Credit Card Glossary

What do these common credit card terms mean?

Confused, or need clarification, on credit card terms you've likely come across while researching the best Canadian credit card for your needs? The Kanetix credit card glossary defines the most popular credit card terms, in everyday language, helping you to decipher what's really being said.


A B C D E F G H I J K L M N O P Q R S T U V W X Y Z


A

Affinity Credit Card An affinity card shows support or an affiliation with a charity, school, sports team, sports league, association or profession. Depending on the card, a donation may be made, rewards earned, discounts offered, or a team (or school) supported when the card is used.
Additional Cardholder The primary cardholder (the person who applied for the credit card) can, usually for a fee, have extra cards issued for use by a spouse, family member or other designated user. Also known as an Authorized User, purchases or transactions made by the extra cardholder are ultimately the responsibility of the primary cardholder and are included in the monthly statement.
Air Miles® Rewards Air Miles is a rewards program where 'miles' are collected which can later be exchanged for travel, leisure, entertainment or merchandise. Air Miles' credit cards (available from MasterCard and American Express) offer cardholders the opportunity to accumulate rewards with their credit card purchases.
Annual Fee An annual fee is a yearly charge for using, or having the option to use, a credit card. The fee is unrelated to and is separate from interest rate fees. Not all credit cards have an annual fee. Annual Interest Rate The yearly interest rate charged for: Interest fees are charged monthly and vary by credit card. Interest rates may also vary depending on the transaction. It is not uncommon, for example, that cash advances (and cash-like transactions) have a higher interest rate than that charged for carrying a balance on purchases.
Available Credit Available credit is the difference between the credit limit and the charges owed. For example, if a credit card's limit is $500 and the cardholder owes $300, the available credit equals $200.

  • Carrying an outstanding balance on purchases
  • Taking cash advances or making cash-like transactions (like buying money orders, traveller's cheques and the like)

B

Balance The amount owed to the credit card company for purchases, interest (if applicable), fees etc. Balance is also a common mortgage term.
Balance Transfer A balance transfer is the shifting of an amount owed from one credit card to another credit card. People usually transfer their credit card balance to take advantage of lower interest rates. Balance transfers may be subject to fees and interest; however this may vary by credit card.
Beacon Score The Beacon Score is one of three scoring systems used to calculate a person's credit score. The two others are Empirica and FICO® Score. Which system used depends on the credit bureau and who will be using the information.


C

Cardholder Agreement The cardholder agreement outlines the terms and conditions for use of the credit card and the account. It will detail your obligations and rights, the requirements, options and expectations of the credit card issuer, as well the benefits, features and rewards (if any) associated with the card. Cash Advance Traditionally, a credit card cash advance means a withdrawal of money from a credit card account. However, other transactions may also be considered a cash advance:
Cash Advance Cheques (or Convenience Cheques), or Cash-like transactions (buying traveller's cheques, wire transfers, money orders or casino gaming chips). Interest is charged from the day of the transaction as there is no interest-free period. The interest rate may be higher than the interest charged on purchases. Cash Advance Cheque Also called a convenience cheque, this is a withdrawal against the credit card account (not a bank chequing account) and is usually considered the same as a cash advance.
Cash Back Cash back is a rewards feature of certain credit cards where the cardholder is rebated a percentage of eligible purchases. Typically, the rebate (the cash back earned) is applied to the credit card account once a year.
Chip-enabled Credit Card A chip-enabled credit card contains an embedded computer chip that stores encrypted confidential information like the card's account number and personal identification number (PIN). It provides enhanced security; chip-enabled credits are difficult to counterfeit, duplicate, copy or access. Chip-enabled credit cards also use the traditional magnetic stripe technology so in areas where chip technology is not adopted, purchases can still be made using the card.
Credit Credit is the term used to describe a financial transaction where a person receives goods, money or a service for little or no money up front. In exchange, the person agrees to pay-whether in full or installments-a dollar amount by an agreed upon date, or dates. Typically, there is a fee for the service. With credit cards this could be in the form of interest or annual fees.
Credit Card A plastic, wallet-sized card that can be used to purchase items or services that will be paid for at a later date. A minimum amount must be repaid each month. If the full balance is paid by the due date, no interest is charged on purchases (cash advances and cash-like transactions are excluded from this interest-free grace period).
Credit Card Issuer A credit card issuer refers to a federally regulated financial institution which includes all banks that carry on business in Canada.
Credit History A person's experience with applying for credit, their borrowing and repayment habits, as well as whether or not accounts have been sent to a collections agency or if they've declared bankruptcy, would all be considered credit history. Basically it is a list of facts, gathered from financial institutions, retailers and other lenders, about how credit has been handled in the past. A person's credit history is detailed in a credit report.
Credit Inquiries Credit inquiries are records created when someone looks at your credit information; they are either hard inquiries or soft inquiries and may affect your credit score.
Credit Limit A credit limit is the maximum dollar value that can be charged to a credit card; it is the upper limit of credit that has been extended to the primary cardholder. Credit Report A credit report is a detailed summary of person's credit history and is one of the tools credit card issuers use to decide whether or not to extend credit to the person applying for a credit card account. In Canada, a credit report is obtained from one of two credit-reporting agencies: Equifax or TransUnion. Credit Score A credit score is a numerical rating of person's credit worthiness and indicates the risk represented compared with other consumers. Equifax and TransUnion (Canada's two credit-reporting agencies) use a scale that ranges from 300 to 900; the higher the score the lower the risk to the lender. The score is based on past repayment of debt, outstanding debts, the type and variety of credit already extended, account histories, whether accounts have been sent to collection agencies or declaring bankruptcy.


D

Dormant Credit Cards A credit card may go dormant if it is not used for an extended period of time to make purchases, payments or other transactions. There may be a fee associated with an inactive credit card account. Dormant Credit Card Fee Depending on the terms and conditions of the credit card, a fee may be applied to the account of a credit card that has become dormant (inactive).


E

Empirica Empirica is one of three scoring systems used to calculate a person's credit score. The two others are the Beacon and FICO® Score. Which system used depends on the credit bureau and who will be using the information.
Excellent Credit How a person's credit score is interpreted is at the discretion of the credit card issuer, so categorizing it into general terms is tricky. There are no hard and fast rules detailing what credit score is needed to be considered a person with excellent credit, or good, fair or poor credit. With this in mind, a person who might be considered to have excellent credit would be someone who always pays their bills on time, has a history of using credit, accounts and loans responsibly, has never filed for bankruptcy, and has never had outstanding balances sent to a collection agency. Extended Warranty A benefit offered by certain credit cards that typically doubles the original manufacturer's warranty on personal items charged to the card.


F

Fair Credit How a person's credit score is interpreted is at the discretion of the credit card issuer, so categorizing it into general terms is tricky. There are no hard and fast rules detailing what credit score is needed to be considered a person with excellent credit, or good, fair or poor credit. With this in mind, a person who might be considered to have fair credit would be someone who has a history of missing or making late payments, may be carrying a lot of debt, and/or are in the process of recovering from a default or bankruptcy.
FICO® Score The FICO Score is one of three scoring systems used to calculate a person's credit score. The two others are the Beacon Score and Empirica. Which system used depends on the credit bureau and who will be using the information.


G

Guaranteed Credit Card Also referred to as a secured credit card, a guaranteed credit card requires that a 'deposit' be given to the issuer. The credit limit of a guaranteed credit card is usually the same as the amount deposited to secure the card. How long the security deposit is held will vary. A guaranteed credit card can help people who don't have a credit history to build one, or for those who have a poor credit history, re-establish their credit history.
Good Credit How a person's credit score is interpreted is at the discretion of the credit card issuer, so categorizing it into general terms is tricky. There are no hard and fast rules detailing what credit score is needed to be considered a person with excellent credit, or good, fair or poor credit. With this in mind, a person who might be considered to have good credit would be someone who generally uses their credit responsibly, pay bills on time, and does not have an unusually high amount of credit card debt.
Grace Period The number of days between the Statement Date (the date the statement was issued) and the Payment Due Date (the date payment must be made by.)


H

Hard Inquiry Credit inquiries are records created when someone looks at your credit information. A hard credit inquiry appears on your credit report every time a credit card application is submitted (along with other loan applications). If you frequently apply for credit, numerous hard inquires could affect your credit score.


I

Interest Rate The annual interest rate charged for: Interest fees are charged monthly and vary by credit card. Interest rates may also vary depending on the transaction. It is not uncommon, for example, that cash advances (and cash-like transactions) have a higher interest rate than that charged for carrying a balance on purchases.
Introductory Rate Many credit cards include an introductory offer of lower than normal interest rate. Introductory offers can vary; some apply the low interest rate on balance transfers and/or cash advances only, while others will include purchases too. With credit cards that have an introductory offer, it is important to know when the offer will end. Typically, an introductory offer is for a limited time only; anywhere from four to 15 months.

  • Carrying an outstanding balance on purchases
  • Taking cash advances or making cash-like transactions (like buying money orders, traveller's cheques and the like)

L

Late Payment Fee A fee charged to cardholders who do not make their credit card payments on time; usually in the form of interest charges.


M

Minimum Monthly Payment The minimum payment required to keep the credit card account in good standing. The way the minimum payment is calculated may vary by card; some have the same minimum payment each month regardless of the amount owed (e.g. $10) while others may require a percentage of the outstanding balance.


P

Payment Due Date The last day the cardholder can make a payment on their credit card account without incurring interest charges on new purchases.
PayPass PayPass is a contactless payment feature available from Mastercard®. PayPass-enabled credit cards are embedded with a microchip and a radio antenna. With a tap of the PayPass-enabled credit card on the PayPass reader at the stores' checkout, the payment details are transmitted, verified and approved. Personal identification number (PIN) Instead of providing a signature, the cardholder of a chip-enabled credit card enters a PIN, which is usually comprised of 4 to 6 numbers, to authorize a transaction. PINs should never be shared; it is basically your password to complete the transaction.
Poor Credit How a person's credit score is interpreted is at the discretion of the credit card issuer, so categorizing it into general terms is tricky. There are no hard and fast rules detailing what credit score is needed to be considered a person with excellent credit, or good, fair or poor credit. With this in mind, a person who might be considered to have poor credit would be someone who has a history of late payments, has defaulted on a loan in the past, declared bankruptcy and/or has accounts that have been sent to a collection agency.
Prime Rate The prime rate, or the prime lending rate, is the interest rate a lender uses as a base to calculate interest charges. Canadian financial institutions usually adjust their prime interest rate following the Bank of Canada's announcements for changes to the key overnight interest rate. Purchase Protection Available through some credit cards, purchase protection will replace, repair or refund an item purchased if it is lost, damaged or stolen within a certain time after having been bought (typically 90 days). The requirements for eligibility and the coverage available will vary by credit card.


R

Rewards Many credit cards offer incentives and benefits to attract consumers and encourage them to use their credit card in lieu of other forms of payment. The most common rewards involve redeeming points that, depending on the card, can go towards travel, merchandise, or gift cards. Cash back rewards are also common.


S

Secured Credit Card Also referred to as a guaranteed credit card, a secured credit card requires that funds be deposited with the issuer. The credit limit of a secured credit card is usually the same as the amount deposited. How long the deposit is held will vary. A secured credit card can help people who don't have a credit history to build one, or for those who have a poor credit history, re-establish their credit history.
Security Funds Also commonly referred to as a 'deposit', security funds are used as collateral for a secured (or guaranteed) credit card. A secured credit card can help people who don't have a credit history to build one, or for those who have a poor credit history, re-establish their credit history.
Soft Inquiry A soft inquiry is made on your credit report whenever you check your credit report, a business checks your credit report for promotional purposes, or a business you already have an account with checks your credit report. Soft inquiries don't affect your credit score.


T

Travel Protection Some credit cards include a travel protection package made up of one or more travel insurance products, like emergency medical, trip cancellation/trip interruption, auto rental collision/loss damage, and delayed/lost baggage insurance. If available, the coverage and eligibility varies by credit card, however typically to 'activate' the coverage the full cost of the trip, ticket, and/or car rental must be charged to the credit card.
Travel Rewards Credit cards with travel rewards typically offer cardholders an opportunity to accumulate points as the credit card is used, which can be redeemed later for travel. Depending on the card, points can be used towards flights, accommodation, car rentals, cruises, train travel, or holiday packages.


U

Unsecured Credit Card An unsecured credit card does not require an upfront 'deposit' or security funds.


Z

Zero Dollar Liability Zero Liability is a benefit adopted by most credit card issuers to protect customers from unauthorized charges to their credit card due to fraud or identity theft. There may be conditions on eligibility like:

  • The account is in good standing
  • Reasonable care has been exercised in safeguarding the card.

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A guide to common credit card jargon and terms.

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