Glossary
Bankruptcy: A legal proceeding designed to help people in severe financial difficulty get a fresh start by relieving them of their current debts. Bankruptcies usually stay on a credit report for 7 to 10 years.
Charge-off: An unpaid portion of a bill that a lender has accepted will never be paid and has recorded on the books as a bad debt. It is a serious negative item on a credit report.
Credit bureau: A credit-reporting agency that is a clearinghouse for information on the credit rating of individuals or companies. It is often called a “credit repository” or “consumer reporting agency.” The three largest are Equifax, Experian and TransUnion.
Equifax
1-800-685-1111
Credit Information Services
PO Box 740241
Atlanta, GA 30374
www.equifax.com
Experian
1-888-397-3742
National Consumer Assistance Center
PO Box 2104
Allen, TX 75013
www.experian.com
Trans Union
1-800-888-4213
Consumer Disclosure Center
PO Box 1000
Chester, PA 19022
www.transunion.com
Credit report: A document containing financial information about a person, focusing on his or her history of paying obligations. It includes current balances on outstanding debts, the individual’s amount of available credit, public records such as bankruptcies, and inquiries about credit from various companies.
Credit risk: The measure of a person’s creditworthiness. People who are more likely to repay their debts on time are considered a better risk by lenders, and will be charged lower interest rates for borrowing money.
Debt-to-income ratio: The amount of money a person has in outstanding debt, compared to the amount of income a person has. The higher a person’s debt ratio, the more risky the individual appears to potential lenders. Anything below 40 percent is considered good.
Debt Cycle: A condition or situation borrowers can find themselves in when they continue to borrow more money than they are able to repay and their debt keeps increasing. “Breaking the debt cycle” is a common reference in describing financial strategies to pay off seemingly endless debt.
Default: A designation on a credit report that indicates a person has not paid a debt. Accounts usually are listed as being in default after several reports of delinquency. Defaults are very serious and are considered as negatives on a credit report.
Delinquent: A designation on a credit report that means a person hasn’t made the minimum payment on a debt on time. On credit reports, delinquencies are usually shown as being 30, 60, 90 or 120 days delinquent. Delinquencies are a seriously negative item on a credit report.
FICO score: The most commonly used credit score. The name comes from the Fair Isaac Corporation, which developed the scoring model, and is used to predict the likelihood that a person will pay his or her debts.
Grace Period: Typically describes the time you have before a credit card company starts charging you interest on your new purchases -- usually a period of 20 to 25 days. But this "free ride" on finance charges does not work the same way on all credit cards. In fact, on most credit cards, you will be charged interest on your new purchases immediately -- unless you have paid off your credit card in full the previous month.
Installment credit: A type of credit in which the monthly payment is the same every month and the time period to repay the loan is fixed, such as a loan.
Interest Rates and APR: Interest is the fee charged by a lender to a borrower for the use of borrowed money, and is usually expressed as a percentage. The interest rate is dependent upon many factors to include inflation rates, interest rates charged by the Federal Reserve Board, and primarily dependent upon the credit risk of the borrower. Every state controls the interest rate that a lender may charge on each loan, but many states also allow the lender to charge fees for processing the loan. Since every state is different, the Federal Government established a uniform method known as Annual Percentage Rate (APR) to define the total cost of the loan to the borrower including all interest and fees. The Interest Rate determines the amount of interest charged on each loan, and the Annual Percentage Rate discloses the total cost to include interest and fees.
Revolving credit: An account that requires a minimum payment each month plus service charges on the remaining balance, such as a credit card. As the balance declines, so does the service charge.
Unsecured Loan: A loan that is not backed by collateral; sometimes called a “signature” or “note” loan.