Glossary of Common Credit Card Terms

There are quite a few terms you may not be familiar with when it comes to credit cards and credit card applications. We have put together a glossary to help you better understand commonly used words, phrases, and acronyms in the credit card industry.

Account Number - A unique number assigned by a financial institution to a credit card customer. On a credit card, this number is embossed and encoded on the face of the plastic.

Additional Cardholder - When you have a credit card, it is often possible to add an additional card to the account for use by someone else. The main cardholder holds responsibility for ensuring payments on the additional card are made. Purchases are shown on the credit card statement, which is sent monthly.

American Express - Also known as AMEX, this company is one of the main international credit card issuing schemes. It issues its own credit cards—unlike Visa and MasterCard—and is responsible for its own relationships with retailers.

Annual Fee - An annual (yearly) fee associated with having a credit card. This is a separate fee from interest rate on purchases.

Annual Percentage Rate (APR) - The yearly percentage rate charged when a balance is held on a credit card. This rate is applied each month that an outstanding balance is present.

Approval Response - An authorization response that is received when a transaction is approved.

ATM - Automated Teller Machines or cash points allow you to access cash with a credit card or other card associated with your bank account. You need to enter your personal identification number (PIN) into the machine to access cash.

Authentication - The process of assuring that data has come from its claimed source, or a process of corroborating the claimed identity of a communicating party.

Authorization - Every retailer has a purchase limit above which they must seek authorization from the card issuer before they can complete the sale. Such authorization can be done by telephone or electronically at the cash till. Authorization is used to control credit card fraud. The cardholder’s available credit limit is reduced by the authorized amount.

Authorization Amount - Currency amount approved.

Authorization Code - A code that an issuer or its authorizing processor provides to indicate approval or denial for an authorization request.

Authorization Date - Date and time when the transaction was authorized.

Authorization Only - A transaction that is created to reserve an amount against a credit card’s available limit for intended purchases; the actual settlement may occur within three to five days, depending on the card type.

Authorized Amount - Currency amount approved.

Authorized Transaction - Transaction that has been approved.

Balance Transfer - When the outstanding balance of one credit card (or several credit cards) is moved to another credit card account.

Balance Transfer Fee - A fee charged by a credit card company to transfer a balance from one account to another. This fee can be anywhere from 1%-5% of the balance amount. However, many credit card companies do not charge this fee. Contact the credit card issuer for their specific fees.

Bad Credit - A term used to describe a poor credit rating. Common practices that can damage a credit rating include making late payments, skipping payments, exceeding card limits or declaring bankruptcy. “Bad Credit” can result in being denied future credit.

Bank Account - Bank account number for the merchant to which funds will be deposited.

Bank Identification Number (BIN) - The first six digits of a Visa or MasterCard account number. This number is used to identify the card-issuing institution.

Bankcard - A payment card issued by a bank.

Billing Cycle - The time between billing statements, usually 28-31 days.

Business Card (Business Credit Card) - Usually issued to corporate executives or business owners in order to more easily keep business expenses separate from personal charges.

Card Issuer - Any association member financial institution, bank, credit union, or company that issues, or causes to be issued, plastic cards to cardholders.

Card Reader - A device that is capable of reading the encoding on plastic cards.

Cardholder - An individual to whom a card is issued, or who is authorized to use an issued card.

Cash Advance - A cash loan from a credit card using an ATM or bank withdrawal.

Cash Back - Cash back returns to you a percentage of the total amount spent on your credit card over a specific period of time, usually monthly or quarterly. This feature is particularly useful if you normally pay your credit card bills in full each month, as it means you get an effective discount on the products bought with your credit card.

Chargeback - A transaction returned through interchange by an issuer to an acquirer. A transaction may be returned because of it was non-compliant with the association rules and regulations or because it was disputed by a cardholder.

Chargeback Period - The number of days from the transaction’s processing date or endorsement date, during which the issuer may initiate a chargeback.

Co-Branded Card - A co-branded credit card is sponsored by both the issuing bank and a retail organization, such as a department store or an airline. Cardholders may get benefits, such as discounts or free merchandise, from the sponsoring merchant, based on account usage and terms.

Commercial Cards - A general name for cards typically issued for business use and which may include Corporate Cards, Purchase Cards, Business Cards, Travel and Entertainment Cards.
Credit Card Number - Unique number assigned to a credit card.

Credit Limit - How much total money can be charged to a credit card account, for example $5,000.

Credit History - A partial profile of your financial life, given within a particular timeframe (usually measured in years). Your credit history shows the extent to which you pay your bills on time and how much you may owe particular parties. Credit card issuers use this information to decide whether to provide customers with credit cards.

Debit - A charge to a customer’s bankcard account. A transaction, such as a check, automated teller machine (ATM) withdrawal or point-of-sale (POS) debit purchase that debits a demand deposit account.

Expired Card - A card on which the embossed, encoded or printed expiration date has passed.

Finance Charge - Fees and other costs billed to you on your statement for using the credit cards (i.e., balance transfer fees, cash advance fees, late fees, overlimit fees, etc.).

Fixed Rate (or Fixed APR) -An annual percentage rate that does not change throughout the year, unlike an introductory APR that changes after a specific period of time.

Floor Limit - An amount that Visa and MasterCard have established for single transactions at specific types of merchant outlets and branches, above which authorization is required.

Fraudulent Transaction - A transaction unauthorized by the cardholder of a bankcard. Such transactions are categorized as lost, stolen, not received, issued on a fraudulent application, counterfeit, fraudulent processing of transactions, account takeover or other fraudulent conditions as defined by the card company or the member company.

Fraudulent User - An individual who is not the cardholder or designee and who uses a card (or, in a mail/phone order or recurring transaction, an account number) to obtain goods or services without the cardholder’s consent.

Grace Period - A period of time during which you are allowed to pay your credit card bill without being charged a finance and/or late fee. This period is usually 10-28 days.

Introductory Rate (or Intro APR) - A temporary, lower annual percentage rate, after which the APR is raised.

Issuer - Any association member financial institution, bank, credit union or company that issues, or causes to be issued, plastic cards to cardholders.

Magnetic Stripe - A stripe of magnetic information that is affixed to the back of a plastic credit or debit card. This stripe contains customer and account information that is required to complete electronic financial transactions. The physical and magnetic characteristics of this stripe are specified in the International Organization for Standardization standards 7810, 7811 and 7813.

Mail/Phone Order Merchant - A merchant that transacts business by mail or phone.

Mail/Phone Order Transaction - A transaction where a cardholder orders goods or services from a merchant by telephone, mail or other means of telecommunication, and where neither the card nor the cardholder is present at the merchant outlet.

MasterCard - MasterCard International Inc. and all of its subsidiaries and affiliates.

MasterCard Acquirer - A member that signs a MasterCard merchant agreement or disburses currency to a MasterCard cardholder in a cash disbursement, and directly or indirectly enters the resulting transaction receipt into interchange.

MasterCard Card - A card that bears the MasterCard symbol, enabling a MasterCard cardholder to obtain goods, services or cash from a MasterCard merchant or acquirer.

MasterCard Issuer - A member that issues MasterCard cards.

Merchant - An entity that contracts with merchant banks or ISO’s to originate transactions.

Merchant Agreement - A written agreement between a merchant and a bank that contains their respective rights, duties and warranties, with respect to acceptance of the bankcard and matters related to the bankcard activity.

Merchant Bank - Bank that has a merchant agreement with a merchant to accept (acquire) deposits generated by bankcard transactions.

Minimum Payment - The lowest amount of money that you are required to pay on your credit card statement each month.

Online Financial Transaction - A transaction that is authorized, cleared and settled in a single online message.

Overlimit - This refers to a cardholder account that has surpassed its credit limit with a transaction (i.e., the cardholder’s outstanding balance is beyond his/her credit limit).

Overlimit Fee - A fee charged when your balance goes over your credit limit.

Password - A sequence of characters that allows users access to a system. Although they are supposed to be unique, experience has shown that most people’s password choices are highly insecure. Humans tend to choose short words, such as names, which are easy to guess.

Per Transaction Fees - Fees paid by the merchant to the merchant bank or other contracted party on a per-transaction basis.

PIN (Personal Identification Number) - A sequence of digits used to verify the identity of the holder of a token. The PIN is a kind of password.

Plastic (Card) - This is a generic term that is used to identify any of the various cards issued to cardholders.

Point Of Sale (POS) - Location in a merchant establishment at which the sale is consummated by payment for goods or services received.

Policy - An informal, generally natural language description of desired system behavior. Policies may be defined for particular requirements, such as confidentiality, integrity, availability, safety, etc.

Posting - The process of updating individual cardholder account balances to reflect merchandise sales, instant cash, cash advances, adjustments, payments and any other charges or credits.

Primary Account Number (PAN) - The number that is embossed and/or encoded on a plastic card that identifies the issuer and the particular cardholder account.

Prime Rate (or Prime Interest Rate) - The interest rate at which banks lend to their most creditworthy (prime) customers. The prime rate is known to change but not on a regular basis.

Processing Date - The date on which the transaction is processed by the acquiring bank.

Receipt - A hard copy document that records when a transaction took place at the point of sale. The receipt contains a description of the transaction, which usually includes the date, the merchant name/location, the primary account number, the amount and the reference number.

Recurring Billing - Transactions for which a cardholder grants permission to the merchant to periodically charge his account number for recurring goods or services.

Reference Number - Number assigned to each monetary transaction in a descriptive billing system. Each reference number is printed on the monthly statement to aid in retrieval of the document, should it be questioned by the cardholder.

Refund – The creation of a credit to a cardholder account, usually as a result of a product return or to correct an error.

Retail Merchant - A merchant that provides goods and/or services in the retail industry, but that is not a mail/phone merchant, a recurring services merchant or a T&E merchant.

Sales Draft - A paper record that evidences the purchase of goods or services by a cardholder.

Secured Credit Cards - Credit cards that require collateral (property, such as a house, car or deposit of money) for approval. Generally, secured credit cards are for people with no credit
or poor credit who are trying to build or rebuild their credit history.

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

Settlement - The reporting of settlement amounts owed by one member to another, or to a card issuing concern, as a result of clearing. Settlement is the actual buying and selling of transactions between the merchants, processors and acquirers; along with the card-issuing entities.

Settlement Bank - A bank, including a correspondent or intermediary bank, that is both located in the country where a member’s settlement currency is the local currency, and is authorized to execute settlement of interchange on behalf of the member or the member’s bank.

Smart Card - A plastic card containing a computer chip with memory and CPU capabilities. Such a card may be used for identification or to store information, financial amounts or other forms of data. Also called an integrated circuit card or a chip card.

Standard Floor Limit - A floor limit that varies by merchant type. This refers to a currency limit on transactions, above which authorization requests are required.

Statement - A written record prepared by a financial institution, usually once a month, listing all transactions for an account, including deposits, withdrawals, checks, electronic transfers, fees and other charges, and interest credited or earned. The statement is usually mailed to the customer.

Stored-value Card - A stored-value card is a credit-card-sized device that is implanted with a computer chip with stored money value. A reloadable stored-value card can be reused by transferring a dollar value to it from an automated teller machine or other device. A disposable card cannot be reloaded.

Transaction - (1) Any agreement between two or more parties that establishes a legal obligation. (2) The act of carrying out such an obligation. (3) All activities affecting a deposit account that are performed at the request of the account holder. (4) All events that cause some change in the assets, liabilities or net worth of a business. (5) An action between a cardholder and a merchant or a cardholder and a member that results in activity on the cardholder account.

Transaction Identifier - A unique 15-character value that VISA assigns to each transaction and returns to the acquirer in the authorization response. VISA uses this value to maintain an audit trail throughout the lifecycle of the transaction and all related transactions, such as reversals, adjustments, confirmations and chargebacks.

Unsecured Credit Cards - Credit cards that are not secured by collateral. Customers qualify for such cards based on their credit history, their financial strength and their earnings potential.

User Authentication - Process of validating that a user is who s/he represents her/himself to be.

Validation Code - A unique 4-character value that VISA includes as part of the CPS/ATM program in each authorization response. This code ensures that key authorization fields are preserved in the clearing or settlement record.

Variable Interest Rate - With variable-rate cards, the APR changes when interest rates or other economic indicators change. Also known as a floating rate.

Visa - Visa International Service Association and all of its subsidiaries and affiliates.

Visa Card - A card that bears the Visa symbol and which enables a Visa cardholder to obtain goods, services or cash from a Visa merchant or acquirer.

Visa Issuer - A member that issues Visa Cards.

Visa Merchant - A merchant that displays the Visa symbol and accepts all Visa cards.

Voice Authorization - An approval response that is obtained through interactive communication between an issuer and an acquirer, their authorizing processors or stand-in processing or through telephone, facsimile or telex communications.

Void Transaction - A deletion of the transaction information.

Void(ed) - Nullifies a transaction that has been recorded for settlement, but has not yet been settled. This removes the transaction from the batch of transactions to be settled.