Glossary of Financial Terms
The interest rate charged on a loan, credit card, or mortgage over a year's time
The fee charged annually by a credit card company to its cardholders. This amount is added to the cardholder's statement.
An individual's credit rating is typically considered bad or poor if their FICO score falls below 620. Issues that drop a FICO score to such a level include defaulting on (failing to pay back) loans and credit cards, making payments past their due date, and/or carrying a high level of debt.
The transfer of an existing account balance (in part or in whole) to a different account, usually an account held with another creditor.
The fee charged by a credit card company when a balance is transferred to one of its cards.
A legal declaration of one's inability to pay his/her creditors. In most cases, voluntary bankruptcy is initiated by the individual in debt (the debtor); in rare cases, creditors may file a bankruptcy petition against a debtor to initiate an involuntary bankruptcy.
The number of days between the last bill or statement and the current bill or statement. Billing cycles are typically 20 to 31 days in length.
A service provided by some credit card companies that allows the cardholder to withdraw cash at an ATM, a bank, or another financial institution.
A small loan that the borrower is to pay back (with interest) over a short period of time.
The fee charged to the cardholder for using his/her credit card to obtain a cash advance.
A refinanced mortgage loan that allows the borrower to receive cash at closing. The amount of the new loan is larger than the balance on the previous loan, thus allowing the borrower to receive the cash difference, minus fees and closing costs.
A bankruptcy status in which the individual is allowed to retain certain property, while other property (if any) is sold in order to pay the individual's outstanding debts.
A bankruptcy status in which an individual can undergo a financial reorganization as supervised by a bankruptcy court, enabling the individual to get out of debt by following the court-approved plan.
A company that collects information from lenders and other sources about individual borrowing and payment histories. The information is then used to help lenders asses an individual's credit worthiness and ability to pay back a credit line or loan.
The maximum amount that a lender or credit card company will lend a borrower on a particular loan or line of credit.
An estimate of the credit worthiness of an individual and his/her ability to pay back a loan or credit card. Credit rating is often measured by FICO score, among other factors.
A record of an individual's borrowing and payment histories as reported to one or more credit bureaus.
The numerical value assigned to an individual's past history of borrowing and repaying debts. Higher numbers are generally assigned to those who have borrowed and paid debts on time. Also see: FICO score
A type of card that can be used to make purchases like a credit card, but with the amount of each purchase deducted directly from the cardholder's bank account.
A transfer of funds directly into an account. Most commonly refers to wages earned from employment being transferred directly into the employee's bank account, rather than issued in the form of a paper check.
Taking out a loan to pay off other smaller debts, usually on better payment terms than those offered by the smaller debts on the whole.
The failure to pay back a loan or a credit card balance.
A number, generally ranging from 300 to 900, that is used to assess the creditworthiness of an individual. The number is statistically generated from information about the individual collected by credit bureaus.
An APR (annual percentage rate) that does not change so long as payments are made on time and the account is kept in good standing.
An application process that allows the applicant to know whether they are approved in a short amount of time, usually in less than one minute.
A process in which the terms of an existing loan are changed from the terms originally agreed to by the lender and the borrower.
The smallest amount of money an accountholder must pay by the due date to keep the account in good standing.
A credit rating which indicates that an individual has never had a loan or credit card in his/her name.
An amount charged by a credit card company when an individual's account balance exceeds his/her credit limit.
A small, short-term loan intended to help cover the borrower's expenses until his/her next payday.
A type of card that requires users to deposit money with the card issuer in order for the card to be used for purchases or other activities.
A type of mortgage loan that enables the borrower to buy a home.
A type of loan that gives the borrower different loan terms on his/her current loan, such as a different interest rate, a new monthly payment amount, and/or cash out from equity.
Indicates that a loan or credit card issuer will share an account holder's payment history with a credit bureau, an agency that collects such data to assess an individual's credit worthiness and ability to pay back a loan or credit line.
A financial institution taking back possession of an object that was either used as collateral on a loan or financed or leased by the institution. For instance, failure to pay a car loan results in the repossession of the car by the company that financed the loan.
Indicates that the information collected on an online application form is encrypted when submitted, so that hackers are unable to gain access to the information.
A type of credit card that is backed by a deposit account owned by the cardholder. The cardholder must typically deposit 100% or more of the credit line desired. The cardholder receives the full deposit amount back (plus interest in many cases) when the credit card is either upgraded to an unsecured card or canceled.
A type of credit card that does not require the credit line to be backed by a corresponding bank deposit. Some unsecured cards charge monthly and/or annual fees for usage.
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Learn the Terminology
does "APR" mean? What is the difference between Chapter 7 and Chapter
13 bankruptcy? The credit industry uses terms that we do not hear in everyday
conversation, but that are important to understand nonetheless.