Building Good Credit Glossaries

Account Condition: An assessment of current account condition. Condition does not show events that created the current state.

Accounts in Good Standing: Credit items that have a positive status and reflect favorably on creditworthiness.

Amortization: Monthly installments of principal and interest to repay a mortgage. At the end of the agreed upon time the borrower becomes the owner of the property.

Annual Fee: The fee a card issuer assesses for the use of a credit card. The fee is billed annually to the consumer.

Annual Percentage Rate (APR): The true cost of a loan. Determined by calculating the average compound interest rate over the length of the loan.

Asset: Any item owned that has value and can be sold.

Authorized User: Person allowed to use a credit card by the owner of the card. The owner of the card is still responsible for repayment.

Balance Transfer: Shifting an outstanding credit card balance from one company to another company.

Balloon Payment: Lump-sum payment made at the end of the loan term.

Bankruptcy: Legal means of debt relief where a person is released from debt. Chapter 7 proceedings liquidate assets to help repay creditors; Chapter 13 proceedings set up a debt repayment plan.

Billing Cycle: The interval between one billing statement and the next.

Cap: Limit on interest rate or payment amount.

Capacity: The ability of a borrower to repay a loan; calculated by measuring income and current debts.

Cash Advance: Cash received from a credit card, rather than using the card to purchase goods and services.

Cash Flow: Measure of money flowing into and out of a household. When more income is earned than spent, cash flow is positive.

Charge-off: Determining that an account or bad debt cannot be recovered.

Collection Account: An account owed to a creditor that has been transferred to a creditor's collections department or to a separate professional debt collection agency.

Collateral: Security pledged for the payment of a loan. A car may serve as collateral for an auto loan.

Consumer Credit Counseling Service: A non-profit organization that helps consumers deal with credit problems.

Credit Bureau: Organizations that collect personal financial information on consumers; lenders use those credit reports to determine whether or not to approve credit requests.

Co-Signor: A person who pledges to repay a debt if the borrower does not.

Credit Limit: Maximum amount allowed to be charged on a credit card or other revolving credit account.

Credit History: Record of individual debt payments.

Credit Report: Report detailing credit history. Used by lenders to determine whether a potential borrower will qualify for credit.

Creditor: The person or company owed a debt.

Credit Score: Numerical method of determining credit worthiness. The higher the score, the more credit worthy the consumer is considered to be.

Default: When mortgage or loan terms are not met; typically when payments are not made on time. Strictly speaking, default means the terms of the agreement were not met and the lender may take further action.

Delinquency: When payments are not made on time.

Delinquent: An account where payments are past due.

Down Payment: Cash payment for a portion of an asset's purchase price.

Equity: The difference in the value of an asset and the amount owed on that asset.

Fair Credit Billing Act: Federal legislation that provides a specific error resolution procedure to protect credit card customers from making payments on inaccurate billings.

Fair Credit Reporting Act (FCRA): Federal consumer legislation governing the actions of credit reporting agencies.

Fair Debt Collection Practices Act (FDCPA): Federal consumer legislation prohibiting abusive and unfair debt collection practices.

FHA Loan: Loans insured by the Federal Housing Administration.

Foreclosure: The forced sale of a property when the borrower has failed to meet repayment terms.

Fraudulent Transaction: Transaction made with a credit card without the authorization of the card owner.

Garnishment: Legal process where debt is repaid by withholding a portion of the borrower's income.

Installment loan: A loan where equal, consistent payments are made on a regular, pre-specified basis.

Interest Rate: The rate a lender charges to lend money.

Introductory Rate: Low interest rate offered by lenders to new account holders for a specific period of time. After the introductory period ends the interest rate is increased to the normal rate.

Judgment: A decision based on a legal process.

Lien: A legal claim to satisfy a debt. A claim is made against property, like real estate, if a debt is not paid.

Liquid: An asset easily sold or converted to cash.

Maturity: The date when the balance of a loan is due.

Minimum Payment: The smallest payment allowed to keep an account in good standing.

Over-limit: A balance on a credit card higher than the original or allowed credit limit.

Principal: The balance of a loan not including interest and other fees.

Public Record Data: Information on a credit report regarding tax liens, judgments, lawsuits, and other legal proceedings.

Refinance: A loan acquired for the purpose of paying off another loan.

Second Mortgage: A mortgage made after an original mortgage; a home equity loan is a form of second mortgage.

Secured Credit Card: Credit card that requires collateral or funds deposited in order to receive the card.

Settlement: An agreement with a creditor to repay a portion of an original debt.

Term: The length of a loan.

Unsecured Credit: A loan that does not require collateral.

Upside Down: A condition where a borrower owes more money than the secured item is worth. For example, if a borrower owes more on a car loan than the fair market value of the car, he or she is considered to be upside down.

VA Loan: Loan granted to veterans of military service and guaranteed by the Veteran's Administration.