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Home Knowledge Bank Glossary of terms

Credit glossary of terms

A

Annual fees
A yearly membership or membership fee charged by most credit card companies that allows you to use 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.

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B

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

Bankruptcy
A legal declaration of a person's or an organization's inability to meet their debt payments. Consumer bankruptcy is filed by the debtor (Voluntary Bankruptcy) to express his insolvency, but a creditor can file bankruptcy on behalf of a business (Involuntary).

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C

Canceled check
A type of check already marked 'Paid' on the day it is paid and 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 has a negative impact on an individual's credit report.

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

Collection Agency
A third party agency that collects money owed to their clients, the original creditor. Sometimes a collection agency will purchase the account and "step into the shoes" of the original creditor.

Credit
A sum of money borrowed from a creditor, subject to payment at a later date usually with a periodical interest included in the repayments.

Credit Bureau
An agency that maintains your credit history and provides lenders with a credit report to help them make decisions before extending credit to a consumer. 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 Corporation. Another type of credit score called Vantage score was launched in late 2006.

Credit Card
A type of card made out of plastic issued by a bank or lender that permits a consumer to purchase commodities up to a certain limit, subject to payment at a later stage with interest. It is popularly known as plastic money.

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

Credit Default Swap
A CDS buyer pays a fee to the CDS seller on the condition that the seller will take the risk if the buyer defaults on the agreed account or purchase.

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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 debt is owed is known as the creditor. See also credit.

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

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

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E

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

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F

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

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G

Grace period
A specific time period that allows a debtor to make their payments after the due date without facing any legal action by a creditor.

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

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H

High Balance
The maximum amount owed on an account.

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I

Installment Credit
A credit account on which one makes payments at specific intervals.

Item-specific statement
A statement which provides details about a particular public record item on a person's credit report.

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J

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

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Joint account
A type of bank account where two people share access to an account. Likewise, a joint credit card account is an account on which two individuals share the responsibility for the outstanding balance.

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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
A payment made after the payment due date has expired. Normally, if a payment is 30 days in arrears, creditors consider it to be late payment and report it to the credit bureaus.

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M

Minimum Payment
The minimum payment is the amount you have 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 determined by dividing the Annual Percentage Rate (APR) by 12.

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O

Original creditor (OC)
A financial institution, credit card company, or an individual that originally extends credit.

Original amount
The principal amount that you owe to the creditor, i.e., the amount you borrowed.

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

Obsolescence
The time period a negative item stays on a credit report.

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P

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

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