GLOSSARY OF TERMS
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

Acceleration clause – If you default on a loan, this clause allows a lender to require entire repayment of the loan in full.

Account – This is an agreement between a consumer and a credit lending company. An account can either be an installment loan (closed-end agreement) or a department store revolving credit card (open-end agreement).

Actuarial method – This is one way the interest on the outstanding balance is calculated. Also known as simple interest financing.

Add-on interest – Most lenders use this method of calculating installment loan finance charges, with interest calculated on the full amount of the loan. Lenders must give you annual interest rates so you can compare the cost with simple interest financing. For example: a loan for 36 months at an 8 percent add-on interest is equal to an annual simple interest rate of 14.54 percent.

Adjusted balance – This is considered an open-end finance charge, which is found in a charge card account. Charge card companies will subtract your payments during the billing period and apply the interest rate to the balance.

Amount – This is the original amount of a loan for installment accounts, credit limit, or high balance for revolving accounts.

Annual Percentage Rate (APR) – This is the interest rate charged on an account on an annual basis by the creditor. To determine the monthly interest, you can divide the APR by 12 (for example is the APR is 18% of an unpaid balance of $1,000, then the monthly interest is 1.5%, or $15). A creditor will not add interest during the grace period of an account.

Applicant – This is a person who has applied for or has received credit from a creditor, or become liable for an extension of credit.

Application – This is a document for credit that is established by the creditor. A completed application is one in which the creditor has received all your personal and financial information needed to evaluating your application for the amount and type of credit requested. An application allows the creditor to obtain additional information on you including but not limited to, credit reports, reports from government agencies or other persons that are necessary to guarantee the credit or collateral. Creditors must obtain and use your information with reasonable diligence.

Available credit – This is the unused dollar amount of a person s credit limit. On credit cards, it is the difference between the outstanding balance and the credit limit that was granted to you.

Average daily balance – A method of computing the amount on which the finance charge is based on for credit cards. On credit cards, the creditor will total the credit card balance for each day in the billing period and divide by the number of days in the period. This will give the average daily balance.

B

Balance to limit – This is the ratio or an original loan amount or high credit limit compared to the accounts outstanding balance.

Balance – This is the amount of outstanding funds on a credit account.

Balloon payment – This is considered a final lump-sum payment to the creditor on any unpaid balance.

Bankcard – This is a credit card that is issued by a bank or credit union which has a pre-approved credit limit on it for purchasing items or services or drawing cash advances. Bankcards can also act as debit cards, which are tied to your checking or savings account for the purpose of withdrawing funds.

C

Charge-off – This is a term that a lender uses when a balance of an uncollectible debt cannot be collected and is written off as a bad debt from the lender s account receivable books.

Charge-back – This is when a merchant must reverse a credit card transaction and payback the credit card (cardholder) with the original transaction amount.

Closed – Means, when a credit card is no longer open or allows you to purchase items or services on that account.

Collateral – This is property that is put up or also known as security for a loan and becomes the lender s property if the loan is not paid back in full.

Co-maker – This is person who enters into a loan agreement with you, guaranteeing the loan and monthly payments. If you fail to make the monthly scheduled payments, your co-maker is responsible to make them. People usually have co-makers when they need to establish credit or they have poor credit and cannot obtain a loan with their own credit rating.

Co-signer – Is just another name for a "co-maker." Also see Co-maker for explanation.

Consumer – A consumer is considered any private individual.

Consumer credit – This is the type of credit that is issued to an individual for personal, family or household purposes.

Credit – Is granted by a creditor to an applicant for the purpose of deferring payment on purchased items, property or services.

Credit bureau – This is a credit reporting agency that compiles personal and financial information on you, the borrower, which allows creditors and lenders to access your information and determine if your are credit worthiness.

Credit disability insurance – This type of insurance is optional for the consumer on a loan or credit card and if the consumer cannot make their payments due to an illness or accident, the insurance protection will make the payments for the cardholder. This type of insurance is usually added to your loan payment or charged monthly on your credit card. Sometimes credit disability insurance is combined with credit life insurance.

Credit life insurance – This type of insurance is optional for the consumer on a loan or credit card and if the consumer dies the insurance protection will pay off the remaining balance on the loan or credit card. This type of insurance is usually added to your loan payment or charged monthly on your credit card.

Credit limit – This is the maximum amount on your credit card or loan that the lender has granted you for purchasing items, property or services on credit.

Credit line – This is the dollar amount that a consumer has available on their credit card or loan for use.

Credit report – This report is compiled by a credit reporting agency, which includes your personal information, payment history, including on-time and late payments, debt amount, type of accounts and credit rating score. In addition, a credit report will outline if you have judgments, liens, collection accounts, charge-offs or have filed bankruptcy. A credit report retains negative credit information for 7 years, 10 years for bankruptcy. Federal law requires credit-reporting agencies to remove negative information after 7 years. A 30-day late, collection account, etc. are considered negative information. You have the right to request your credit report and dispute any negative information you feel is not true.

Credit score – This score is calculated by the credit reporting agencies based on several factors, not limited to payment history, credit history, debt load, credit time, available credit, etc. Creditors and lenders use these credit scores to determine your creditworthiness.

Credit transaction – This encompasses all aspects of a consumers dealing with creditors and lenders concerning, but not limited to; application for credit, extension of credit, terms of credit, revocation, collection procedures, alteration, or termination of credit.

Creditor – This is a person or company that has made an agreement with you to extend credit to you for deferred payments on items or services. Credit card companies are considered creditors.

Creditworthiness – This is the creditor s or lender s opinion as to whether they should extend credit to you based on your credit history or your credit score.

Current – If an account like a credit card has a good payment on-time history each month with the creditor it is considered current by the creditors terms.

D

Date opened – This is the date when a creditor initially granted your credit.

Date reported – This is the date when a credit reporting agency listed your credit account status on your credit report.

Default – When you fail to make the agreed payment terms on the credit card or loan each month.

Delinquent – This is the same as "Default." See Default for an explanation. Also an account is considered delinquent after 30 days and will be reported as a delinquent rating on your credit report.

Demand feature – This feature allows a lender to call for repayment of the full loan amount owed under the loan agreement and, if needed, could seize any property that was placed as collateral for the loan.

Derogatory – This is a rating that a credit reporting agency assigns to your account that is delinquent and requires special assistance, such as collections, charge-off, repossession, etc.

Disclosure statement – Is a document provided to a consumer by a creditor or lender, providing an explanation of their credit terms, interest rates, finance charges, payment schedule, minimum payment amount, etc. This document is required by, federal or state laws.

Dispute – Means to question an error on your credit profile. You or the creditor can dispute an error.

E

Elderly – Means an individual age 62 or older.

Equal Credit Opportunity Act (ECOA) – This act is a federal law which requires lenders to give business and consumers equal access to credit.

Extend credit – Means the granting of new or existing credit in any form to a consumer from a creditor or lender.

F

Finance charge – This is the cost you pay in exchange for a creditor lending you money on credit to purchase items or services on a deferred payment plan. The total outstanding balance and the current interest rate charged on the account is what determines the finance charge. Finance charges will appear on your credit billing statement separately from your outstanding balance and interest rate.

G

Good faith – Means that you make a payment to a creditor even if it is not the required minimum payment.

Grace period – This is the time between the statement date and the payment due date. During this period no finance charges will accrue, provided no previous balance exists.

H

High balance charge – A fee is charged by the creditor when your credit limit on an open account is exceeded.

High balance – This is the dollar amount utilized on a credit line. This is also know known as "High credit."

I

Incidental credit – This is credit that is extended to you for professional services by a medical or dental office.

Installment – A credit account where set payments are established and agreed upon for a specific period between you and a creditor. Payments are made at agreed dates each month until paid in full.

Interest – This is a charge that the creditor will charge you for borrowing money on a credit card or for a loan. Interest is calculated at a percentage of the total outstanding balance you borrowed. See also finance charge.

J

Judgment – An award granted by the courts to a creditor, lender or individual for collection on a bad debt. A judgment creates an obligation granted by the courts to the debtor to pay the full amount of the judgment to the creditor, lender or individual.

L

Lien – When you fail to pay your agreed upon obligation for an outstanding debt, a creditor can obtain a court order to place a lien against your property. The lien acts as a collateral against the outstanding debt you owe the creditor.

Loan value – This is the total amount that a lender will loan you on a specific item. If you are purchasing a used car, the lender will lend you only the blue book value on that used car.

M

Merchant – A business or an individual that accepts credit cards for payments on items or services.

Monthly payment – This is the amount that a creditor has set for borrowing money on credit. A monthly payment usually combines two payments into one; principal and interest.

N

Net payoff – This is the amount of a loan, excluding prepaid interest and insurance premiums.

Never delinquent – This is an account that has never missed a payment within the statement due date.

NSF charge – This means that your checking account had non-sufficient funds at the time your check was written for items or services. When this happens the bank will charge you or the depositor a NSF fee. If you continue to obtain NSF charges, the bank will close or freeze your account.

O

Obligor – A person who binds himself or herself to another under contract or agreement.

Obligee – One to whom another is bound by contract or agreement.

Open-end credit – Consumers who use credit cards to purchase items or services from time to time are considered using "open-end credit".

Open – This is an active account (credit card) that is available for purchases or items or services on credit.

P

Paid – This means that an account (credit card or loan) is current and paid to date.

Periodic rate – This is the Annual Percentage Rate (APR), which is divided by the days, weeks, or months in a year. An APR of 21 percent has a monthly periodic rate of 1.75 percent and daily periodic rate of 0.0575 percent.

Prepayment penalty – This is a fee charged by a lender for early payoff of a loan balance.

Public record – This is information recorded by the courts, including bankruptcy, judgments, tax liens, civil cases and can be obtained by any one person or company from the courts.

R

Revolving – These are credit card accounts where the outstanding balance fluctuates depending on the usage on the card. Most revolving credit card accounts are tied to the account balance as a percentage of the balance. Most revolving accounts have credit limits tied to them. Revolving accounts will charge a service fee each month if the balance is not paid in full.

S

Security interest – A lender will request you to put up collateral for a loan. This is known as a "security interest." If you default on the loan, the lender can sell the collateral (property) to recover the money owed on the outstanding debt balance.

Signature loan – This is a loan that a lender will grant you without putting up collateral. This is also known as an unsecured debt.

Simple interest financing – A creditor will charge you interest on your outstanding balance. This is known as "simple interest financing."

Suit – This is a legal action that a creditor will file in court for the recovery of a right or claim.

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