Definition of Terms
Annual Fee – yearly fee for using a credit card in addition to the interest charged by the credit card issuer
Annual Percentage Rate (APR) - the total cost of credit to the consumer, expressed as an annual percentage of the amount of credit granted. APR is intended to make it easier to compare lenders and loan options
Assets - the entire inventory of property owned by a borrower or company that may be used to pay off their debts
Balance - in banking the outstanding balance is the amount of money owed that remains in an account at a given date after all past payments and withdrawals have been accounted for. It can be positive (asset) or negative (liability)
Broker - a third party who works between a buyer and a seller. A broker who also acts as a seller or as a buyer becomes a principal party to an agreement or contract
Cash Advance Fee - a fee that may be assessed when making the following types of transactions: Bank Cash Advance, ATM Cash Advance, Access Check, Balance Transfer including direct deposits. A Cash Advance Fee will also be charged if you have overdraft protection on a deposit account that is tied to your credit card
Certificate of Title - a written opinion created by a title company that states that the seller has a marketable and insurable title to the property being offered for sale.
Collateral - the property used as security for the payment of a loan
Conventional Loan – a loan not insured by the government
Cosigner - co-signing involves a promise to pay a borrower's debt if that person fails to keep up with their payments. Lenders often require a cosigner for people with bad credit, students or potential borrowers whose income is uncertain
More credit terms and phrases defined in our easy to read credit dictionary:
Credit - the granting of a loan or access to immediate cash by a lender to a borrower where the borrower does not immediately pay the lender for the resources in full, therefore generating debt. Credit is also another way to talk about the reputation you have earned for making payments on borrowed money over a period of time.
Credit Bureaus - agencies that keep a record of individual's payments on debt
Credit Card - cards that authorize purchases on credit
Credit History - an individual's record of how they have borrowed and repaid debts
Credit Issuer – the bank or lending institution issuing the credit card
Credit Limit - the maximum amount of credit the credit issuer will allow you to charge on your credit card
Credit Ratio - the result of your monthly bills on long-term debts divided by the net income or gross monthly income
Credit Rating - each individual has a credit rating based on their credit history
Credit Rating Service - companies that rate public, private or consumer credit
Credit Score – the credit score or credit rating of an individual is based on their personal credit history. The credit score ranges from 0 to 850. The higher the credit score or rating, the greater the credit opportunities available.
Creditor - a person or company to whom money is owed – also lender or issuer
Creditworthiness - the definition is subject to the criteria developed by the lender, but generally it is based on a borrower's ability to repay on their debts
Cut-off time - the time which distinguishes one business day from another. The transactions after that time of the day are processed the following business day. For example, if you make a deposit after the Friday afternoon cut-off time the lender will process it the following Monday
Daily periodic rate - the Average Percentage Rate (APR) of one particular year divided by 365 days.
Debit Card – this is a type of secured credit card that is accessible to customers who have savings and checking accounts with a bank. The user cannot develop a credit history with this type of card.
Debt-to-Income - a formula that lenders use to calculate your current income against your current debt level. A potential borrower with a high percentage of debt as opposed to income will fall in a high-risk category
Default - a failure to meet the terms of your credit agreement by not paying off your loan
Delinquency – a failure by the borrower to make their payments on time that can result in collection and lawsuits
Depreciation – the decline in the value of a piece of property (vehicle, equipment, etc.)
Disclosures – the information that must be released to borrowers about their financial transactions
Down Payment - the difference between the purchase price and loan amount paid
Earnest Money - money paid upfront as part of the purchase price to ensure full payment over time
E-bills - electronic versions of your statements available through online banking
Equal Credit Opportunity Act (ECOA) - a federal law that requires lenders to loan money without discrimination based on race, color, religion, national origin, sex, marital status or income from public assistance programs. Although, lenders can discriminate against individuals who have a history of not paying their bills
Equity - the value of a property in excess of the claims against it
Excellent Credit – a credit score of 750-850 allows for the best credit opportunities such as prime rate credit cards and high credit limits
FICO – stands for Fair Issac Corp and is the primary system for statistically rating an individuals credit history. The FICO scores range from 0 to 850 points and are grouped into several categories including Poor Credit 350-619, Fair or Average Credit 620-659, Good Credit 660-749 and Excellent Credit 750-850
Finance Charge – the sum of the interest on your monthly credit card statement. If you pay the balance in full every month by the payment due date, then you will not pay the interest on those purchases. By paying the entire balance due, not just a part of it, you'll be taking advantage of the grace period on purchases. If you pay less than the full balance your credit card balance accrues interest in the form of a finance charge
Fixed Interest Rate – an interest rate that is fixed and does not change
Fraud Protection - most major lenders offer Fraud Protection where you are not liable for purchases made without your consent
Credit Dictionary providing simple definitions of frequently used credit terms and phrases:
Grace period – the amount of time that passes after the due date before late fees are applied. A grace period is usually 10-25 days, depending on the lender
Gross Monthly Income – an individual's income before taxes
Household Income - the total income of all members of a household
Instant Approval Credit Card – an instant approval actually is a very speedy approval of a credit card application. If you have good to excellent credit you can expect a very quick online approval of your credit card application.
Interest Rate - a bank charge for borrowed money usually a percentage of the amount borrowed
Introductory APR Rate - a rate given by lenders to new customers for a specified period. This rate is low and applies to any combination of purchases, balance transfers, and cash advances, as detailed by the lending agency
Joint Account - a credit account that is held by two or more people. Both parties use this account and both are held responsible to make payments
Jumbo Loan - a loan over $200,000
Late Fee - a fee that is added to your statement if the minimum payment due is not received by the designated due date
Late Payment - a payment made after the agreed upon due date. The additional fee imposed is a late fee and they usually charge about $25
Liability on an Account - the legal responsibility to repay a debt
Lien - a legal claim on the property of another for the fulfillment of a debt
Minimum payment - the smallest amount a borrower can pay to keep the account from going into default.
Mortgage - a loan to purchase or to refinance a property. The property is security for the loan.
Over-the-limit fee – a fee that is assessed if your balance goes over your credit limit at any time during the billing cycle
Credit Dictionary: Definition of Credit Terms and Phrases
Poor Credit – a credit score below 619 which would require a secured credit card or sub prime credit card
Pre-approved Credit Cards – an offer from a lender with "pre-approved" means that you have passed a preliminary credit-information screening. Lenders can withhold approval for credit to those invited with "pre-approved" junk mail if the applicant does not meet their credit rating criteria at the time of the application.
Prime rate - the interest rate a bank charges to its best customers. Lenders will quote a prime lending rate. The rate given to borrowers on their credit cards is often based on the prime rate plus a percentage. The amount of the percentage represents the lender's assessment of the risk in lending, plus its profit margin
Prime credit cards – cards awarded to borrowers with good or excellent credit who do not require a security deposit
Principal - the amount of money owed on a loan (minus interest)
Refinancing – the activity of paying off one loan with the returns from a new loan
Returned Access Check Fee - A fee may be charged when you write an Access Check that exceeds your available credit
Returned Payment Fee - A Returned Payment Fee is assessed if a payment on your account is returned for insufficient funds or for any other reason, even if it is paid upon subsequent presentment
Revolving debt – the balance that is also known as a continuous debt
Rule of 72 - divide the number 72 by the percentage rate you are paying on your debt or earning on your investment. This will result in the time it will take in years to double your investment or debt given you make no more deposits or no more payments
Secured credit card – the borrower secures this credit card with a savings deposit to ensure payment of the outstanding balance. This type of card is available for those who are new to credit or individuals working to rebuild their poor credit ratings
Service Charge - the finance charges or fees for triggering an overdraft checking, using balance transfer checks, or credit card checks, etc.
Settlement - a loan agreement is closed
More definitions of credit terms and phrases in our easy to read credit dictionary:
Sub-prime credit cards – cards with fees and higher interest rates provided to borrowers with damaged or no credit and usually require a security deposit
Terms and Conditions – the lender provides a full explanation and disclosure of all the terms of the credit card loan on each credit card application under a section called: "Terms and Conditions", "Terms of the Loan" or "Full Loan Details".
Title - evidence of an individual's ownership of property
Transaction date - the date a specific financial transaction takes place, such as a purchase date
Transaction fee – a fee charged every time a transaction takes place, such as a cash advance
Unsecured debt - debt that is not guaranteed by any property. Most credit cards are unsecured debt.
Unsecured credit card – a credit card that is not secured with a deposit. If an individual has a good credit history or good credit score then they can receive an unsecured credit card
Variable interest rate – an interest rate that is subject to change