact to the account holder’s credit report can last for years.

Every credit card statement includes a “minimum payment due amount.” This is the smallest payment that can be made for that statement period in order to keep the account in good standing, and is usually lower than the statement balance. Sometimes it can be hard to pay the full balance in one billing period, but any remaining balance at the end of the statement period will be charged interest.

Credit card issuers can use consumers’ credit score and credit history to decide if they’re a good candidate for a new credit card and may “pre-approved” a customer who is deemed a good prospective cardmember. But the person might not actually be approved for the card: they still have to complete a credit card application, agree to a hard inquiry on their credit report and allow the credit card issuer to review that information for final approval.

The APR is the interest charged on an account balance that rolls over from one payment period to another. There may be different interest rates, like a purchase APR, promotional APR, cash advance APR, or balance transfer APR, that apply to different types of transactions on an account.

Even though it’s called “annual,” interest is charged any month that there’s an unpaid balance from the month prior. And the actual rate can vary based on many factors, like the prime rate (which is dictated by the Federal Reserve) and account holder’s credit score.

Also known as a credit line, a credit limit is the total amount of money that can be charged to a credit card. Carrying a balance close to the credit limit may affect the account holder’s credit score, and exceeding the credit limit can result in a fee or penalty APR.

The account holder on a credit card can add an authorized user to give them access to the account’s line of credit. They’ll get their own credit card and be able to make purchases and payments to the account without a credit check of their own.

It’s important to remember, though, that no matter how an authorized user uses their card, it’s the account holder who’s fully liable for making payments and keeping the account in good standing. (If you plan to add an authorized user, or if you are an authorized user, make sure you have a clear understanding of all responsibilities and expectations before you use your card.)

A credit card balance transfer is when a cardholder takes the balance of the amount they owe on one card and moves it to another. This can help them save on interest payments for that balance (if they transfer balances to a credit account with a lower interest rate).

A cash advance is a feature of a credit card that allows the cardholder to borrow cash against their credit limit, like a short-term cash loan done at a bank or ATM. (It’s often subject to a cash advance APR and potentially other fees.)

An introductory rate is a lower APR or discount rate offered by a credit card company to new customers for a limited period of time for purchases and/or balance transfers. Once this rate expires, the standard APR/interest rate will apply.

Credit card rewards

One of the most compelling reasons that most people get a credit card is to earn cash back or other kinds of rewards on credit card transactions. But, as with other credit card vocabulary, knowing what the terms mean will really help you get the most of a rewards credit card.

Here's some of the credit card terminology you’re likely to encounter when looking into credit card rewards.

Credit card rewards are bonuses that a credit card company provides its cardmembers for using its card. Rewards are usually calculated as a percentage of the purchase amounts charged on the card. The rewards become valuable when the account holder redeems them for spendable currency or other items or experiences.

Cash back is a popular form of credit card rewards because it’s usually easy for the cardholder to calculate how much they have available to redeem as cash or other equivalent transactions. For example, with Discover^® cash back, $1 cash back = $1 to redeem.¹

Travel rewards are usually earned as points or miles that are earned on credit card purchases. Different credit card issuers allow the rewards to be redeemed in different ways (discounted tickets or hotel stays, statement credits for eligible travel purchases, travel-related transactions).

Credit & credit scores

If you’ve spent any time wrestling with credit card terminology, you’ve likely encountered some mention of credit and credit scores. Credit card companies are not the only kinds of loan issuers that rely on a consumer’s credit history to make decisions about approving a consumer’s application, but it’s a good idea to know a little about this area of credit card vocabulary.

A credit score is like a grade that indicates creditworthiness. It’s usually a three-digit number between 300 and 850 that’s calculated based on the person’s financial behaviors--like payment history, length of credit history, total amount of debt, and the types of credit on the report. Lenders prefer higher credit scores, because a consumer with a higher score is considered more likely to pay their loan bills on time.

Credit history is a running list of a person’s past loan payment behavior (e.g. credit card, car note, home loan, or personal loan, and whether bills were paid on time or late) so banks and lenders can decide whether they should trust that person to repay money they might lend them. A consumer’s credit history is one of several tools to calculate a credit score.

A credit bureau is a company that collects individuals’ credit information from credit lenders and typically sells that aggregated information to other credit lenders in the form of a credit report. Lenders, like credit card companies, use credit bureau information to assess a loan application. The three major national credit bureaus are Experian, Equifax and TransUnion.

A person’s revolving accounts (like credit cards, not personal loans or mortgages) can be added together to total all of their issued credit. The credit utilization ratio is the percentage of this credit they’re using. The higher the percentage, the less available credit that person has, which suggests that they are potentially spending more than they’re able to repay.

When a person or business cannot pay their outstanding debts, they may choose to initiate the legal process of filing for bankruptcy. Bankruptcy may provide relief from certain debts so they don’t have to be repaid and may also help the borrower establish or restructure debt repayment options. There are different kinds of bankruptcy that stay on the consumer’s credit report for different lengths of time and may address different types of debts. A bankruptcy lawyer can be helpful to walk you through how bankruptcy will affect your specific financial circumstances.

Unlike standard credit cards, a secured credit card requires a deposit as collateral. This allows credit card issuers to extend credit to consumers who otherwise might not qualify for a credit card (due to not having a credit history or having a low credit score). The deposit amount that a person makes for their secured credit card will influence the credit limit on the card.

Did You Know?

Credit card companies don’t approve every application, and your ability to get a card can depend on your credit score, income, and other factors. You’ll also need to meet the minimum requirements for the card.

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Credit Card Glossary: Terms and Definitions for Credit and Credit Cards

Key Takeaways

Credit card basics

Account holder

Annual Fee

Balance

Billing cycle

Credit card acceptance

Chargeback

Charge off

Minimum payment

Pre-approved

APR (Annual Percentage Rate)

Credit limit

Authorized user

Balance Transfer

Cash advance

Introductory rate

Credit card rewards

Rewards

Cash back

Travel rewards

Credit & credit scores

Credit score/credit rating

Credit history

Credit bureau

Credit utilization ratio

Bankruptcy

Secured credit cards

Did You Know?