Credit Card Definitions UAE-Glossary Terms Explained
Credit Card Definition and Meaning:
Credit card is a rectangular plastic card issued by a credit card company/issuing bank (Citi,HSBC,EmirateNBD. This plastic card has the power to make purchases instantly and pay later. If you are a credit card holder, then when you make a purchase, you borrow funds (even though not literally) either via over-the-counter or online or telephonic purchases, for free, for a certain period with a promise to make a minimum, partial or full payment after that free period expires.
For example, you buy a cell phone at Emax or Jumbo Electronics in Mall Of The Emirates. You will just swipe your credit card at the counter and there is no actual exchange of hard cash but you still have paid for the product and it is yours. Now this is virtual money which is free for a certain period of time and when your credit card bill become due, you need to pay this amount to the credit card company. If you have an EmiratesNBD credit cards, then you owe to that bank. Now Emirates NBD will allow you to either pay your credit card in full or you can make part payment or just pay minimum balance. On the amount which is unpaid or outstanding, you will attract an interest as per bank’s terms and conditions.
The unpaid balance attracts a slightly higher interest rate than any other forms of loans. Other fees related to credit cards are late payment fees, cash advance fees, balance transfer fees,transaction fees etc.
Layman’s definition of credit card:
- Is a rectangular plastic card
- Possesses the power to make purchases
- Free loan for a certain period
- Real payment to the issuing bank can be made at a later date
- Interest is charged on unpaid balance
Below are 59 terms related to credit cards with short and simple explanation.
#1. Annual Fee:
For “use or utilization” of the credit card/cards, the credit card issuing companies charge a small amount to your credit card account annually. This fixed fee which is charged yearly is called credit card annual fee. This annual charge was prevalent before 1980’s but slowly started disappearing after that. Now, most of the credit cards are without any annual fee but certain categories of credit cards like premium credit cards, secured credit cards, rewards credit cards still charge an annual fee.
For example: Citi Life Infinite VISA Credit Card– An annual fee of AED 600 is charged on this card.
#2. Additional Cardholder:
This is the additional card or cardholder that can be added to the existing credit card account, to be used by someone else. All the charges on the credit card account is the responsibility of the main holder irrespective of whether the charges are on the original card or the card issued as an addition.
#3. Annual Percentage Rate (APR):
The annual percentage rate is the interest rate charged on the credit card for the whole year which has been annualized. Unlike a monthly interest rate charged on a loan or a mortgage loan, this rate is standardized and annualized.
For example – Platinum Select Credit Card HSBC charges a monthly interest rate of 2.99%
#4. Authorized User:
An user who is authorized to use the credit card but is not responsible for making the payments on the card is called an authorized user. For example, if you are a parent, then you might ask the credit card company to issue a credit card to your son on your account.
#5. Available Credit:
Available credit is the amount of money that you can utilize to make purchases. If the outstanding charges are nil, then the credit limit is equal to available credit. Otherwise it is the difference between limit of the credit card and the outstanding balance.
For example : The available credit on Emirates Islamic Rewards Credit Cards initially can range from AED 5,000 to 1,00,000.
#6. Balance Transfer:
Balance transfer card is card to which balances from other credit cards can be transferred. This type of card is opted with the intention of transferring balance from one or more credit cards to the balance transfer card. This is done to avoid or escape the high interest rates of existing card/cards and avail the benefit of low interest of balance transfer card. A fee is charged on balance transfer.
#7. Card Member Agreement:
If you own a credit card, then you are bound by a credit card agreement. This agreement contains the terms and conditions of the credit card account. As a part of consumer disclosure requirements, this agreement is a federal law mandate which binds the customer and the credit card issuer.
It includes (not limited to):
- Annual Fees
- Annual Percentage Rate(APR)
- Formula to calculate minimum monthly payment
- Process to resolve disputes
It is at the discretion of the credit card issuer to make changes in the terms and conditions of the agreement but with a written advance notice.
#8. Cash Advance:
Cash advance is the advance or the loan taken on a credit card via an automatic teller machine or from bank via over-the-counter or through any other finance agency. Credit card cash advances have a fee, a higher interest rate and no grace period.
For example-HSBC Advance Credit Card offers “Get up to 50% of your available credit limit as cash advance.”
Charge-back is mainly a reversal or a return of funds to the credit card holder/consumer/you. This is kind of a protection provided by the issuing bank to you. If you are fraudulently charged or over-charged, you can dispute the charge. Upon investigation by the issuing bank, if the charge is proven to be fraudulent or over-charged, then the bank will refund that amount to you.
#10. Consumer Credit File:
Consumer credit file is the record maintained by credit bureau or credit reporting agency. This file contains your contact details, credit history, debt history etc. Consumer credit file comes handy when giving a credit score.
Al Etihad Credit Bureau now issues your UAE credit report for a fee of AED 110.
#11. Convenience Checks:
Like our normal checks associated with our checking account, convenience checks are associated with credit card account. These can be also termed as cash advances with higher than normal interest rates.
Co-signer is a guarantor who, by signing an agreement, takes the responsibility to pay off the loan of someone else if that other person fails to repay.This is kind of a protective measure which banks use to reduce the risk associated with lending money to first timers or people with bad credit history. A default in such case can put the guarantor in trouble and also affect his credit rating.
#13. Credit Bureau:
Credit bureaus or credit reporting agencies are the institutions who collect and compile credit details of individuals and sell the same to creditors for a fee. This credit details will be in the form of credit reports. In the credit card industry, based on the credit reports provided by these credit bureaus, the issuing banks decide on whether to approve credit cards, determine the interest rate and the line of credit.
In UAE, Al Etihad Credit Bureau issues UAE credit reports of individuals.
#14. Credit Fraud Alert:
Fraud alert is a security measure to protect you from identity theft or potential fraud.This security alert can be placed by you (the card holder) or the issuing bank at the credit bureau. Such alerts are usually placed when a fraud is detected or suspected. You will be contacted before initiating a new line of credit or opening a new account in your name.
#15. Credit Freeze:
Credit freeze is a facility which can be availed by card holders to freeze their credit or lock down their account. This can be done through credit agencies or credit bureaus like Experian or Transunion. This facility comes handy when you suspect a breach or identity theft. The credit bureaus do charge a fee for this facility unless there is a identity theft.
#16. Credit History:
Credit history is the track record of one’s borrowing and repayment. In UAE-Abu Dhabi, the only credit Bureau which tracks and maintains your credit history and issues credit reports is Al Etihad Credit Bureau. This institution track credit histories of individuals and also businesses and these records are summarized into credit reports. These reports help the credit card companies in deciding whether to extend credit to prospective customers or not and if yes, on what terms.
#17. Credit Inquiry:
Credit inquiry is an inquiry made on the credit report of an individual by a issuing bank or the individual himself. This inquiry might be with connection to a new loan or a credit card. When I say inquiry, it basically means pulling out a copy of individual’s credit card report.
#18. Credit Limit:
Credit limit is synonymous to credit line. It is the maximum amount available to be utilized by you, the credit card holder on your credit card. This amount is fixed by the credit card issuing bank and it takes into account various factors to determine the credit limit.
#19. Credit Line:
Credit line is the maximum amount of money that can be utilized by you on your credit card. Your credit scores are influenced by your utilization of credit. You can achieve a higher credit score if you utilize a small percentage of your credit line or amount available on your credit card.
#20. Credit Monitoring Service:
This is a kind of a service where the credit card account/accounts will be continually monitored and you will be alerted if any discrepancies are detected or if suspicious activity occurs. This service is not free. This service usually involves an annual charge which will be debited to your account. There are good chances that a credit card company may provide this service for free to entice new customers or to keep the old ones loyal to the brand.
#21. Credit Report:
Credit report is a report which summarizes or records an individual’s or company’s credit history. It shows the past borrowings, repayments, late payments if any and also bank bankruptcy. Credit reports are helpful to lenders in determining the credit limit or to turn down a credit request.
#22. Credit Score:
Credit score is a numerical result of a person’s performance in handling a debt. This score will determine his creditworthiness. Higher the score, better it is. A person with a higher score is considered to be high creditworthy and is in a position to negotiate better credit terms, lower interest rates and bigger loans. And it is vice-versa in case of a person with a lower credit score. The best known and well considered credit score is FICO score which was pioneered by the firm FICO.
#23. Credit Utilization Ratio:
The credit scores are calculated with the help of credit utilization ratio. Credit utilization ratio is the ratio of credit card balance against the credit card limit. A low credit utilization ratio is ideal for a high credit score. A ratio below 35 percent on individual card and also overall is congenial for a good credit score, experts say. Balance-to-limit is the other name for this ratio.
#24. Debt Collection:
Debt collection or debt collectors are individuals or agencies who try to recover the past due amount on credit card delinquent accounts. Debt collectors charge a fee which could be a percentage of the total debt or a flat fee. There are also debt collectors who buy debts by paying lesser than the face value of the debt and make profit by collecting the whole amount of debt from the delinquent credit card holder.
#25. Debt Consolidation:
Debt consolidation is a process of availing a loan to pay off other loans. In credit card world, it entails availing a balance transfer card with the lower interest so that other balances of credit cards with higher interest can transferred to this credit card account. It is also convenient if the credit card holder doesn’t like or is too messy with keeping up with several credit cards and wants to pay a single loan.
Default basically means non-adherence to a payment policy. In credit card world, this means failure to repay the credit card debt before due date. One time default might attract a penalty or an increase in interest rate or a cut in the line of credit. In serious delinquencies,the credit card companies might take legal action. This will also affect your credit score in a negative way. Making minimum payment can be one way of avoiding a default.
#27. Default/Penalty APR:
As the name suggests, default annual percentage rate is the rate of interest charged against the entire or part of your credit card balance upon default. This is usually applied if you are late for payment by more than 60 days.
#28. Payment Due Date:
Payment due date is the date on which the payment on the credit card is due. You should be watchful of your due dates because missing to pay on or before the due date attracts a late charge and this will get added to the total amount due.
#29. FICO Score:
This is a three digit credit score developed by the company named FICO. This credit score is based on the credit report of card holder. FICO is the company which pioneered credit scores. FICO specializes in “predictive analytics”. The company analyses the credit information and history of the credit card holder and tries to analyse the creditworthiness of the card holder and awards him a 3 digit score.
#30. Finance Charge:
The total cost of credit expressed in numeric terms which includes interest and other charges is called finance charge.
#31. Fixed APR:
Fixed annual percentage rate is the rate of interest on the outstanding balance on the credit card which does not change through-out the year. Fixed APR can be changed only after 45 days of prior notice, upon completion of one year.
#32. Foreign Transaction Fee:
Foreign transaction fee is the fee charged by credit card companies on your credit card for making purchases outside home country. This rate ranges from 2%-3% of the total amount of purchases done internationally.
#33. Garnishment (Wage) :
Wage garnishment is a process where a deduction is made from an individual’s income (Salary) to payoff debts usually by a court order. These deductions will continue until the loan is paid in full or some other arrangement to pay off the debt is put in place. For example a defaulted credit card student loan could be court ordered to repay through wage garnishment.
#34. Grace Period:
Grace period is the extended period beyond the due date in which you are allowed to pay your credit card bill in full and your interest is waived if you pay the bill within this period. Typically a grace period will be 21 days-55 days;varies from issuing bank to issuing bank. Grace periods are not given for cash advances and balance transfers.
#35. Hard Inquiry:
Hard inquiry is made by a third party into the credit report of an individual relating to an application for a loan or maybe a new credit card. This inquiry is recorded on individual’s credit report. An hard inquiry remains on the credit report for two years and too many hard inquires might affect your credit scoring.
#36. Introductory APR:
Introductory Annual Percentage Rate is the low rate of interest on credit cards offered by credit companies. As the name implies, its just an initial offer and this rate will be raised after a certain period of time. This rate is basically offered to entice customers to apply for a particular brand of credit card.
#37. Joint Account:
Joint Account is an account with the bank which is held by 2 or more people. The terms and conditions of usage of the account are applicable to all parties. All are liable in case of defaults or fraud.
#38. Joint Credit:
Joint credit is a credit which is used jointly or the credit which is used by two or more people. This is usually availed by married couples when they have to make a big purchase; for example, a house. This account is based on their joint incomes, credit histories and assets. The debt paying responsibilities are also accepted jointly.
#39. Late Charge:
Late Charge or late payment fee or past due fee is a fee charged by credit card company to a card holder for not making at least the minimum monthly payment on his card by due date. Late payments can adversely affect the credit score by negatively impacting the credit report.
#40. Linked Transfer Account:
An account which is linked to current account of a consumer at the same bank is called a linked transfer account. This could be basically set up for the purpose of transferring funds and this could be a savings accounts or a credit card account. In case of overdrafts in current account, money will be transferred to this account from this linked account by the bank.
#41. Minimum Finance Charge:
Minimum finance charge is the charge which the issuing company charges on the carrying balance of the credit card. Irrespective of whether the finance charge for the month is lower than the minimum charge, the credit card company charges the minimum amount. For example if the card company fixes the minimum charge at 45 cents and if your monthly charge is 30 cents,you will be charged 45 cents which is the minimum.
Your card wont generate any finance charge if you pay your credit card bill in full every month within the grace period. Minimum finance charge should not be confused with minimum payment.
#42. Minimum Monthly Charge:
Minimum monthly charge pertains to the merchant accepting credit cards and not the credit card holder. This is the minimum amount the credit card processors like Visa or MasterCard charges the merchant every month for making available the facility of processing credit card payments.
#43. Minimum Payment:
This is the minimum amount you have to pay to the issuing bank every month. This amount could be as low as 2% of the total outstanding amount at the end of the billing cycle every month. With the payment of minimum amount every month, you can continue to use the card, not pay any late fees and also have a good standing with the card company.
Making minimum payment is not a good strategy to pay of your credit card debt as it will attract higher interest rates and the debt will take longer to repay.
#44. Non-dischargeable Debt:
Debt that cannot be done away with through bankruptcy filing is called a non-dischargeable debt. When it comes to credit cards for example, if a credit card is used for paying state or local taxes (not limited to this), this borrowing cannot be eliminated through bankruptcy proceeding.
#45. Over Limit:
There is a limit to what you can charge on your credit card and this is set by the card issuing bank based on your credit score or other factors like debt levels, your income and also available credit. When you exceed the maximum limit on your card, it is called over-limit. When you cross the limit on your card, either you attract an hefty over limit fee or your transaction might be declined, based on agreed terms.
#46. Over Limit Charge:
Over limit charge or over-limit fee is the fee charged by the credit card company on transactions made over and above your credit card limit.The best way to avoid this charge is to have an agreement with the card issuing company to decline any transaction once you are maxed out on your credit card.
#47. Over The Limit Fee:
Over-limit fee or over the limit fee is the fee charged when a card holder uses his card over and above the limit set by the issuing bank. The credit limits are usually set on credit cards with revolving credit.
One reason you can exceed your credit limit is if you make only minimum payments, there by accumulating balances and reducing your credit limit on the card.
The credit scores of a person with new credit or poor credit history could be improved by authorizing this person to use someone else’s credit card with good credit. This practice is called piggybacking. Upon authorization, the authorizing person’s credit history starts showing on this authorized persons credit report and helps in improving the credit score.
This practice is usually followed by parents for their children to give them a leeway with credit.
#49. Prepaid Card:
A prepaid card is like a debit card which is backed by a deposit account in the issuing bank. By using this card, you do not borrow funds but just use already existing funds. Prepaid card ensures that you never get in debt. Parents can use this tool to keep a track record of their children’s spending or limit their funds to a certain amount.If you are a “big spender” and if think that your finances will get out of control,then you better opt for a prepaid card.
#50. Reward Credit Card:
Reward credit card is a card which comes with attractive perks and privileges like cash back, frequent flier points, free travel and several other rewards. Reward cards are meant for particular uses. For example, store cards are beneficial when you make purchases at retail stores.
#51. Schumer Box:
Basically with reference to United States, Schumer Box is a descriptive list of costs incurred by credit card company by issuing a credit card. Schumer Box is named after Charles Schumer who instigated this legislation and it was introduced in 1989 in United States.. Charles Schumer is now a New York congressman. This legislation requires the issuing companies to outline the terms of the credit card in promotional material.
Contents of Schumer Box;
- Annual Fee
- APR (Annual Percentage Rate)
- Grace Period
- Late Payment Fee
- Cash Advance Fee
- Interest Calculation Method
#52. Secured Credit Card:
Secured credit card is a type of payment card which is supported by a cash deposit account which is used as a collateral against the credit available on the card. People with poor credit card history or with no credit have no choice but to opt for a secured credit card. The major upside is that it gives an opportunity to the card holder to re-build his credit standing. But the downside is that these cards come loaded with heavy charges and fees, to take advantage of helpless people.
#53. oft Inquiry:
A soft inquiry comes from the credit card holder himself to pull out his credit card report to check, for instance, if any errors. This inquiry is not recorded in the credit card report of the individual.
#54. Sub-prime Credit Card:
Subprime credit cards are credit cards issued by both big and small card issuing companies to individuals with poor credit scores or limited credit card history. These cards come attached with high APRs and also lower credit limits.
#55. Terms And Conditions:
#56. Universal Default:
The term Universal default came into the credit card industry in late 1990s due to the deregulated credit industry. Most of the credit card companies now include this term in their fine print which means that if a credit card holder has defaulted with one credit card, he will be charged default rate on all other credit cards if other lenders get wind of this.This practice is mainly followed in United States.
#57. Unsecured Credit Card:
Unsecured credit cards are opposite of secured credit cards where a collateral is not attached to the credit card. These are the most common types of credit cards and also the risk associated with these cards is higher than secured cards.The credit card companies cannot confiscate any asset belonging to the card holder against the un-paid credit card debt. They can only file a suit against the user. A good credit card history and a decent income can make one easily qualify for an unsecured credit card.
VantageScore is the credit rating product launched by the 3 major credit agencies or credit bureaus in US namely Equifax, Experian and TransUnion to compete with FICO score by FICO. This product was launched on 14 Mar 2006.
#59. Zombie Debt:
Zombie debt in plain words is the debt which was dead but has come to life again. This is an old debt which the credit card holder has forgotten about and also the credit card company but has suddenly surfaced due to some reasons. For example, your credit card was fraudulently charged and you reported about it and proved that you are not responsible for the debt. But suddenly after many years, debt collectors start bothering your for this old, dead and buried credit card debt.
It crucial and critical to know the basics of credit cards before you apply for a credit card. It is also important to remember that credit card is like an instant loan facility minus the long formalities you would have had to go through if you had to avail a loan through bank or any other financial institution. In the coming days, I will try cover most of the basics of plastic cards.
Please let me know if I have missed any term or if you want to further add anything to the glossary terms listed above in comments.