Glossary of terms related to credit

A

Annual fees
A yearly membership or membership fee charged by most credit card companies for the sake of using a credit card. Generally it ranges from $15 to $155.

Annual percentage rate (APR)
The cost of credit payable by consumers expressed as an annual interest rate.

B

Balance
The difference between the aggregate credit and debit sides in an account.

Bankruptcy
A legal declaration indicating a person's or an organization's inability to meet the debt obligations. Bankruptcy can be inducted either by the debtor (Voluntary Bankruptcy) to express his insolvency or the creditor (Involuntary Bankruptcy) to realize a part of what they owe.

C

Canceled check
A type of check already marked 'paid' on the day it is paid and is charged to the account of the person who signed the check.

Charge off
A sum of money which is written off as unrecoverable by a creditor. It imposes a negative impact on a credit report of an individual.

Collateral
One type of asset offered as a security for the sake of securing a loan.

Credit
A sum of money borrowed from a credit grantor subject to payment at a later stage usually with a periodical interest imposed on the actual borrowed amount.

Credit Bureau
An agency that maintains your credit history and provides credit report to lenders to help make decisions while extending credit. The three major credit reporting agencies (CRA) are Equifax, Experian and TransUnion.

Credit Report
A documentation of your past credit performance prepared on the basis of information provided by banks, merchants and lenders.

Credit Score
A statistical summarization of data contained in a credit report indicating an individual's creditworthiness. The most familiar type of credit score is known as the FICO score and is generally computed on the basis of the algorithm provided by Fair Isaac and Corporation. Another type of credit score named as Vantage score is expected to be launched from late 2006.

Credit Card
One type of card made out of plastic issued by a bank which permits a consumer to purchase commodities up to a certain limit subject to payment at a later stage with an additional interest levied on the outstanding amount. It is popularly known as plastic money.

Credit Limit
The maximal credit available on an individual's credit card or other types of credit account and is generally determined on the basis of past credit history.

Credit Default Swap
CDS buyer pays a fee to the CDS seller on condition, the seller would take the risk if the buyer defaults on the agreed account or debt item.

D

Debt
Amount borrowed by an individual for payment at a later stage. The person owing debt is known as the debtor while the person to whom the same is owed is known as the creditor.

Default
Failure to repay a specified amount as agreed in a credit agreement.

Delinquency
A condition that signifies a debtor's inability to make payments in time.

E

ECOA
Stands for Equal Credit Opportunity Act and was enacted in 1974, amended in 1976 to protect consumers from credit denial by lenders simply on the basis of sex, race, religion, marital status, national origin or age.

F

FCRA
Stands for Fair Credit Reporting Act and was enacted in 1970 to provide adequate right to the consumers to have access to information stored in their credit report, avail a free copy of the report annually from all the three major credit bureaus, etc. FCRA also stands for Federal Credit Reform Act.

G

Grace period
A specific time period which allows a debtor to dispose off their credits in full without facing any legal action from a creditor.

Guarantor
A person who is responsible for paying the bill in case the other person defaults.

H

High Balance
The maximum amount one owes on an account.

I

Installment Credit
A credit account for which one pays the debt amount at specific intervals.

Item-specific statement
This statement provides details about a particular public record item in one's credit report.

J

Judgment Granted
The final verdict of the court regarding the determination of rights of both the parties engaged in a lawsuit.

Joint account
It is a type of bank account where two people share access of the account in terms of contribution and withdrawal of money. Likewise a joint credit card account is one in which two individuals can share the card taking the responsibility for the outstanding balance individually.

L

Lien
It is a type of security interest allowed on property that secures the payment of a debt or fulfillment of an obligation. Without paying the money one cannot get rid of the lien.

Late Payment
This is the payment that a lender or creditor receives after the due date for payment has passed. Normally, if a payment reaches after 30 days, creditors consider it to be late payment and report the same to the credit bureaus.

M

Minimum Payment
A minimum payment is the amount one has to pay every month in order to avoid being in default on the account. It is basically an amount equivalent to the interest payable on the credit card balance.

Monthly periodic rates
This is the rate of interest per month, which is reached at by dividing the annual percentage rate (APR) by 12.

O

Original creditor (OC)
This term refers to a financial institution, credit card company or an individual from where the credit has been taken by you.

Original amount
It refers to the principal amount that you actually owe to the creditor.

Over-the-limit-fee
This fee is charged when the account balance on a credit card exceeds the credit limit.

Obsolescence
This word denotes the time period for which a negative item stays on a credit report.

P

Past due
An account is considered past due when one fails to make the minimum payment on the due date.