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A B C
D E F G H I J K L M
N O P Q R
S T U V W X Y Z
Affinity Card
A card that is offered jointly by two organizations. One is a credit card
issuer and the other is a professional association, special interest group
or other non-bank company. For example, Citibank and American Airlines
sponsor the Citibank AAdvantage card.
Amortization
The process of fully paying off indebtedness by installments of principal
and earned interest over a definite time.
Appraisal Fee
The charge for estimating the value of property offered as security.
Annual Fee
A yearly fee charged to the card for keeping the account open. Some cards
have this fee and some do not.
Annual Percentage Rate (APR)
The cost of carrying a balance on a loan expressed as an annual
percentage. To calculate the amount owed in interest each month divide the
APR by 12. For example, if the APR is 18% the monthly rate is 1.5%.
Asset
Anything owned by an individual that has a cash value. This includes
property, goods, savings or investments.
Average Daily Balance
The average daily balance is a method used to calculate finance charges.
It is calculated by adding the outstanding balance on each day in the
billing period, and dividing that total by the number of days in the
billing period. The calculation includes new purchases and payments.
Bad Credit
A term used to describe a poor credit rating. Common practices that can
damage a credit rating include making late payments, skipping payments,
exceeding card limits or declaring bankruptcy. "Bad Credit" can result in
being denied credit.
Balance
The total amount of money owed. It includes any unpaid balance from the
previous month, new purchases, cash advances, and any charges such as an
annual fee, late fee or interest. The balance should not be confused with
the monthly payment (the minimum payment allowed each month), which is
generally 2% - 5% for revolving credit cards.
Balance Transfer
Moving a balance (debt) from one credit card to another. This is often
done with special checks or forms, or may be offered as an option on some
credit card applications. The usual reason is to shift an ongoing debt to
an account with a lower interest rate.
Balloon Payment
A large extra payment that may be charged at the end of a loan or lease.
Bankruptcy
Bankruptcy is a legal declaration of the inability to repay debts.
Bankruptcy should be viewed as a last resort. It will have a severe impact
on a credit rating and will remain on a credit report for ten years.
Furthermore, bankruptcy is not a solution in all cases. Federal student
loans, Federal tax debt and child support are all exempt from bankruptcy
protection. Bankruptcy agreements vary but there are two types of
agreements that most people choose: Chapter 7 and Chapter 13.
Chapter 7
In a Chapter 7 agreement, the court resolves most
debts by selling assets and property so that the filer is given a fresh
financial start. The court takes all assets including cars, homes,
furnishings, jewelry or anything else of value. The assets are sold to pay
off the debt. There are some debts that a person may wish to repay on
their own instead of having the court resolve it. This is called
reaffirmation. Reaffirmation is a special payment plan with the court. For
example, if a car loan is reaffirmed, the person keeps the car and makes
payments under new terms. Chapter 7 bankruptcy will not eliminate debts
due to taxes, child support, alimony, student loans, court fines or
personal injury caused by driving drunk or under the influence of drugs. A
Chapter 7 filing will remain on a credit report for 10 years.
Chapter 13
In a Chapter 13 agreement, the court creates a debt
repayment plan that allows the filer to keep their property. In order to
file Chapter 13, a person must have a source of income and promise to pay
part of their income to creditors. The court allows the filer to keep any
assets that have debts against them if they pay them off under terms
determined by the court. A Chapter 13 filing will remain on a credit
report for 10 years. With Chapter 13, there is a better chance of
obtaining future loans and credit.
Billing Cycle
The number of days between statement dates. This is generally about 25
days..
Buydown
A lump sum payment made to the creditor by the borrower or by a third
party to reduce the amount of some or all of the consumer's periodic
payments to repay the indebtedness.
Closed-end Credit
Generally, any loan or credit sale agreement in which the amounts
advanced, plus any finance charges, are expected to be repaid in full over
a definite time. Most real estate and automobile loans are closed- end
agreements.
Collateral Property
that is offered to secure a loan or other credit and that becomes subject
to seizure on default. (Also called security.)
Community Reinvestment Act (CRA)
Encourages banks to help meet the credit needs of their communities for
housing and other purposes, particularly in neighborhoods with low or
moderate incomes, while maintaining safe and sound operations.
Cosigner
Another person who signs for a loan and assumes equal liability for it.
Credit The promise to pay in the future in order to buy or borrow in the
present. The right to defer payment of debt.
Creditworthiness
A creditor's measure of a consumer's past and future ability and
willingness to repay debts.
Credit Card
Any card, plate, or coupon book that may be used repeatedly to borrow
money or buy goods and services on credit.
Credit History
A record of how a person has borrowed and repaid debts.
Credit Scoring System
A statistical system used to determine whether or not to grant credit by
assigning numerical scores to various characteristics related to
creditworthiness.
Default Failure
to meet the terms of a credit agreement.
Discount
An amount deducted from the regular price for those who purchase with cash
instead of credit.
Finance Charge
The total dollar amount paid to get credit.
Fixed Rate
A traditional approach to determining the finance charge payable on an
extension of credit. A predetermined and certain rate of interest is
applied to the principal.
Graduated Payment Repayment
terms calling for gradual increases in the payments on a closed-end
obligation. A graduated payment loan usually involves negative
amortization.
Liability
on an Account Legal responsibility to repay debt.
Negative Amortization
Repayment schedule calling for periodic payments that are insufficient to
fully amortize the loan. Earned but unpaid interest is added to the
principal, increasing the debt. Eventually, payments must be rescheduled
to fully pay off the debt.
Open-end Credit
A line of credit that may be used repeatedly up to a certain limit, also
called a charge account or revolving credit.
Open-end Lease
A lease that may involve a balloon payment based on the value of the
property when it is returned. (Also called finance lease.)
Overdraft Checking Account
A checking account associated with a line of credit that allows a person
to write checks for more than the actual balance in the account, with a
finance charge on the overdraft.
Points
Finance charges paid by the borrower at the beginning of a loan in
addition to monthly interest; each point equals one percent of the loan
amount.
Renegotiable Rate
A type of variable rate involving a renewable short- term "balloon" note.
The interest rate on the loan is generally fixed during the term of the
note, but when the balloon comes due, the lender may refinance it at a
higher rate. In order for the loan to be fully amortized, periodic
refinancing may be necessary.
Security Interest
The creditor's right to take property or a portion of property offered as
security.
Seller's Points
A lump sum paid by the seller to the buyer's creditor to reduce the cost
of the loan to the buyer. This payment is either required by the creditor
or volunteered by the seller, usually in a loan to buy real estate.
Generally, one point equals one percent of the loan amount.
Service Charge
A component of some finance charges, such as the fee for triggering an
overdraft checking account into use.
Statement
The monthly bill from a credit card issuer that describes and summarizes
the activity on an account. A statement includes the outstanding balance,
purchases, payments, credits, finance charges and other transactions for
the month.
Statement Date
The date on which a statement is generated, and the month's finance
charges (interest) are added to the balance.
Surcharge
An extra charge imposed on those who purchase with a credit card instead
of cash. (Currently, surcharges for credit card purchases are prohibited.)
Variable Rate
A variable rate agreement, as distinguished from a fixed rate agreement,
calls for an interest rate that may fluctuate over the life of the loan.
The rate is often tied to an index that reflects changes in market rates
of interest. A fluctuation in the rate causes changes in either the
payments or the length of the loan term. Limits are often placed on the
degree to which the interest rate or the payments can vary.
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