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Canadian Credit Card Glossary


Annual Fee
A yearly charge, similar to a membership fee, levied by certain credit cards.

Annual Interest Rate
Interest per year divided by amount borrowed, expressed as a percentage. The annual interest rate is charged on purchases that don't benefit from the interest-free period, which includes cash advances or balance transfers (in these cases, interest is charged from the day funds are withdrawn.) Credit card users should note that when they make a "partial payment," towards their bill, their following month's statement will include interest charges on the entire amount of their previous balance.

Balance Transfer
The transfer of a credit card balance from one card to another, often between different institutions. The new card issuer usually charges interest from the day the amount is transferred to the new card, which means there is no interest-free period. You may be tempted to transfer one credit card balance to a new one because the new card issuer is offering a low interest rate -- but that offer is usually only good for six months. And if you are late on one payment, the low rate is immediately replaced with a much higher one. Consumers should note that some credit issuers will offer a low rate on the balance transfer, but charge a higher interest rate on purchases with the new card.

Cash Advance
The withdrawal of funds from your credit card, up to the credit limit allowed. The amount you withdraw may be subject to daily limits. There is no interest-free period, which means interest is charged from the day you withdraw the funds. Aside from paying a high rate on the cash you take out, you are also charged a fee for a cash advance, usually two per cent to four per cent of the amount advanced.

Convenience Cheque
A cheque provided by the credit card issuer. It is used like a personal cheque, but it draws from your credit card account. The transaction is treated as a cash advance -- there is no interest-free period, which means you're charged interest from the day your cheque is processed.

Credit Score
A three-digit number that represents your credit risk to lenders. Your credit score is calculated based on the information contained in your credit history, which is tracked by two companies in Canada: Equifax or Trans Union. Your credit score is used by most lenders to help them decide whether or not you're a good credit risk. The credit score is sometimes referred to as a "FICO Score," which is a mathematical formula created by Fair Isaac and Company.

Currency Conversion Fee
Most cards have charge this fee, which is charged to every foreign currency purchase made with your credit card, including purchases made online. The conversion fee is often rolled into the currency exchange rate, which means you may not see it appear as an individual charge on your bill.

Banking jargon for someone who usually pays his or her balance in full every month. Surprisingly, 68 per cent of Canadians do pay their balances in full, according to a bankers' poll. The rest are what the banks call "revolvers." They're people who pay only part of their balance.

Equifax is the largest credit bureau in Canada, with files on 20 million of us. Equifax uses the FICO score calculation method to determine your credit score.

FICO is a proprietary mathematical calculation developed by Fair Isaac and Company to determine your credit score.

Financial Consumer Agency of Canada
The FCAC is a government body designed to help consumers understand financial services (like loans and credit cards). The FCAC's mandate is to educate consumers, and enforce legislation to protect consumers. As for education, the FCAC's website contains and extensive amount of information, including an explanation of credit card issues and comparison tables of different cards. It also details how interest rates are calculated.

Grace Period
The time between when you make a charge on your credit card and when that amount starts building interest. The grace period varies between 15 and 26 days and is part of the interest-free period. Under almost all credit card plans, the grace period only applies if you pay your balance in full each month. It does not apply if you carry a balance forward. The grace period does not apply to cash advances.

Interest-Free Period
The interest-free period on new purchases starts on the date you make a purchase and ends on the payment due date. Interest is only charged on purchases if the closing balance is not paid in full by the payment due date each month. Consumers should note that cash advances and balance transfers do not benefit from the interest-free period.

Minimum Payment
The minimum amount payable each month on your credit card balance. Most credit card companies set the minimum payment at two per cent of the debt.

Penalty Interest Rate
The rate at which penalty charges are calculated.

Prime Rate
The interest rate a financial institution charges on loans to its preferred customers.

Reference Rate
The underlying index or rate upon which a floating-rate security is based. The reference rate is used in the calculations of variable credit card interest rates.

Banking jargon for someone who pays only part of his or her balance every month. Those who pay their balance in full are called "deadbeats."

Revolving and non-revolving accounts
A revolving account such as Visa, MasterCard, or a retail store card allows consumers to make a minimum monthly payment and roll or "revolve" the remainder of their balance into the next month's balance. Non-revolving accounts, such as American Express and Diners Club, must be paid off in full every month.

Courtesy of Marketplace. Copyright © CBC / SRC 2005