|  Glossary of Credit and Credit Related Terms
A B C D E F G H I J L M N O P Q R S T U V W Active account — An account for which activity has been reported to a credit reporting agency in the last 90 days. Adjustment — The percentage of a debt that is to be repaid to the creditor in a Chapter 13 bankruptcy. Affinity card — A credit card that provides benefits based on how much you use it. Examples of benefits include points toward airline tickets, discounts at certain retailers, and contributions to nonprofit organizations. Alias — A name reported on your credit file that differs from your primary or given name. This commonly occurs if you've applied for credit or loans under different variations of your name — "Robert P. Smith" and "Bob Smith," for example. Amortization — The reduction of a mortgage loan by regular payments. Amount due — Generally, the minimum monthly payment you must make, not the total amount you owe. Annual fee — A fee charged each year by some credit card companies. Annual percentage rate (APR) — The total finance charges associated with a loan or credit card stated as a yearly rate. Often the most useful means of directly comparing one loan or credit card to another. Asset — Anything you own that has value, such as a car, a house, office equipment, stocks, bonds, or jewelry. Authorized user — A person allowed to charge goods and services on a credit card by the primary user of that card. Authorized users — unlike users of a joint account — are not legally responsible for payment. Available credit — On a credit account, the credit limit minus the current balance. To many creditors, your total available credit on all your accounts is an important factor when considering the approval of credit. Balance — The outstanding amount owed to a creditor on a particular account. Balance transfer — The transfer of one or more credit card balances onto another card, typically to take advantage of a lower annual percentage rate. Balloon payment — A final payment at the end of a loan term that is considerably larger than the regular periodic payments. Often associated with second mortgages. Bankruptcy — A legal agreement in which a consumer is declared fully or partially unable to repay debts. In return for full or partial release from those debts, the consumer sacrifices some property or agrees to a payment plan. There are two very different types of bankruptcy for consumers: Chapter 7 and Chapter 13. Capacity — An estimate of the amount of debt you can handle, largely based on your income in relation to the amount you already owe. See debt-to-income ratio. Capital — A measure of your current assets, including savings, investments, and property. Capital reassures a lender by providing a means of repaying your loan in case you default. It may also provide evidence that you've met financial obligations in the past — a fully paid car, for example, shows that you've successfully paid off an auto loan. Cash Advance — A cash loan taken out on a credit card. Interest for cash advances is usually higher than it is for purchases, a transaction fee may apply, and the grace period may be waived. Chapter 7 bankruptcy — The most common form of consumer bankruptcy, Chapter 7 releases a debtor from all liability for the accounts included in a bankruptcy. In exchange, the debtor must forfeit some personal property. A Chapter 7 bankruptcy remains on the debtor's credit report for 10 years. Chapter 11 bankruptcy — Normally used for corporations, Chapter 11 can be used by consumers in certain rare cases involving extremely large debt. However, Chapter 13 is simpler and provides better protection for most consumers. Chapter 13 bankruptcy — A type of consumer bankruptcy under which the debtor doesn't forfeit personal property but agrees to a three- to five-year wage-earner plan to repay all or part of the debt. Chapter 13 bankruptcy remains on a credit report for seven years. Character — In the context of a credit application, "character" is one of the three Cs, the traditional set of criteria lenders use to evaluate an application. In most cases, character is determined by your credit report and/or score. Charge card — A credit card, such as an American Express or Diners Club card, that requires full payment of the balance each month. Such cards nevertheless appear on your credit report, since they do extend credit to you (if only for short periods of time). Charge-off — An instance in which a consumer is seriously delinquent in paying a bill and the creditor elects to transfer the account to an accounting category such as "charged to loss" or "bad debt." In such cases, the creditor may also turn the account over to a collection agency. Check card — See debit card. Closed Account — An account that has been closed by you or your creditor. Such accounts remain on your credit report for seven years from the date of last activity. Closing — The point at which the buyer signs the mortgage documents, pays closing costs, and becomes the owner of the property. Also called a settlement. Closing Costs — Expenses that buyers incur in the transfer of ownership of a property. Closing costs may include taxes, origination fees, attorney's fees, and other costs. Collateral — Property you pledge as a guarantee for a secured loan. If you fail to repay the loan, the creditor can take the property. Sometimes used in place of capital as one of the three Cs. Collection agency — A firm assigned by a creditor to collect overdue amounts. Some creditors have internal collection departments. Like creditors, collection agencies report account information to credit reporting agencies. Consolidation loan — A loan obtained in order to combine multiple debts into one, typically at a lower interest rate. Consumer — An individual who purchases products and services. Consumer Credit Counseling Services — See Neighborhood Financial Care Centers. Consumer reporting agency — See credit reporting agency. Consumer statement — Under the Fair Credit Reporting Act, you have the right to add a 100-word consumer statement to your credit file to explain disputed information about your accounts. Co-signer — Someone who agrees to share responsibility with the primary applicant for a loan or credit card. A consumer with poor credit may need a cosigner to get a loan or to qualify for favorable terms. Because cosigners are liable for debts incurred, cosigned accounts appear on the cosigner's credit report. Credit — A consumer's perceived ability to pay back borrowed money, which directly affects that person's actual ability to borrow it. Credit balance — The amount owed on a credit card. Not to be confused with a minimum payment. Credit bureau — See credit reporting agency. Credit card — A card used to make purchases or take out cash loans that requires the user to pay some or all of the outstanding amount each month. Credit cards are differentiated mainly by their terms. Credit card issuer — A bank or other institution that extends consumers credit through a credit card. Credit file — The collection of an individual's credit history, identifying information, and other records maintained by a credit reporting agency. "Credit file" is sometimes used interchangeably with credit report, but technically a credit file is the source from which a credit report is generated. Credit fraud — The deliberate use of another person's credit card (or credit card information) to make purchases, take out cash advances, or receive other benefits. Credit header — The identifying portion of a credit report that contains your name, aliases, address, current employer, date of birth, and Social Security number. Credit history — The portion of a credit report that records your history of borrowing and repaying money. This section contains details about the credit and loan accounts you've held in the last seven years. Credit limit — The maximum amount available to you on a credit card account after you've paid your entire balance. Often called "high credit" on credit reports. Credit line — See credit limit. Credit rating — A numerical estimation of the likelihood that you'll meet debt obligations. A creditor gets your information from a credit reporting agency and applies a credit scoring model to calculate your Credit rating for a particular loan or credit product. Credit repair company — Companies that promise to fix or erase your credit history. Many such companies advocate illegal methods and charge money to effect changes consumers can accomplish for free. Credit report — The form in which a credit reporting agency provides information contained in your credit file. Most credit reports contain a summary of your credit history plus identifying information and notations of legal judgments and public records. Credit reporting agency — Commonly known as credit bureaus, credit reporting agencies are companies that receive, maintain, and provide information about consumers' credit history. Three national agencies — Equifax, Experian, and TransUnion — dominate credit reporting. There are many smaller agencies, but almost all of them get information from one or more of the three major agencies. Credit risk — An assessment of how likely you are to fulfill the terms of a credit agreement. Most Credit ratings are designed to estimate credit risk. Credit score — See Credit rating. Credit scoring model — The mathematical model a lender applies to a credit report in order to evaluate a consumer's Credit rating. One commonly used model is the one used to determine a FICO score. Creditor — A company that enables consumers to make purchases on credit and/or lends consumers money. Sometimes used interchangeably with lender. Creditworthiness — Your ability to pay back borrowed money, as perceived by creditors. Daily periodic rate — A credit card's annual percentage rate divided by 365 days. Debit card — A card that directly deducts money from your checking account to pay for goods or services. Because no debt is normally incurred, debit cards are not normally reported on credit reports. Debt-to-income ratio — Expressed as a percentage, a debt-to-income ratio helps lenders predict how much money you'll have on hand to pay newly acquired debts. Ratios under 20% are generally considered good; ratios over 36% may limit your credit choices. Debtor — One who owes a debt. Default — Failure to make payments on a debt. Delinquency — An account with an overdue payment — one of the most common negative items on a credit report. Discharge — To release a debtor from responsibility for a debt, often as a result of bankruptcy. Dismissed bankruptcy — An instance in which a judge has ruled against a consumer's petition for bankruptcy, sometimes at the consumer's request. Such cases are recorded in the public records section of the consumer's credit report, and the debts covered in the bankruptcy remain outstanding. Down payment — The initial amount paid in cash toward the total price of a home or car. A large down payment may help you get a more favorable interest rate and let you avoid having to buying mortgage insurance. Equal Credit Opportunity Act — A federal law that prohibits creditors from discriminating against applicants on the basis of race, color, national origin, religion, gender, marital status, age, or receipt of public assistance. Equifax — One of the three major national credit reporting agencies. Often abbreviated as EFX. Equity — The part of your home you actually own, or the home's current market value minus the amount you still owe. See also home equity loan. Experian — Formerly TRW, Experian is one of the three major national credit reporting agencies. Fair Credit Billing Act (FCBA) — A federal law that regulates credit card error resolution. Among other stipulations, the FCBA limits consumers' responsibility for unauthorized charges to $50. Fair Credit and Charge Card Disclosure Act — A collection of amendments to the Truth in Lending Act requiring credit and charge card issuers to disclose certain card costs in direct mail, telephone, and other solicitations. Fair Credit Reporting Act — A federal law that regulates the ways in which credit reporting agencies use consumers' information. Among other rights, it defines who may access your credit report and gives you the right to correct erroneous information on your credit report. Fair Debt Collection Practices Act — A federal law that prohibits abusive and unfair debt collection practices. Fair, Isaac Company — The developer of the FICO score, a credit scoring model used by many creditors. FICO score — A credit scoring model created by the Fair, Isaac Company. Fair, Isaac provides the FICO scoring formula to credit reporting agencies; creditors can choose to apply that formula to consumers' credit reports. FICO scores range from the 300s to the 900s, but almost all consumers have a score between 500 and 850. Finance charge — The cost of a loan expressed as a dollar amount. Finance company — A company that mainly lends money to consumers who cannot qualify for credit at a credit union or bank. Finance companies generally charge higher rates than other creditors. Fixed rate — An interest rate that remains constant, regardless of economic indicators. Compare variable interest rate. Foreclosure — The legal process by which a creditor may sell mortgaged property to pay a defaulted mortgage. Fraud alert — If you suspect that you're the victim of identity theft or credit fraud, you may contact the credit reporting agencies and place a fraud alert on your credit file. Such an alert will prevent new credit accounts from being opened without your express permission. Garnishment — A legal proceeding in which money that would normally be paid to you (such as your paycheck) is applied directly to the payment of a debt instead. Grace period — The time between a credit card's billing date and next due date, during which you can avoid interest charges by paying your balance in full. Gross monthly income — Total income from employment and other sources before taxes. Hard inquiry — An indication on your credit report that a lender has obtained a copy of the report in order to evaluate your loan or credit application. An excess of hard inquiries within a six-month period may lower your Credit rating. Home equity loan — A loan that lets you borrow money against the equity in your home to get a line of credit. As with any mortgage, if you don't repay the amount, your home may be foreclosed to pay it. See also second mortgage. Identity theft — An instance in which someone appropriates your name, Social Security number, or other personal information to commit fraud or theft. Inquiry — An instance in which all or part of your credit file is accessed by a company or individual. There are many different types of inquiries, most of which don't affect your Credit rating. Inquiries normally stay on your credit report for two years. See also hard inquiry, promotional inquiry, and soft inquiry. Installment account — An account such as a car loan or home mortgage for which you make regular payments over a specific period of time. Compare revolving account. Interest rate — The percentage a lender charges you to borrow money, excluding any fees. Investigation — The process a credit reporting agency undertakes in order to verify credit report information disputed by a consumer. Investigative consumer report — An extensive report executed mainly for security clearances and background checks. Investigative consumer reports include information from credit reports, but they also contain subjective material about an individual's reputation and lifestyle. The subject of such a report must give written consent before it can be run. Involuntary bankruptcy — A bankruptcy instigated by creditors rather than the debtor. Joint account — A credit or loan account held by two or more people. All account holders assume legal responsibility for the repayment of the account. Joint credit report — A combined report used by creditors to assess a married couple's application. Note that the credit files remain separate. Judgment — A court verdict that requires a person to fulfill an obligation — to pay a debt, for example. When a judgment has been satisfied, the consumer has fulfilled its requirements and is no longer liable. Information about judgments is recorded in the public records section of a credit report. Late payment — A payment delivered after its due date. Payments that are late by 30 days or more may be reported to credit reporting agencies and added to your credit report. Lease — A contract that allows you to use or occupy property (a car or apartment, for example) over a specific length of time, during which you make regular payments and after which you do not own the property. Lender — A company that lends money to consumers or enables them to make purchases on credit. Sometimes used interchangeably with creditor. Liability — Legal responsibility for the repayment of a debt. Lien — A creditor's claim to a consumer's property for the satisfaction of a debt. The creditor may keep the property until the debt is repaid, or sell the property in order to pay the debt. See also tax lien. Loan — An extension of money that is to be repaid. Loan-to-value ratio (LTV) — The ratio of the amount of a home loan to the appraised value of the home. For example, if you borrow $75,000 to buy a $100,000 house, the LTV is 75%. As a general rule, the lower the LTV, the more favorable the terms of the loan will be. Merged credit report — See tribureau credit report. Minimum payment — The smallest payment you can make on a revolving credit account to maintain your account status as being paid on time. Mortgage — A loan designed to facilitate the purchase of a home, in which the home itself serves as security for the loan. If the borrower doesn't make the required payments, the lender may take ownership of the home. "Mortgage" can also refer to the legal document detailing the borrower's responsibilities, including the payment schedule and terms. National Foundation for Credit Counseling — The organization that oversees Neighborhood Financial Care Centers. Neighborhood Financial Care Centers — A national network of nonprofit credit counseling services overseen by the National Foundation for Credit Counseling. Funded largely by creditors, these counselors are trained to help consumers work out ways to repay debt without resorting to bankruptcy. Many Neighborhood Financial Care Centers operate under the name Consumer Credit Counseling Services. Net income — Your total income from employment and other sources, minus taxes. Obsolescence — After seven years, negative information on your credit report is considered "obsolete" and should automatically fall off your credit report. The exception is Chapter 7 bankruptcy, which remains for 10 years. Origination fee — The fee a lender charges to process a home loan. It may include the costs to check the applicant's credit report, prepare documents, inspect the property, and conduct an appraisal. Permissible purposes — Legally valid reasons for requesting or granting access to a credit report. Periodic rate — An interest rate expressed in daily or monthly terms, calculated by dividing the annual percentage rate by 365 or by 12. PITI — An acronym representing the main components of a monthly mortgage payment: principal, interest, taxes, and insurance. Points — Charges levied by a mortgage lender, usually paid at closing. One point equals 1% of the value of the loan. Prepayment penalty — A fee assessed by a lender when you pay off your loan ahead of schedule. The penalty compensates the lender for interest payments it would have received based on the loan's payment schedule. Primary user — The person under whose name a credit card account is listed. A primary user can authorize other people to use the account, but the primary user is ultimately responsible for repaying all charges. Prime rate — The interest rate charged by banks on loans to the largest and highest-rated customers. This economic indicator often serves as the basis for variable interest rates. Principal — The amount you borrowed or the amount you still owe, excluding interest and other finance charges. Promotional inquiry — A type of soft inquiry made to your credit report for the purpose of a pre approved offer. If your credit report matches a creditor's criteria, that creditor gets your name and address only — not your full credit report. Public records — A section of your credit report that contains matters of public record including bankruptcies, credit counseling, foreclosures, garnishments, and lawsuits. Qualifying ratio — The ratio of your monthly expenses to your gross monthly income. Creditors use qualifying ratios to evaluate loan applications. Refinancing — Restructuring your home loan to get a lower interest rate or to borrow money from the amount you've already paid on a loan. Regular inquiry — See hard inquiry. Revolving account — An account, such as a credit card, on which you pay all or part of the outstanding balance at regular intervals, usually monthly. Amounts become available again when they are paid. Compare installment account. Satisfied — A judgment is satisfied when the debtor has fulfilled its requirements — paid the outstanding amount, for example — and is no longer liable. Second mortgage — A mortgage taken out on a home that has an existing mortgage. A home equity loan is a type of second mortgage. Secured credit card — A credit card for which you have made a security deposit to guarantee payment of outstanding balances — the credit limit is less than or equal to the amount of the deposit. Secured cards are a good alternative for people who can't get approved for a regular credit card. Secured loan — A loan for which an item of property has been pledged in case of default. A mortgage is an example of a secured loan. Security — See collateral. Settlement — See closing. Social Security number (SSN) — The unique nine-digit number assigned to every legal resident of the United States by the Social Security Administration. Because no two people can have the same number, the SSN is usually the main identifying factor in a person's records, including credit reports. Soft inquiry — An instance in which your credit report is accessed without affecting your Credit rating. Soft inquiries include your own requests for your credit report, promotional inquiries by credit card companies, and "checkup" inquiries by your existing creditors. Compare hard inquiry. Tax lien — The federal, state, or local government's claim to your real or personal property for the payment of unpaid taxes. A tax lien filed against you normally appears in the public records section of your credit report. Terms — All the agreed-upon conditions of a loan or credit account. Examples include interest rate, annual fees, length of payment schedule, and penalties. Three Cs — Name for the traditional trio of basic criteria lenders consider when deciding whether to approve a loan: character, capacity, and capital (or collateral). Tradeline — A credit industry term for an account listed on a credit report. TransUnion — One of the three major national credit reporting agencies. Tribureau credit report — A credit report that combines data from all three major credit reporting agencies. Truth in Lending Act — Part of the Consumer Protection Act, the Truth in Lending Act requires lenders to disclose the annual percentage rate, the total cost of the loan, and other terms. It also regulates credit advertising. Unsecured loan — A loan based on your promise to repay, not on pledged collateral. Compare secured loan. Vacated — A judgment that has been rendered void or set aside is said to be vacated. Variable interest rate — An interest rate that changes according to a predefined formula based on an economic indicator such as the prime rate. For example, a credit card's annual percentage rate might be the prime rate plus 5%. Voluntary bankruptcy — A bankruptcy filed at the consumer's request. Wage-earner plan — The three- to five-year repayment schedule in a Chapter 13 bankruptcy. The consumer must turn over disposable income to a bankruptcy trustee, who in turn repays creditors. Writ of replevin — A court document authorizing repossession of a debtor's property. ^ back to top | 
