Glossary

A

ACCOUNTS IN GOOD STANDING - Credit items with a positive status should reflect favorably on your creditworthiness.

AMORTIZATION - Gradual reduction of loan principal that occurs as you make periodic loan payments.

ANNUAL FEE - Credit card issuers often (but not always) require you to pay a particular charge once a year for the use of their service, usually between $15 and $55.

ANNUAL PERCENTAGE RATE (APR) - A measure of how much interest credit will cost you expressed as an annual percentage.

AUTHORIZED USER - A person permitted by a credit cardholder to charge goods and services on the cardholder's account but who is not responsible for debt repayment. The account is displayed on the credit reports of the cardholder and the authorized user. If you wish to have your name permanently removed as an authorized user on an account, you will need to notify the credit grantor.

B

BALLOON PAYMENTS - A loan with a balloon payment requires a single lump-sum payment at the end of the loan.

BANK LOAN PAYMENT - An account which contains one or more bank loans for borrowers. Bank loan accounts may be maintained by the borrower, a representative of the lending bank, or an account manager assigned by the borrower.

BUDGETING - A process that starts with creating a plan to record all cash inflows and outflows. The method continues by adhering to a budget. Adherence requires discipline to ensure your budgeted cash outflows equal your budgeted inflows. A final step of the budgeting process is a review of recent performance. Personal budgeting is similar to what you put in place to manage your finances.

C

CAPACITY - Factor in determining creditworthiness. Capacity is assessed by weighing a borrower's earning ability and the likelihood of continuing income against the borrower's debt when the credit application is made. While capacity may be considered in a credit decision, the credit report does not contain information about earning ability or the likelihood of continuing income.

CHAPTER 7 BANKRUPTCY - The chapter of the Bankruptcy Code provides for court-administered liquidation of the assets of a financially troubled individual or business.

CHAPTER 11 BANKRUPTCY - The Chapter of the Bankruptcy Code is usually used to reorganize a financially troubled business and as an alternative to liquidation under Chapter 7. The U.S. Supreme Court has held that an individual may also use Chapter 11.

CHAPTER 13 BANKRUPTCY - Chapter of the Bankruptcy Code, in which debtors repay debts according to a plan accepted by the debtor, the creditors, and the court. Plan payments usually come from the debtor's future income and are paid to creditors through the court system and the bankruptcy trustee.

CHARGE OFF - They are transferring accounts deemed uncollectible to a category such as bad debt or loss. Collectors will usually continue to solicit payments, but the accounts are no longer considered part of a company's receivable or profit picture.

CLOSING - The final stage of the loan process. It requires payment of any funds due to the other party and signing documents needed to record the transaction.

CLOSING COSTS - Total expenses the buyer pays when a real estate transaction is completed, e.g., application fees, underwriting, loan-origination fees, etc.

C0-BORROWER - A co-borrower is any additional borrower whose name appears on loan documents and whose income and credit history are used to qualify for the loan. Under this arrangement, all parties involved must repay the loan. The names of applicable co-borrowers also appear on the property's title for mortgages.

COLLATERAL- An asset that is used to secure the repayment of a loan. It's also called security. For example, if a borrower defaults on an auto loan, the lender has the right to sell the collateral to collect on the loan. The same principle works on most mortgage loans, which are collateralized by the homes the loans are used to buy.

COLLECTION - Attempted recovery of a past-due credit obligation by a collection department or agency.

CO-MAKER - A creditworthy co-maker is sometimes required when an applicant's qualifications are marginal. A co-maker is legally responsible for repaying the charges in the joint account agreement.

COMPOUNDING - Adds the interest you earn on an investment and invests it, plus the original investment, for another period. The result is that you make more interest and a higher rate of return.

COMPOUNDING - FREQUENCY - The frequency that a bank compounds interest on your deposit (e.g., daily, monthly, quarterly). The higher the frequency, the higher the interest rate.

COSIGNER - A person who pledges in writing as part of a credit contract to repay the debt if the borrower fails to do so. The account displays both the borrower's and the cosigner's credit reports.

CONSOLIDATION - Loan consolidation combines multiple loans to reduce payments, pay off debt quicker, and switch from a fixed-rate to a variable-rate loan or vice versa.

CREDIT BUILDING LOAN - These loans work much like a secured credit card but without the card. You deposit money with the financial institution and take out a loan in that amount. As you pay down the loan, the financial institution reports them to the three credit bureaus, helping you establish a credit history.

CREDIT BUREAU - A credit reporting agency is a clearinghouse for information on the credit rating of individuals or firms. It is often called a “credit repository” or a “consumer reporting agency.” The three largest credit bureaus in the U.S. are Equifax, Experian, and TransUnion.

CREDIT CARD ACCOUNT - An account used to manage one or more credit cards for credit card holders.

CREDIT HISTORY- A record of how a consumer has repaid credit obligations in the past, a summary of an individual's credit history. It shows loan payment history, late payments, the existence of liens or other encumbrances, debt forgiveness, bankruptcy filings, and several inquiries by prospective lenders.

CREDIT LIMIT - In open-end credit, the maximum amount a borrower can draw upon or the maximum that an account can show as outstanding.

CREDIT OBLIGATION - An agreement by which a person is legally bound to pay back borrowed money or used credit..

CREDIT REPORT - Confidential report on a consumer's payment habits as reported by creditors to a consumer credit reporting agency. The agency provides the information to credit grantors with a permissible purpose under the law to review the report.

CREDIT RISK- Credit risk is the likelihood that an individual will pay their credit obligations as agreed. Borrowers are more likely to pay as agreed and pose less risk to creditors and lenders.

CREDIT SCORE - This term is often used to refer to credit bureau risk scores. It broadly refers to a number generated by a statistical model used to objectively evaluate information about making a credit decision. The higher the score, the better a borrower looks to potential lenders.

CREDIT SCORING - The tool used by credit grantors to provide an objective means of determining risks in granting credit. Credit scoring increases efficiency and timely response in the credit granting process. The credit grantor sets credit scoring criteria.

CREDIT UTILIZATION RATIO - The credit utilization ratio is the percentage of a borrower’s total available credit that is currently being utilized. The credit utilization ratio is a component used by credit reporting agencies in calculating a borrower’s credit score. Lowering the credit utilization ratio can help a borrower improve their credit score.

CREDITWORTHINESS - The ability of a consumer to receive favorable consideration and approval for the use of credit from an establishment to which they applied.

CUSTODIAN - A responsible party or administrator who maintains specific financial accounts on behalf of a beneficiary. A custodian is bound ethically and legally to act on the best behalf of the beneficiary’s interests.

D

DEBT-RATIO - Lenders use them to approve loan applicants. The debt ratio equals combined monthly debt payments divided by gross monthly income.

DEFAULT - Failure to make a loan or debt payment when due. Usually, an account is considered “in default” after being delinquent for several consecutive 30-day billing cycles.

DELINQUENT - Accounts are classified according to the time past due. Standard classifications are 30, 60, 90, and 120 days past due. Particular classifications also include charge-off, repossession, transferred, etc.

DISCHARGE - It was granted by the court to release a debtor from most of his debts that were included in a bankruptcy. Any debts not included in the bankruptcy (alimony, child support, liability for willful and malicious conduct, and confident student loans) cannot be discharged.

DISPUTE - If a consumer believes an item of information on their credit report is inaccurate or incomplete, they may challenge or dispute it.

E

EMERGENCY FUND - Also called a rainy-day fund. Your savings pool is parked in a safe and liquid savings instrument (perhaps even under the mattress) so that you can access the funds in an emergency. Financial planners recommend having an emergency fund equal to three to six months of your salary. Significant reasons for tapping your emergency fund include losing a job or incurring large and unexpected medical expenses.

END-USER - The business that receives the report for decision-making purposes meets the permissible purpose requirements of the FCRA.

EQUIFAX - One of the three national credit reporting agencies in Atlanta, GA. The other two are Experian and TransUnion.

EQUITY - The value of ownership built up in a home that represents the house's current market value, less any remaining mortgage debt.

ESCROW ACCOUNT - A reserve account controlled by a fiduciary agent makes regular homeowner's insurance and real estate tax payments. The borrower funds the account periodically.

ESTATE - The value of your assets minus allowable deductions at your death. Good estate planning ensures that the proceeds of your estate are distributed to your desired beneficiaries. This requires that you draft a will or trust and update it periodically. Poor estate planning leads to probate, a lengthier and more expensive process of determining the distribution of your estate.

EXPERIAN - It is one of the three national credit reporting agencies, with U.S. headquarters in Costa Mesa, CA. The other two are Equifax and TransUnion.

F

FAIR CREDIT AND CHARGE CARD DISCLOSURE ACT - Amendments to the Truth In Lending Act require disclosing the costs of credit card plans offered by mail, telephone, or applications distributed to the public.

FAIR CREDIT BILLING ACT - Federal legislation provides a specific error resolution procedure to protect credit card customers from making payments on inaccurate billings.

FAIR CREDIT REPORTING ACT (FCRA) - Federal legislation governing the actions of credit reporting agencies.

FAIR DEBT COLLECTION PRACTICES ACT (FDCPA) - Federal legislation prohibiting abusive and unfair debt collection practices.

FICO®-SCORES - Credit bureau risk scores produced from models developed by Fair Isaac Corporation are commonly known as FICO Scores. Lenders and others use FICO Scores to assess the credit risk of prospective borrowers or existing customers to help make credit and marketing decisions. These scores are derived solely from the information available on credit bureau reports.

FINANCE CHARGE - Amount of interest. Finance charges are usually included in the monthly payment total.

FIXED RATE - An annual percentage rate that does not change.

G

GRACE PERIOD - The period you have to pay a bill in full and avoid interest charges.

GROSS INCOME - The IRS defines gross income as all that is not tax-exempt. Gross income may be money, goods, property, or services.

GUARANTOR - The person is responsible for paying the bill.

H

HEIR - The beneficiary of an estate.

HIGH BALANCE - The highest amount that you have owed on an account to date.

I

INDEX RATE - Widely used benchmark interest rate that lenders use to set the interest rate on loans and credit cards.

INSTALLMENT CREDIT - Credit accounts in which the debt is divided into amounts to be paid successively at specified intervals.

INTEREST RATE - The amount charged, expressed as a percentage of the principal, by a lender to a borrower for the use of money.

INVESTIGATION - The process a consumer credit reporting agency goes through to verify credit report information disputed by a consumer. The credit grantor who supplied the information is contacted and asked to review it and report back; they will tell the credit reporting agency that the information is accurate as it appears, or they will give us the correct information to update the report.

L

LAST REPORTED - The credit report shows the date the creditor last reported information about the account.

LATE PAYMENT - A delinquent payment is a failure to deliver a loan or debt payment on or before the time agreed.

LIABILITY AMOUNT - The amount for which you are legally obligated to a creditor.

LIEN - Legal documents are used to create a security interest in another's property. A lien is often given as security for the payment of a debt. A lien can be placed against a consumer for failure to pay the city, county, state, or federal government money that is owed. It means that the consumer's property is being used as collateral during repayment of the money owed.

LINE OF CREDIT - In open-end credit, the maximum amount a borrower can draw upon or the maximum that an account can show as outstanding.

LOAN-TO-VALUE-RATIO (LTV) - LTV is a lending risk assessment ratio that lenders examine before approving a mortgage. It is calculated by dividing the mortgage loan amount by the home's fair market value.

M

MARGIN - Borrowed money that is used to purchase securities, allowing investors to buy more than they could with just their own funds.

MATURITY DATE - The date on which a loan or bond's principal amount must be repaid in full.

MERCHANT ACCOUNT - A type of bank account that allows businesses to accept payments, usually from credit and debit cards.

MERCHANT SERVICES - Financial services that enable businesses to accept and process payments, including credit card processing, POS systems, and online payment solutions.

MINIMUM PAYMENT - The smallest amount a credit card holder is required to pay each month to keep the account in good standing.

MOBILE BANKING - The use of a smartphone or other mobile device to manage bank accounts, perform transactions, and access financial services.

MONEY MARKET ACCOUNT - A type of savings account that typically offers higher interest rates in exchange for higher minimum balance requirements.

MONTHLY STATEMENT - A summary provided by a financial institution that outlines the account activity, including transactions, fees, and interest earned, for a given month.

MORTGAGE - A loan used to purchase real estate, where the property itself serves as collateral for the loan.

MUTUAL FUND - An investment vehicle that pools money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities.

N

NET INCOME (INDIVIDUALS) - Net income is the amount of income left after all deductions and taxes. Corporations: net income is a company's profit for a given period after paying taxes and all other expenses.

O

OBSOLESCENCE - A term describes how long negative information should stay in a credit file before it's irrelevant to the credit granting decision. The FCRA has determined the obsolescence period to be ten years in the case of bankruptcy and seven years in all other instances.

OPT-IN - The ability of a consumer who has opted out to have their name re-added to prescreened credit and insurance offer lists, direct marketing lists, and individual reference service lists.

OPT-OUT - The ability of the consumer to notify credit reporting agencies, direct marketers, and list compilers to remove their names from all future lists.

ORIGINAL AMOUNT - The original amount owed to a creditor.

ORGINATION FEE - A lender may charge an origination fee in addition to any mortgage points you pay. Origination fees are the lender's charge for funding your mortgage with a broker. The process of financing your loan is called origination.

P

P.I.T.I. - Acronym for loan principal, interest, property taxes, and homeowner's insurance.

PAYMENT STATUS - Reflects the previous history of the account, including any delinquencies or derogatory conditions occurring in the last seven years (i.e., Current account, delinquent 30, current was 60, redeemed repossession, charge-off — now paying, etc.)

PERSONAL INFORMATION - Information on your credit report associated with your records has been reported to us by your creditors and other sources. It may include name variations, driver's license number, Social Security number variations, date or year of birth, spouse's name, employer, telephone numbers, and information about your residence.

PERSONAL NET WORTH - Net worth, also called total equity, equals assets minus liabilities.

PERSONAL STATEMENT - You may request that a general explanation of the information in your report be added. The statement remains for two years and is displayed to anyone who reviews your credit information.

POTENTIALLY NEGATIVE ITEMS - Any potentially damaging credit items or public records that may affect your creditworthiness as viewed by creditors.

PRIVATE MORTGAGE INSURANCE (PMI) - An insurance policy that protects lenders against loss if a borrower defaults. Typically required if the home's loan-to-value (LTV) ratio exceeds 80%.

PUBLIC RECORD DATA - Included as part of the credit report, this information is limited to lawsuits and judgments that relate to the consumer's debt obligations.

R

RATE OF RETURN - Percentage gain or loss on an investment expressed at a yearly rate.

REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA) - The Real Estate Settlement Procedures Act (RESPA) is a federal consumer protection law. It aims to prevent abuses in the loan closing or settlement procedures for residential mortgage loan transactions. RESPA requires the lender to provide a series of disclosures that begins when the borrower applies for a loan. RESPA also requires the lender to notify the borrower if it transfers the loan-servicing rights to another company. It also requires the lender to send a yearly statement to the borrower that summarizes escrow deposits and payments over the past year.

RECENT BALANCE - The most recent balance owed on an account as reported by the creditor.

RECENT PAYMENT - The most recent amount paid on an account as reported by the creditor.

REFERRAL FEE - A Referral fee ("finder’s fee") is a commission paid to an intermediary or the facilitator of a transaction. The referral fee is rewarded because the intermediary discovered the deal and brought it to the attention of interested parties. The presumption is that without the intermediary, the parties never would have found the deal, and the facilitator thus warrants compensation.

RELEASED - This means that a lien has been satisfied in full.

REPOSSESSION - A creditor's taking possession of property pledged as collateral on a loan contract on which a borrower has fallen significantly behind in payments.

RESPONSIBILITY - Indicates who is responsible for an account: single, joint, cosigner, etc.

REVOCABLE LIVING TRUST - A trust that you can revoke or modify while you are alive. It offers more flexibility than an irrevocable trust.

REVOLVING ACCOUNT - Credit is automatically available up to a predetermined maximum limit so long as a customer makes regular payments.

RISK SCORING MODELS - A numerical determination of a consumer's creditworthiness. The tool used by credit grantors to predict the future payment behavior of a consumer.

S

SAVINGS INTEREST RATE - Yearly interest rate you earn on your savings.

SAVINGS PLAN - A systematic plan you use to save for a specific financial goal. If you have multiple financial goals, you may wish to set up a savings plan for each goal. First, review your budget and cash flow to see how much you can save periodically. Next, pick a period where you want to save the desired amount. Finally, estimate a realistic rate of return. If possible, you must hold it regularly and avoid paying income taxes on your earnings. One way to do this is to contribute first to tax-advantaged retirement accounts and college savings plans.

SECURED CREDIT - Loan for which some acceptable collateral, such as a house or automobile, has been pledged.

SECURED CREDIT CARD - A secured credit card is a type of credit card that is backed by a cash deposit from the cardholder. This deposit acts as collateral on the account, providing the card issuer with security in case the cardholder can’t make payments. With a secured credit card, the amount that you put down in a deposit will become your credit limit for your credit card.

SECURITY - Real or personal property that a borrower pledges for a loan term. Should the borrower fail to repay, the creditor may take ownership of the property by following legally mandated procedures.

SERVICE CREDIT - Agreements with service providers. You receive goods, such as electricity, and services, such as apartment rental and health club memberships, with the monthly deal you will pay for them. Your contract may require payments for specific months, even if you stop the service.

SETTLE - Reach an agreement with a lender to repay only part of the original debt.

SOURCE - The business or organization that supplied certain information that appears on the credit report.

STATUS - On the credit report, this indicates the current status or state of the account.

SURETY BOND - A surety bond is a legally binding contract entered into by three parties: the principal, the obligee, and the surety. The obligee, usually a customer or contractual partner, requires the principal, typically a business owner or contractor, to obtain a surety bond as a guarantee against future work performance.

The surety is the company that provides a line of credit to guarantee payment of any claim. They provide a financial guarantee to the obligee that the principal will fulfill their obligations. A principal’s obligations could mean complying with state laws and regulations pertaining to a specific business activity or meeting the terms of a contractual agreement.

T

TAX-DEDUCTIBLE - Items or expenses are subtracted from adjusted gross income to reduce the income subject to tax.

TAX-DEFERRED INVESTMENT - Investment that allows you to postpone, or defer, paying income taxes until you begin to take money out of the account. Examples of tax-deferred investments include IRAs, 401(k) plans, and variable annuities. The advantage of a tax-deferred investment is that it compounds a more significant amount than if you paid taxes each year.

TERM - This refers to the debt repayment terms of your agreement with a creditor, such as 60 months, 48 months, etc.

THIRD-PARTY COLLECTORS - Collectors who are contracted to collect debts for a credit department, credit company, or collection agency.

TRADELINE - Entry by a credit grantor to a consumer's credit history maintained by a credit reporting agency. A tradeline describes the consumer's account status and activity. Tradeline information includes names of companies where the applicant has accounts, dates accounts were opened, credit limits, types of accounts, balances owed, and payment histories.

TRANSACTION FEES - Fees are charged for specific use of your credit line — for example, to get a cash advance from an ATM.

TRANSUNION - One of three national credit reporting agencies. The other two are Experian and Equifax.

TRUST ACCOUNT - A custodial account involving an administrator or trustee that defines how your assets are to be distributed to your beneficiaries. Trust agreements are used for inter-vivos trusts, which can be either revocable or irrevocable.

TRUSTEE - The custodian of a trust account is responsible for distributing the trust's assets by the trust agreement.

TRUTH IN LENDING ACT - Title I of the Consumer Protection Act. Requires that most categories of lenders disclose the annual interest rate, the total dollar cost, and other terms of loans and credit sales.

U

UNSECURED CREDIT - Credit for which no collateral has been pledged. Loans made under this arrangement are sometimes called signature loans; in other words, a loan is granted based only on the customer's words, through signing an agreement that the loan amount will be paid.

UPFRONT COSTS - Also called closing costs are fees and any other expenses you pay at a loan closing.

USER FEES - A user fee is a sum of money paid as a necessary condition to gain access to a particular service or facility.

V

VARIABLE RATE - An annual percentage rate that may change over time as the prime lending rate varies or according to your contract with the lender.

VERIFICATION - They are verifying whether data in a credit report is correct or not. They are initiated by consumers when they question some information in their files. Credit reporting agencies will accept authentic documentation from the consumer that will help in the verification.

VOLUNTARY BANCKRUPTCY - If a consumer files the bankruptcy on his own, it is known as voluntary bankruptcy.

Y

YIELD - The annual income provided by a fund, share, or bond is expressed as a percentage. Yield is usually calculated by dividing the asset's current price by the revenue. For example, the yield on a bond that sells for $1,000 and has a coupon rate of 8% is 8%. If the bond price rises to $1,050, the yield falls to 7.62%. If the price drops to $950, the current yield increases to 8.42%. Redemption yield is the interest rate you get if you buy a bond at the current price and hold it until redemption.

W

WAGE ASSIGNMENT - A signed agreement by a buyer or borrower permitting a creditor to collect a particular portion of the debtor's wages from an employer in the event of default.

WRITE OF REPLEVIN - A legal document was issued by a court authorizing the repossession of security.

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