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Credit Term Glossary

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A

Adjustable-rate Mortgage (ARM): A mortgage loan where the interest rate is changed according to a specific benchmark.

Alternative Mortgage: Any home loan that is not a standard fixed-rate mortgage.

Amortization: The gradual payment process of your debt over a period of time.

AnnualCreditReport.com: Official website to obtain your free credit report from the credit bureaus, Equifax, Experian, and TransUnion.

Annual Exclusion: Also known as a gift-tax exemption.

Annual Percentage Rate (APR): As a yearly rate, the interest rate being charged on your debt.

Application Scoring: Evaluates and scores applications and credit bureau data to assess future performance.

Appraised Value: Market value of how much a property is worth.

Average Daily Balance: Number used to calculate how much interest you have to pay on a credit card balance.

B

Bad Debt: An irrecoverable debt to the creditor.

Balance: In a credit card account or a credit line, it is the amount owed.

Back Ratio: The sum of your mortgage payment (monthly) and your other monthly debts divided by your monthly pre-tax income.

Biweekly Mortgage: A mortgage loan that requires a payment every two weeks.

Budgeting: A plan for creating cash inflow and outflow.

C

Capacity: Assessed by weighing a borrower’s earning ability and the possibility of continuing income against the debt the person has at the time the credit application was made.

Capitalized Cost Reduction: Term synonymous with the down payment on a new auto loan.

Cash Advance: Loan requested from a creditor, these loans have interest rates charged.

Claim Amount: The sum owed and payable by a debtor.

Collections: When a collections department or agency tries to get a past-due debt repaid.

Credit Bureau: Company that catalogs and sells information regarding the payment behavior of consumers, and issues credit reports.

Credit Score: A numerical evaluation of your credit history used by businesses to understand how you have handled debt before.

Credit Repair: Credit counseling that repairs credit scores with tried and legal methods.

Credit Report: A consumer financial record of an individual, kept by the credit bureaus for evaluation by credit granters.

CRF: Credit Research Foundation.

D

Debt: Amount of money owed.

Debt collection agency: A company that collects delinquent debts from borrowers on behalf of the credit grantor.

Debt Consolidation: A process of combining debts into one loan or repayment plan.

Debt Ratio: It’s the combined monthly debt payments divided by the gross monthly income.

Default: Debt that was not been paid.

Default Rate: High-interest rate charged by the credit card issuer when a borrower infringes the card’s terms and conditions.

Delinquency: Used term for late payments or no payments on a loan.

Disclosure: Providing the consumer with his or her credit history as required by the FCRA.

E

Equal Credit Opportunity Act (ECOA): A law that prohibits discrimination in credit, protects consumers.

Equifax: One of the three national credit reporting agencies.

Equity: Equity is build up when you pay the mortgage of your home and the value is increasing.

Experian: One of the three national credit reporting agencies.

F

Fair and Accurate Credit Transaction (FACT) Act: This law requires the credit bureaus to provide US residents with their free credit report copy every 12 months.

Fair Credit Billing Act: Provides a procedure to resolve errors in case credit card users make payments on incorrect billings.

Fair Credit Reporting Act: Consumers can dispute inaccurate information from credit files thanks to this act.

Fair Debt Collection Practices Act (FDCPA): Legislation forbidding unjust debt collection practices.

FICO Score: A credit score made by Fair Isaac Corporation to evaluate your credit data.

Fixed-Rate: A constant interest rate, meaning it remains the same rate, for a credit card or loan.

FSBO: Homeowner that sells a home without a real estate agent.

G

Grace Period: Period to pay a bill without interest charges.

Gross Income: Total income before taxes or other deductions.

H

Hard Inquiry: A record of a request for a business to see your credit report when an application for cred is applied.

Hard Pull: Initial step when evaluating a consumers’ loan application.

Home Equity: The current value of your home minus the mortgage debt.

Home Equity Loan: Allows homeowners to borrow against the equity in their home.

Home Ownership and Equity Protection Act: Law created to discourage predatory lending in mortgages and home equity loans.

I

Identity Theft: Using other peoples’ information to commit fraud.

Installment Debt: A debt you need to pay a fixed number of times on a certain period.

Insolvent: Not being able to pay one’s debts due to lack of money.

Interest Rate: Amount charged as a percentage by a lender to the borrower.

Inquiry: Credit report record when a creditor requests your credit report data.
L

Late Payment: A delinquent payment or failure to deliver a loan or debt payment on or before the time agreed.

Lender: Individual or financial institution that provides the loan.

Liability Amount: Amount for which you are legally obligated to a creditor.

Lien: A legal claim against a person’s property.

Lifetime Cap: Limit on how much an interest rate can increase on an adjustable-rate loan.

Loan-to-value ratio (LTV): It’s a ratio that is calculated using the appraised value of the home, not the sale price.

Long-Term Debt: Debt obligations whose maturity is longer than one year.

M

Margin: Fixed amount added by a lender to the base rate of an adjustable-rate mortgage to set the loan rate.

Maxed Out: Slang meaning the credit limit has been reached for a credit card.

Mortgage Identification Number (MIN): Loan registered with Mortgage Electronic Registration Systems Inc.

Mortgage Interest Tax Deduction: Deduction for taxpayers who pay interest on home mortgage loan interest.

Mortgage Refinance: Replacing your old loan with a new mortgage. You might get a lower interest rate or lower monthly payments.

N

Negative Amortization: When minimum payments are not enough to cover interest charges on your debt.

Net Income: Your income after taxes and other withholdings have been deducted.

Net Worth: Total assets minus total liabilities.

NSF: Non-sufficient funds.

O

Obsolescence: When negative information in a credit file is not relevant anymore.

Original Amount: The original amount owed to a creditor.

Original Delinquency Date: date an account first became delinquent and after which it was never again brought current.

Origination Fee: The process of finding a loan is called origination, this is an additional fee that a lender might charge.

Over-Limit Fee: A fee charged when you spend more than your credit limit on your card.

P

Past Due: A loan payment that has not been made as of its due date.

Payment Cap: The amount limit a monthly payment can increase.

Periodic Rate: The interest rate you are charged each billing period.

Permissible Purposes: Legally purposes for a credit report to be issued to a third party like credit transactions, employment purposes, court orders, etc.

P.I: Acronym for principal and interest that you pay on a mortgage loan.

PITI: Acronym for principal, interest, taxes, and insurance, the four elements of a mortgage payment.

Pre-Approved: An estimate on the amount a potential homebuyer can borrow based on a preliminary credit history check.

Prime Borrower: Cardholders with a good history of paying debts in a timely manner.

R

Refinancing: Replacing an old loan with a new one for better terms.

Released: A lien has been satisfied in full.

Repossession: When a big amount of loan is overdue, the creditor can claim the property used as collateral for the debt.

Residual Value: Fair market value of a leased vehicle at the end of the lease term.

Reverse Mortgage: A mortgage for the elderly, access their equity without having to sell their home.

Revolving Accounts: An account where your balance and monthly payments can change.

Revolving Balance: Credit card spending that goes unpaid on the billing cycle’s end.

Risk Score: Also known as credit score.

S

Savings Interest Rate: Yearly interest rate you earn on your savings.

Savings Plan: Plan to save money for a specific financial goal in a certain timeframe.

Schumer Box: Chart that explains rates, fees, and terms and conditions of a credit account.

Secured Credit Cards: Cards that require collateral for approval.

Secured Debt: A loan that requires property as collateral as security for the lender.

Secured Loan: A loan backed by collateral.

Soft Inquiry: This type of inquiry does not hurt your credit score. Recorded by credit bureaus but might not appear on a report.

T

Tax Credit: Quantity you can subtract directly from taxes owed.

Tax-Deductible: Item or expense subtracted from adjusted gross income to reduce the amount of income subject to tax.

Tax Savings: Quantity you might save from a tax deduction.

Tradelines: Account listed on a credit report.

TransUnion: One of the three national credit bureaus.

Top of Wallet: Your most used credit card.

U

UDAAP: Unfair, Deceptive, or Abusive Acts and Practices.

Unsecured Credit: Credit for which no collateral has been pledged.

Unsecured Debt: A loan on which there is no collateral.

Unsecured Loan: A loan that is not backed by collateral.

Utilization Ratio: How much of your available credit you generally use.

V

VantageScore: A credit score launched as a competitor to the FICO score by the 3 major credit bureaus.

Variable Expenses: Expenses due each month but inconsistent in the amounts (groceries, bills, etc.)

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.