Glossary of Credit Card Terms

0% on Balance Transfers - When you move your debt from one credit card to another, there is usually a handling fee of some sort for the transfer of the balance - some credit card companies won't charge you any interest for any transfers made over a certain period of time, which can be anything from six months to a year, or up until a specified date, after which the standard rate of interest applies. Read our entry on introductory rates for more information.

0% on New Purchases Card - some lenders may offer introductory rates that are interest-free or have a lower than standard rate for new purchases for a specified amount of time, after which the standard rate applies.

AER - AER stands for Annual Equivalent Rate and represents cumulative amounts of interest as if it was paid and compounded each year.

APR - APR is short for Annual Percentage Rate, a term used as an indicator of the amount of interest you will be expected to pay, should you borrow any money on your credit card. APR rates are typically unfixed and variable and are subject to changes in market conditions, the amount you have borrowed, and the date from which the interest is charged.

Annual Fee - Some card issuers charge a fee for the general handling and management of your finances. They sometimes provide access to a number of additional benefits as part of the charge. Annual Fees are either set at affixed rate, or expressed as a percentage of your annual interest earnings.

Bad Credit/Bad Credit History - terms used to describe a poor credit rating. Late or missed payments, unpredictable spending behaviour, exceeding card limits or declaring bankruptcy. Having a bad credit can result in being refused credit, although there are steps you can take to avoid this. Please read our pages on credit ratings and reports for more information.

Balance Transfer - the process of moving an unpaid credit card debt from one issuer to another. Transfers of the balance owed may occur through the use of special checks, or may be handled directly by the issuer on your behalf.

CCJ (County Court Judgement) - a hearing in a county courtroom where a settlement between creditors and debtors can be worked out so that it is as mutually beneficial for both parties as possible. If a debtor continues to default or miss payments, then creditors may arrange for a CCJ in order to secure the money owed by claiming any property owned by the debtor. Having CCJs on your credit history will have a negative effect on your ability to borrow in the future.

Consolidation Loan - a loan taken out for the express purpose of paying off a number of comparatively smaller loans, so that all personal debts are consolidated under one debt with one rate of interest, made payable to a single lender.

Credit - a term describing capital that has been loaned to a client by a bank, building society or credit card agency.

Credit History/Credit Rating - a profile of your financial background, which is drawn up by credit agencies on the behalf of lenders who wish to assess the level of risk you represent, in other words, how much you are likely to pay per month, and subsequently how much credit you are likely to be loaned. There is not one universal credit rating, as the rating methods differ between lenders, but there are certain factors which can contribute to general good and bad ratings. See our main page on credit ratings for more information.

Credit Limit - The upper limit of credit you can access on your card. Under some circumstances, your card issuer may increase or decrease your credit line, which may depend upon any investments / withdrawals you make, or on the punctuality of your payments.

Debit - A charge to a bank account. Any transaction, including cheques, cash machine withdrawals, or card purchases at checkouts, online, or any point-of-sale will debit your account with the respective amount.

Debt Management Plan/Programme - Debt Management Programmes are repayment schemes set up by debt advisors who are independent from, but closely linked with the majority of lenders, and are designed to help those in critical debt situations to avoid having to appear at a county court hearing.

Default/Defaulting - a term used to refer to any missed payments on credit card, loan or overdraft. A default occurs when a customer has not met any of the required criteria as specified in a debt repayment contract; this happens when the schedule date for payment has not been met, or the client is temporarily unable to make the payment - in this respect, defaulting is different from insolvency or bankruptcy, as it usually signifies that a customer will be able to pay the debt back in the near future.

Direct Credit - an electronic credit to a customer's account initiated directly by the payer. Direct credits consist primarily of business-to-individual payments for wages, salaries, pensions, state benefits and tax credits, and payments initiated by businesses to pay their trading partners or by individuals to pay bills.

Direct Debit - a pre-authorised debit on the payer's account initiated by the payee (known as an originator). Direct debits are typically used to make regular payments for debts such as utility bills and insurance payments and amounts may be variable.

Floor Limit - a limit on transactions that Visa and MasterCard have established for single purchases made at specific types of retail outlets, which can be anything from £50 to £250 or more. Any purchases made above a card's floor limit will require a member of staff on the shop floor to call the customer's lender for authorisation before the purchase can go ahead.

Fixed Rate - a savings account, mortgage, or any investment which has a fixed rate of interest, meaning that the rate of interest on the plan, usually higher than the base rate of interest will remain unchanged, for better or worse, throughout the remainder of the plan. Fixed Rate plans differ from tracker and variable rate plans, where the rate of interest can fluctuate, to either the benefit or detriment of the customer's finances.

Introductory Rate - banks and credit card companies will typically offer a low or interest-free introductory rate that switches to a higher variable or fixed rate after a set term, in order to entice customers. It could be described as a special offer, or 'honeymoon period', after which, a higher rate of interest will kick in.

Lender - a catch-all term used to describe any individual or group that loans credit to customers.

POS/Point of Sale - the point-of-sale place at which sales are conducted at any retail environment, on the high-street or online.

Risk/Risk Assessment - the term risk in a financial sense is used by lenders when they assess a potential customer on how much 'risk' they pose to the company - i.e. Will this customer default, miss payments and be a high-risk, or will they be stable, secure, make payments on time, and be a lower risk? Being high or low risk does not mean you may not necessarily receive a loan as this depends on the lender.

SSL - short for Secure Sockets Layer, a security standard utilised by the majority of online retailers. Websites with SSL technology automatically encrypt any information entered into them, preventing sensitive information from being accessed from the outside.

Secured Loan - a loan that is secured against the value of any property owned by the client. As secured loans are low-risk investments from the lenders' point of view, secured loan customers benefit from lower rates of interest than those available on an unsecured loan.

Service Charge - A component of some finance charges, such as the fee for triggering an overdraft checking account into use.

Tracker/Base Rate Tracker - a type of savings account which 'tracks' market movements and rises in base interest rates, allowing for customers with such accounts to potentially benefit from any potential rises in interest rates - lenders will notify customers by post of any changes in market conditions which could be disadvantageous, allowing customers to shift their finances to an account with a more favourable rate.

Unsecured Loan - a term used to refer to any loan taken out by a client where no property is offered to be used as collateral by the lender. As such, the interest rates on unsecured loans are typically higher.

Variable Rate - a rate of interest that changes in accordance to general Bank of England interest rate movements and market conditions. Customers with variable rates of interest on their accounts, mortgages, loans, etc are generally not informed of changes by their lenders - this is how tracker savings plans differ from those with variable rates of interest.

Related Frequent Questions:

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• Guide to Savings Accounts
• Reports and Credit Ratings
• How to choose the right credit card for you