Adjustable Rate: The interest rate for a loan/line of credit that may vary over the life the obligation. For example, the interest rate may begin at 9% but increase to 15% while still repaying the debt. Back to Top
APR: Annual Percentage Rate; a year's worth of interest computed into the final percentage. Back to Top
Average Daily Balance: The calculation of interest used by creditors to assess interest owed on an outstanding balance. Creditors calculate the interest that would be owed everyday of the billing period, based on the balance for that day. Back to Top
Cash Advance: Borrowing cash from a line of credit. Although the cash is borrowed from your credit card, the interest rate for the cash advance is usually much higher than the APR when you purchase merchandise. Also, beware that you have to pay the purchase balance off before you start paying the balance on the cash advance. Back to Top
Chapter 7 Personal Bankruptcy: this is the process by which the court discharges a debtor's debts. The individual is exempt from repaying those debts that apply. A bankruptcy will remain on a consumer credit file for 7 to 10 years. Back to Top
Chapter 13 Personal Bankruptcy: where the court arranges a payment plan for the debtor to pay back all debts in affordable installments. A bankruptcy will remain on a consumer credit file for 7 to 10 years. Back to Top
Charge-off: When a creditor is unsuccessful collecting a past due debt. The creditor then decides to either pursue the delinquency through legal actions or sell the account to a third party collection agency for further collection activity. In both cases, the charged-off account will appear on the credit file until paid or for a time period of 7 years. Back to Top
Collections: A third-party company that purchases past-due accounts from creditors at a discount and attempts to recover the original balances with interest. Many creditors have their own collection agents "in-house" who are actual employees of the bank. These agents employ more intimidating and coercive tactics with each call they make. Their job is to make your situation uncomfortable so you pay them off as quickly as possible. Back to Top
Credit Bureau: Organization who compiles and records information about an individual's credit history. Their responsibilities include: supplying lenders with credit information on potential borrowers, receiving and recording information from creditors about consumer payment histories and spending habit, and offering consumer's individual copies of their credit file. Back to Top
Credit Limit: How much spending a creditor will allow a consumer to do. Generally, the limit is based on the consumer's credit worthiness. Back to Top
Credit Rating: An individual's credit history determines her or his credit worthiness to potential lenders. There is no set scoring system but most creditors share similar criteria for borrowers. The better a consumer handled their past credit; the more stable his or her employment and residence history, and as long as they have not applied for too much credit in the past, the more likely they will have a good credit rating. Back to Top
Debt to Income Ratio: The percentage of monthly income that is devoted to paying off unsecured debts, not counting mortgages, etc. High Debt/Income ratios (25% and up) imply a bad credit rating and can make getting a loan or additional credit unlikely. The actual ratio is the total monthly-unsecured debt payments divided by monthly net income multiplied by 100. Some creditors consider gross monthly income instead, so it helps to know the Debt/Income ratio for both figures. Back to Top
Default: When a borrower fails to pay off a debt by the arrangements set up by the creditors. Back to Top
Fair Credit Reporting Act: If you notify a credit bureau of a mistake on your credit report, they must verify that mistake or change it within 30 days. Also, you are entitled to see your credit report and you are entitled to a free copy from any credit bureau responsible for a report that led to a creditor denying you credit. You must ask for your free credit report with one month of being denied credit. Back to Top
Fair Debt Collection Practices Act: A Federal bill passed by Congress describing the tactics that third party collection agencies may use to attempt to recover past due debts. Back to Top
Fixed Rates: The interest rate/payment will be the same throughout the life of the loan. Back to Top
Foreclosure: If someone defaults on mortgage payments, the lending institution may claim the mortgaged property as collateral. This is done usually to regain the original monetary investment. Back to Top
Garnishment: A court order to a debtor's employer to deduct a certain percentage from an employee's wages to be paid to a creditor for payment owed. Percentages will vary from state to state. Back to Top
Grace Period: A time period allowed by creditors for repayment of a monthly obligation (usually 20 days) where a card user will not be charged interest for purchases made with credit if bills are paid on time. Back to Top
Gross Income: A person's income before deductions (taxes, Social Security, etc.) Back to Top
Home Equity Loan: A line of credit extended to a consumer based on the amount of equity available in their home. Similar to a mortgage except no payment is due unless the credit is used. Back to Top
Judgment: A court order to re-pay a past due debt. Lien Property is held until payment of debt is made in full. If balance is not satisfied, the property is sold and the proceeds will go to pay the outstanding debt. Back to Top
Net Income: A person's monthly earnings after tax and other deductions have been removed. Back to Top
Over-The-Limit Fee: A penalization against the consumer for exceeding the amount of total credit available on a given account. These fees are usually assessed based on late fees which bring a total due balance over the consumer's granted line of credit. Back to Top
Re-age: When a past due account is brought back to a current status by the creditor. Most creditors will waive late and over-the-limit fees when an is account is is re-aged. The affect of this is that the debtor does not have to make the last several payments to catch-up with the account. Back to Top
Repossession: If someone defaults on a loan the creditor can take that item back since the product was never actually "owned" by the consumer in the first place. Back to Top
Secured: A loan or line of credit backed by collateral, such as a mortgage, car loan or secured credit card. If payments are not made, the collateral can be repossessed. Sometimes, when an unsecured store card is used to purchase an item from that store, the purchase itself is secured. This means that if the creditor is not paid back, the item can simply be taken back by the creditor. Back to Top
Unsecured: Any form of credit that does not have any form of collateral attached to it. Back to Top