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Account Condition
Have you ever wondered how to judge the condition of your credit accounts? What information is important to determining your creditworthiness? Where to look? Here is some advice on how to navigate the treacherous credit waters.

The Account Statement

The best way for you to monitor your account condition is to review your monthly statements closely. Make sure all the charges and credits are accurately reflected. Pay extra attention to payment due dates to be sure the check arrives on time. Even one late payment can adversely affect your annual percentage rate (APR) or your credit score.

The Credit Report

You will want to pull your credit report periodically to be sure the condition of your accounts is reflected accurately. The three main consumer reporting agencies or credit bureaus (Experian, Transunion and Equifax) jointly run an agency to provide credit reports to Americans for free one time each year. Go to www.annualcreditreport.com for details.

Once you receive your report you will want to closely review each account for the correct credit limit, outstanding balance and payment history. If derogatory elements do appear on your report you will have to challenge them with each credit bureau separately. Once the agency verifies the error they will remove the item. Accounts referred to collection will unfortunately remain on your report for seven years unless the creditor decides to remove that item on your behalf.

The importance of an excellent credit score in today's economy cannot be overstated. Good credit requires persistence on your part. Maintaining and monitoring the condition of your accounts can make all the difference in qualifying for the mortgage on your new dream home.

Annual Fee
Many credit card companies charge each of their customers a yearly fee for the use of their credit card. The standard industry term is "Annual Fee." Annual fees can range from zero to well over $100 for premium cards. You will have to weigh the pros and cons of signing up for a card with a high annual fee. People with little or no credit will often not have a choice in the credit terms offered to them. Even customers with excellent credit will opt for a card with a high annual fee because of the perks that come with certain card memberships.

Card Offers With "No Annual Fee"

Credit card companies will often send out envelopes with offers for cards that do not seem to have an annual fee. Before you accept one of these offers be sure to research their terms closely. Cards will often have no annual fee for the first year and then hit you with a big charge every twelve months thereafter. Also, be aware of stipulations in your agreement that will allow the bank to charge you an annual fee in the first year if you make a late payment or are over the limit even one time.

Annual Fees On Cards For People With Risky Credit

Secured credit cards are a good way to start a credit file or to rebuild your creditworthiness. You may receive many attractive offers in the mail for zero percent interest and no annual fee, but be sure to read the fine print. Companies willing to take a risk on customers usually do not do so for charity. They will often charge an annual fee up to $100. While this may seem reasonable for the chance to boost your credit score, the annual fee could be as much as one-third your total credit limit.

Annual Percentage Rate (APR)
One of the great mysteries to many credit customers is the annual percentage rate (or APR) used to compute their monthly finance charges. While it is a good starting place for consumers to compare different credit card offers, there are pitfalls to beware.

What Does Annual Percentage Rate Mean?

The government has regulated the credit card industry in the United States to standardize the term APR. The company must finalize the annual percentage rate with you before your loan or credit application is completed. The APR is supposed to reflect the total interest you will pay on a balance over the course of one year. For instance, if you maintain a balance of $1,000, you will pay $299.99 in finance charges over 12 months with an APR of 29.99%. Please note that this number may not be the total cost of borrowing the money from your bank as certain fees are often not included when determining the APR.

Zero Percent APR

Many credit card companies will offer you a card which has an annual percentage rate of zero. These can be attractive offers, but read the fine print carefully. The terms on these cards are often for a specified period of time before zero percent will turn into 20 or 30 percent! The zero percent APR will usually refer to "new purchases only." This means that you will not incur finance charges on items you purchase with your new card during the time period allotted. However, the bank will charge you a certain APR for cash advances and perhaps an entirely different annual percentage rate on balance transfers. Most companies also include penalties for customers that will raise their APR drastically if a payment is made late or they have gone over their limit. Read the offer carefully and do not be afraid to call the company for clarification on the terms of their offer.

Authorized User
Authorizing someone to use your credit card, or becoming an authorized user on another persons account each have their obvious good points. Surprisingly, serious consequences are possible for both the primary and secondary users.

A Good Way Into The World Of Credit

Authorized users of credit cards are allowed the same spending privileges that the primary cardholder enjoys. They will usually get their own plastic card (with its own per-approved limit) to use as though it were their own. The payment history and account balance will be reported to their credit report. Adding your child to your account is a great way to build a credit history for them, as long as you keep the account in good standing.

Is There A Downside to Authorized Users?

Yes. The primary cardholder is legally responsible for any charges made by the authorized users. For this reason, make sure you trust the person you are allowing to use your account. Put in place safeguards to prevent authorized users from charging well beyond your means to pay.

As noted above, being an authorized user on someone else's account can help build your credit report. People often overlook the fact that the reverse is equally true. While you may not be responsible for paying the money you have charged, that information still goes on your credit report. If the primary cardholder were to default on paying the card, your credit score could take some serious hits. For this reason, you may want to check your credit report and consider removing your name from any accounts on which you are listed.

Authorization
There a few terms used interchangeably within the banking industry for the process of credit card authorization, such as authorization hold, preauthorization and preauth. But just what is this practice, and why does it make a credit card statement confusing to read?

Authorization Hold

When a merchant swipes your credit card to process a purchase, the terminal dials into a computer system to verify the credit available in your account. Presuming you have the funds available, the system will authorize a hold on the funds needed for that transaction. Your available balance will then decrease that amount. If you have a credit limit of $1,000 and charge an item for $200, your available credit will automatically be reduced to $800 even though no money has been exchanged. This authorization will remain in effect until the merchant settles the batch for the day and the bank transfers that money or it automatically falls off a number of days later due to inaction.

Statement Confusion

Why do the funds actually in my account differ from the amount available to me? This process of authorization guarantees a merchant that the funds will be available later to transfer. Purchases you made recently will usually appear in a "pending transactions" section of your statement. These are charges the bank expects to pay, but have not yet posted to your account. Hotels, car rental agencies and restaurants will often authorize more funds on your card than are needed for the purchase to leave space for extra room charges, gasoline or tips for servers. It may be difficult to track your exact available credit and the authorizations still outstanding. This confusion will often lead people to accidentally go over their limit.

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Balance Transfer
The process of transferring a balance from one credit card to another - normally to a card with a much lower rate.  Balance transfer credit cards are made specifically for helping consumers cash in on this lower interest rate.  The best balance transfer cards have a 0% APR for balance transfers for an extended period.  

Bad Credit
Also referred to as "subprime credit."  A credit rating below 600 that comes as the result of either a history of defaults or a limited history paying off bills or both.  People with bad credit will have to pay higher interest rates on credit cards and other types of loans as a type of insurance should they default again in the future.  A bad credit rating is a signal to credit card issuers that you're a higher risk to miss payments.    

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Cardmember Agreement
Also referred to as "Cardholder Agreement."  Everything that is determined in the terms and conditions of a credit card agreement - a.k.a. the "fine print."  This will including introductory and long-term APR, monthly and annual fees, credit limit, the formula for determining minimum payment, and information on dispute resolutions.  Though terms are set with an initial credit card application, the cardmember agreement can change whenever the credit card issuer deems appropriate.  This could even be the case if a cardholder never defaults or is otherwise delinquent. 

Cash Advance
The process of borrowing cash from a credit card, as opposed to using the credit card to purchase goods or services.  Normally cash advances are subject to a much higher interest rate and/or fees so it's recommended that they're used sparingly.  A cash advance fee is most commonly 3% of the withdrawal amount, tacked onto a higher APR for repayment. 

Credit Bureau
A company that records and catalogs financial information on consumers.  The three major credit bureaus are Experian, Equifax, and TransUnion.  However there are hundreds of branches of these three main bureaus.  Each credit bureau has a slightly different formula for calculating an interest rate so it is necessary to contact each bureau when ordering a personal credit report. 

Credit History
A financial record of your history and responsibility with paying off bills.  A credit history will include all credit card and loan applications, as well as your record paying off those loans.  It will also list other issues such as bankruptcy or tax liens.  Finally, if anyone fraudulently opens up an account in your name, this will be reflected in your credit history.  It will be necessary to erase these inquiries from your record.  

Credit Monitoring
The process of monitoring a credit card bill and credit report regularly to ensure that there has been no fraudulent activity.  It is also important if one is due to apply for a large loan and it is necessary to elevate a personal credit rating.  Credit monitoring will monitor daily, weekly, and monthly activity to ensure that no one is opening up fraudulent accounts.  Limiting credit monitoring to a credit card account will not catch other instances of fraud, such as a new account being opened in your name.  Normally, credit monitoring is available for a set monthly fee.  Ordering a credit report can also be considered a form of credit monitoring, but as consumers are eligible for only one free credit report a year, more frequent credit monitoring is recommended.  

Credit Rating
A number signifying your credit risk to lenders.  Different credit ratings include bad credit (subprime), good credit, and excellent credit.  Below 600 is bad credit, while above 750 is excellent credit.   Factors such as loan defaults, length of credit history, and types of credit all factor into a credit rating.  

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Debit
Debit, as opposed to credit, is a purchase that is taken directly from a bank account, rather than borrowing off of credit and then paying interest.  Prepaid debit cards are slightly different in that a consumer deposits a set sum into the account and borrows off that money.  The main difference is this type of payment is registered by credit bureaus as a credit card account so it is a viable way to raise a credit rating for those who have been facing difficulty.  Bank-issued debit cards can be used anywhere credit cards are accepted, as well as ATM's.

Debt Consolidation
The process of combining a series of debts into one debt.  The most common for of debt consolidation is a debt consolidation loan in which the borrower pays off all outstanding debt with the loan.  He or she then pays off the debt consolidation, potentially for a much lower interest rate than all of the debts combined.   

Default
Default - When a consumer fails to pay his bill on time, it is considered default. This term applies to all late or non-payments in regards to the date specified on the creditor's statement. Similarly, if the consumer makes a payment arrangement and then breaks it, he defaulted on his arrangement.

Example: When John agreed to pay the electric company $100 on Friday and he wasn't able to, he defaulted on his agreement.

Dispute
Dispute - To argue a point, to debate or to file a letter of disagreement.

Example No. 1: While John and Doug were discussing the Real Estate market, the conversation got heated and it quickly turned into a dispute.

Example No. 2: When John received his credit card statement, there was a billing error. He contacted the creditor and disputed the charge.

Disclosure
Disclosure - The offering of all pertinent information in regards to the request. The act of being completely honest and not withholding information.

Example: When the lawyer asked Tina for her financial information, he asked for her full disclosure.

E

Experian
Experian - A global information solutions company, Experian is most commonly known as being one of the three main consumer credit reporting agencies in the United States, however, it has operations in over 30 other countries worldwide.

Example: Today, Susan received her credit report from Experian.

Equifax
Equifax - A consumer credit reporting agency. Founded in 1899 as Retail Credit Company. Provides a three-digit credit score as part of an overall detailed credit history report.

Example: When Tim received his credit report from Equifax, he noticed his credit score increased since the last time he checked.

Equal Credit Opportunity Act
Equal Credit Opportunity Act - 15 U.S.C. 1691 - Prohibits any creditor from determining creditworthiness based solely on race, sex, color, national origin, religion, marital status, age or because the applicant receives income from a public assistance program.

Example: Due to the Equal Credit Opportunity Act, the bank could not deny Frank a loan simply because he is divorced.

F

Finance Charge
Finance Charge - Any charge that is associated with the cost of borrowing on credit. Usually includes the interest, transaction fees and other related fees.

Example: Karen chose the new Capital One credit card because the finance charge was lower.

Fixed Rate
Fixed Rate - An interest rate that does not fluctuate over the life of the loan; the interest rate is frozen or "fixed" at the time of origin for the loan. The only way to reduce the interest rate is to refinance the loan at a lower interest rate.

Example: Herman was satisfied when he was able to get a mortgage with a fixed rate of six percent.

Fraud Alert
An alert put on a credit report to inform a credit bureau or individual if there has been any unauthorized access.  While a good step towards eliminating the threat of fraud, a fraud alert will not necessarily catch every type of fraud, so more extensive credit monitoring is recommended.   

G

Grace Period
Grace Period - An additional amount of time granted to the consumer by the creditor to make a payment.

Example: Sam's credit card company gave him a 15-day grace period to make his payment before they notify the credit reporting agency.

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I

Interest
Interest - The actual price paid for borrowing money, added onto the principal amount, and calculated as a percentage rate over a period of time.

Example: To date, Sam has paid seven percent interest and $4,556 in interest charges on his mortgage.

Interest Rate
Interest Rate - The rate charged for borrowing money. Calculated as an annual percentage of the principal of the loan.

Example: The interest rate on Ernie's loan is seven percent.

Introductory Rates
Introductory Rates - Promotional interest rates offered by lenders that are designed to bring in consumers to apply for the loan or credit card. Usually zero to very low interest rates which are time sensitive.

Example: Phil transferred his old credit card balances to his new credit card. In doing so, he qualified for an introductory rate of zero percent for the first year!

Issuer
Issuer - The party that issues a financial asset. Examples of an issuer are credit card companies, mortgage companies and financial institutions.

Example: Capital One is the issuer of Fran's latest credit card.

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Late Payment Fee
Late Payment Fee - A fee charged to the consumer for not paying the bill by the due date designated by the creditor on the monthly statement. The amount of the fee is dependent on the creditor.

Example: Annie was charged a $15 late payment fee for sending in her credit card payment a week late.

M

Minimum Payment
The minimum payment a cardholder is required to pay every month: normally 2%-4% of the balance.  This will vary for each cardholder based on the cardholder's credit rating, income, and other factors.  In general, it's recommended that a cardholder pay above the minimum payment to reduce the drag of debt, as well as put the cardholder in a better bargaining position should he or she want to renegotiate rates or credit limit at a later date.   

Monthly Finance Charge
Monthly Finance Charge - The monthly costs associated with borrowing. The interest rate, transfer fees, service fees and any other fees make up the total monthly finance charge.

Example: Sam transferred his balance from his older credit card to his new credit card because the monthly finance charge was lower.

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O

Outstanding Balance
Outstanding Balance - The amount of a loan or credit line which is still unpaid. Also known as the "current balance."

Example: Mike has an outstanding balance of $19,500 left on his mortgage loan.

Overdraft Checking Account
Overdraft Checking Account - A checking account which also includes a line of credit that covers any overdrafts that may occur on the account. The overdraft is usually subject to a finance charge.

Example: Ted's overdraft checking account has saved him from having to pay high overdraft fees a number of times.

Overdraft Protection
Overdraft Protection - A service offered by many banks which protects the consumer's account from being overdrafted. Different protection services may be offered including Lines of Credit, Linked Accounts, Ad-Hoc or Bounce Protection. The money needed to complete the transaction is taken from one of these plans to avoid overdraft charges.

Example: Thanks to Peter's overdraft protection service on his checking account, his check to the grocery store didn't bounce.

P

Payment Status
Payment Status - The current state of the payment's processing. Typical payment status may include "received," "pending" or "paid."

Example: Fred was waiting for his check to the credit card company to clear, but he was told that the payment status was still pending.

Personal Identification Numbers (pins)
Personal Identification Numbers (pins) - A four-digit numerical code designed as a security measure when using a credit, debit or ATM card. The user must input the correct series of numbers in order to gain access to the money and/or account. PIN numbers are also widely used for access to certain secured websites on the Internet.

Example: Beth changes her debit card's personal identification number every three months to increase her account's security.

Pre-Approved
A credit card offer that is based on a short version of the borrower's credit report.  A pre-approved credit card offer does not guarantee a borrower a rate, but it will start the process wherein a credit card issuer will fully gauge an individual's credit worthiness.  It is possible that an individual is offered an entirely different card than was advertised in the original offer.  

Prime Rate
Prime Rate - The best interest rate available from the lending institution. Usually only awarded to the bank's "prime" creditworthy customers. Oftentimes, for the consumer with superior credit, it is possible to get a rate lower than the prime rate.

Example: Because Kelly has such a great credit history, the bank awarded her its prime rate on her new loan.

Q

R

Reference Number
The number assigned to each transaction in a credit card bill.  This number will be necessary should the cardholder want to make a dispute of the charge at a later date.   

S

Secured Credit Card
Secured Credit Card - A credit card issued by a bank or creditor that is fully secured by the consumer's own money. Consumers with no credit or poor credit may be able to attain a secured credit card in order to build their credit back up.

Example: Jeff just received his secured credit card. It has a $400 limit, which he deposited on the card himself.

Service Charge
A type of fee placed on a credit card account for a certain type of transaction, such as an overdraft fee when the cardholder goes over the limit on a credit card.   

Statement
The paperwork normally received at the end of the month showing all of the transactions on that account: including purchases, cash advances, transfers, fees, and charges.  It is recommended that every credit cardholder go through his or her credit card statement every month to ensure there has been no fraudulent activity or unnecessary charges.   

T

Truth in Lending Act 
The main federal law regarding credit card agreements.  The Truth in Lending act aims to protect consumers by revealing credit terms ahead of time so consumers can make informed decisions about credit card agreements.  Some legislators believe the TiLA does not go far enough and that the fine print on credit card agreements is too obscure - so there could be changes on the horizon.   

U

Universal Default
A clause in some credit card agreements that states that a credit card interest rate can go up if the cardholder defaults on an unrelated bill.  For example, if a cardholder defaults on a mortgage but pays a credit card bill on time, the interest rate could go up due to the default on the mortgage payment.  This is a fairly controversial clause and there have been some calls in Congress to do away with the universal default from credit card agreements.   

Unsecured Credit Card
Unsecured Credit Card - A credit card issued to a consumer by a bank or credit card company with no upfront money from the consumer. An unsecured credit card is given on the basis of the consumer's creditworthiness as judged by the lending institution. Allows the card holder to make purchases in lieu of money, and then pay a monthly payment as issued by the creditor.

Example: John worked hard to improve his credit. Today, it paid off as he received his first unsecured credit card.

V

Variable Rate
Variable Rate - Any dividend or interest rate that is not fixed. Variable Rate interest may change over the course of the loan in accordance with market changes in the prime interest rate. Also known as an "adjustable rate."

Example: Sam just got a variable rate mortgage. His interest rate is six percent right now, but it may fluctuate up or down over the life of his loan.

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