Affinity Credit 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 American Express sponsors the Delta SkyMiles card.
Annual Fee:The yearly cost to use a credit card. Not all credit cards have an annual fee.
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 (Financial):Anything owned by an individual that has a cash value. This includes property, goods, savings or investments.
Available Credit:The unused portion of a credit line. Available credit is the credit limit minus the current balance.
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/Amount I Owe:The total amount of money owed. It includes any unpaid balance from the previous months, new purchases, cash advances, and any charges such as an annual fee, late fee or interest. The "Amount I Owe" should not be confused with the monthly payment (the minimum payment allowed each month).
Balance Transfer:Moving outstanding balances from one credit card to another.
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 the last statement date and the current statement date.
Billing Statement:The monthly bill from a credit card issuer that describes and summarizes the activity on an account. A billing statement includes the outstanding balance, purchases, payments, credits, finance charges and other transactions for the month.
Borrower:The person who signs and agrees to the terms of a promissory note and is responsible for repaying a loan.
Budget:A report of estimated income and expenses.
Cardholder Agreement: The issuer's written statement of terms and conditions relating to a credit card account. The cardholder agreement is required by Federal Reserve regulations. The agreement states the annual percentage rate, the monthly minimum payment formula, annual fee, if applicable, and the cardholder's rights in billing disputes.
Cash Advance: An instant loan from a credit card account. The Card Company will charge interest from the day the advance is taken until the day it is paid off. A transaction fee may also be charged based on the amount of the withdrawal.
Cash Advance Fee: A one-time fee for cash advances in addition to normal interest charges. This fee is usually a percentage of the advance amount.
CCCS - Consumer Credit Counseling Service:A non-profit organization that provides free or low cost counseling and guidance to people experiencing financial difficulty. CCCS can be reached by calling 1-800-388-CCCS.
Charge Card: A card that requires full payment of the balance by the due date. It is not a line of credit and interest is not charged. The American Express card and Diners Club card are examples of charge cards. The entire balance (what you have charged on the card for the past month) is due in full when the bill comes due. With a CREDIT CARD, you carry a balance and make monthly payments over time.
Collateral: An asset pledged to a lender to guarantee repayment of a loan. Collateral can include savings, bonds, insurance policies, jewelry, property or other items of value. If payments are not made according to the contract, the lender is authorized to take the collateral as payment.
Consolidation Loan:A loan used to refinance existing debt. It usually results in a lower monthly payment at a lower interest rate.
Co-signer:A person who signs a loan or credit card agreement with the primary applicant. The co-signer is responsible for repaying the balance of the loan or debt in the event that the applicant does not.
Credit Card Debt:The total unpaid balances on all credit cards (not to be confused with the minimum amount due each month).
Credit History:Credit history is a record of the way people manage their debts. This information is collected and sold by credit reporting agencies. It includes personal information such as Social Security number, current and prior addresses, and employment information. It also includes the names of credit issuers, current account balances, and the timeliness of payments. Information such as missed or late payments will remain in a credit history for seven years. Bankruptcy will remain for 10 years.The information in a person's credit history can either qualify or disqualify them from obtaining credit cards, mortgages, loans, car or apartment leases, and possibly employment.
Credit Limit:The maximum amount that a person may owe on a credit card, including purchases, cash advances, finance charges and fees.
Credit Line:A revolving amount of credit. Any amount up to the limit on the credit line may be borrowed to make purchases or cash advances. The cost of the purchase, plus interest, is then paid off over a period of time. As the outstanding balance is paid off, credit becomes available again to use for another purchase or cash advance.
Credit Management:The way a person handles the money they borrow from banks or credit issuers. Paying more than the minimum due and not exceeding the credit limit are examples of good credit management.
Credit Reporting Agency (credit bureau): A credit reporting agency is a company that collects and sells information about how people manage their debts. There are three major reporting agencies:
CREDIT REPORTING AGENCIES
Equifax Credit Information Services
P.O. Box 740241
Atlanta, GA 30374-0241
Experian (Formerly TRW)
P.O. Box 2104
Allen, TX 75013-2104
888- EXPERIAN (397-3742)
Trans Union Corporation
Consumer Relations Division
P.O. Box 390
Springfield, PA 19064-0390
Debit Card:A card that allows purchases to be paid for with funds that are immediately deducted from the purchaser's financial account (e.g., checking account).
Debt: The amount of money a person owes to banks and credit issuers.
Credit Analysis (also known as Debt Burden): The percentage of income that goes to paying debt every month. It usually gives a clear picture of overall financial well being. To calculate your percentage, go to the Credit Analysis Calculator.
A low ratio is under 20%, which means that the person is in good financial health and is doing a good job of managing finances. •A moderate ratio is between 21% and 40%. This may mean that the person should look carefully at their monthly payments and expenses and start decreasing their overall level of debt, including credit cards. •A high ratio is over 40%. This may mean that the person should immediately stop accumulating debt and start looking for ways to decrease total debt level.
Default:Failure to repay a loan according to the agreed terms. If a person defaults on a loan, the issuer can sue to ask the court to force the person to pay the balance of the debt.
Deferred Payment:Payments put off to a future date or extended over a period of time. Interest will usually accumulate during deferment.
Delinquent Account:An account on which payments have not been made according to the terms and conditions of the cardholder agreement.
Due Date:The day a payment is due to a creditor. After that date, a late fee may be charged, a late payment may be reported to the credit reporting agencies, and the account may be considered delinquent.
Finance Charges:The total dollar amount paid to use credit. Finance charges include interest, service and transaction fees, premiums paid for credit life insurance, and so forth.
Finance Company:A business that makes consumer loans, often to consumers who cannot qualify for credit at a credit union or bank. Typically the interest rates charged by a finance company are higher than those charged by other creditors.
Fixed Expenses:Expenses that must be paid every month. These are expenses that really can't be changed, like a mortgage, rent, car payment or student loan payments.
Fixed Interest Rate:An interest rate that changes only if the issuer notifies cardholders through an amended cardholder agreement. Federal law stipulates a minimum of 15 day's advance notice is required.
Forbearance:A method of postponing payments due to economic hardship. A lender will set the terms of a forbearance. Typically, interest accrues and is added to the loan balance at the end of the forbearance period.
Grace Period:If individuals do NOT have an outstanding balance on their credit card, a grace period is the interest-free time period between the date of purchase and when that purchase appears on their statement. For example, if they pay off the balance in full on June 1st and then buy an item on June 2nd, they will not be charged interest for the time period between June 2nd and their next statement date.If they carry a balance on their credit card from month to month, they do not have a grace period.A grace period is not the amount of time after the due date during which a person may make a payment without being charged a late fee. Payments must be received on or before the due date on the statement.
Household Income:The total income of all members of a household. It includes wages, commissions, bonuses, alimony, child support, Social Security/retirement benefits, unemployment compensation or disability, dividends and interest.
Individual Credit:Individual credit is credit based on your assets, income and credit history. You alone are responsible for paying an individual account, even if you're married.
Installment Loan:A loan that a person promises to pay back in fixed, scheduled payments over a specific period of time. In addition to the original amount borrowed, interest is paid - a fee for the use of the lender's money. Student loans, home equity loans and auto loans are usually installment loans.
Interest Rate:A fee charged for money lent.
Joint Credit:Joint credit is credit based on the assets, income and credit history of both people who apply. Your combined resources may help you get a higher line of credit. But it also means that you both are responsible for paying off the debt. If one person fails to pay a joint account, the creditor can require payment from the other even if you are separated or divorced.
Late Payment:A payment that is received after the due date.
Late Payment Fee:A fee charged when a payment is received after the due date.
Legal Judgment:A court decision that may require a person to do something, such as pay a debt.
Liability:Anything that is owed and must be repaid at some point in the future. A liability may be due immediately (such as an electric bill) or may be more long term and be paid off over several months or years (such as a mortgage or student loan). The opposite of a liability is an Asset.
Minimum Monthly Payment/Amount Due:The smallest amount that can be paid by the due date and still meet the terms of the cardholder agreement. See also Balance/Amount I Owe.
NFCC - National Foundation for Consumer Credit: A non-profit organization dedicated to educating consumers in the wise use of credit. The NFCC is the parent group for Consumer Credit Counseling Service.
Outstanding Balance:The total amount owed on a credit card or other loan.
Over-the-Credit-Limit:When the amount owed is greater than the limit on a credit line. Any combination of purchases, cash advances, fees or finance charges may cause an individual to exceed their credit limit.
Over-the-Limit Fee:A fee charged for exceeding the assigned credit limit on a credit card.
Past Due:The status of an account when the minimum payment has not been received by the due date.
Periodic Rate:The interest rate described in relation to a specific amount of time. For example, the monthly periodic rate is the cost of credit per month; the daily periodic rate is the cost of credit per day.
Posting Date:The date that a purchase, cash advance, fee, service charge or payment is recorded on an account.
Prepayment:When a portion or the entire amount of the principal of a loan is paid before it is due. This will usually reduce the total amount of interest that must be paid.
Previous Balance: The total balance due at the end of the last billing cycle.
Prime Rate:The base interest rate on corporate loans posted by at least 75% of the nations' 30 largest banks. The Prime Rate is monitored by the Federal Reserve.
Principal:Principal is the portion of a loan that represents the actual amount of money borrowed. Principal is separate from interest. In terms of credit cards, principal represents the price of purchased items or the amount of a cash advance.
Promissory Note:The binding legal document that a person signs to obtain a loan. It lists rights and responsibilities under the loan agreement, including how and when the loan must be repaid.
Quarterly: Every three months.
Rebate Card:A credit card that supplies benefits based upon the card's usage. Benefits are usually in the form of services, such as airline tickets, discounts on future purchases or cash refunds. The credits accumulated toward these benefits are often a percentage of each purchase.
Revolving Credit: A credit agreement that allows consumers to pay all or part of the outstanding balance on a loan or credit card. As the balance is paid off, credit becomes available again to use for another purchase or cash advance.
Secured Card: A credit card which is guaranteed by a cash deposit held in a special savings account or certificate of deposit. The credit line on the card is usually equal to the amount of the deposit. If the cardholder defaults on payments, the issuer will apply the deposit toward the outstanding balance. The deposit must remain in the account until the credit line is closed or the issuer determines security is no longer necessary.
Secured Debt: Debt for which repayment is guaranteed through collateral - property of equal or greater value than the amount of the loan. If the loan is not repaid, the issuer may take possession of the collateral. Collateral may be an asset such as a car or a home or, in the case of a secured credit card, a cash deposit held by the issuer. For example, a mortgage is a secured debt in which the home is collateral. If the person fails to repay the loan, the bank may take the home as payment.
Semi-Annually: Twice a year.
Transaction Date:The date a purchase is made or cash is withdrawn. Some companies assess interest from the transaction date, others from the posting date.
Transaction Fee:A charge for various credit activities such as using an ATM or receiving a cash advance.
Unsecured Credit Card, Unsecured Debt: Debt that is not guaranteed by collateral - no assets are committed in the event of default. If the issuer is unable to collect on the loan, its value is lost. Most credit cards are unsecured.
Variable Expenses: Expenses that can change from month to month. Variable expenses include necessities that can be decreased (e.g., food, utilities) and non-essentials that can be eliminated (e.g., long distance charges, cable, magazine subscriptions, etc). Reducing these expenses is the simplest step in getting control of finances.
Variable Interest Rate: An interest rate that changes based on an economic index such as the prime rate. A variable rate credit card will often have an interest rate like "prime + 5.9%" meaning that the interest on the card is theprime rate plus an additional 5.9%. (See Fixed Interest Rate.)
Warning Signs: Situations or events that suggest financial difficulty. For example, a warning sign could be using a credit card to pay for daily expenses. Other warning signs include paying only the minimum due on credit cards, one credit card to pay the monthly minimum on another card and routinely exceeding the limit on credit cards.
Zero Balance:When the total outstanding balance is paid and there are no new charges or cash advances during a billing cycle.