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Credit And Financial Glossary
Accrue is the process whereby interest accumulates on a borrower's loan. When we speak of "interest accruing on your loan," we mean that the interest due on a loan is accumulating.
Adverse Credit History An applicant for a Direct PLUS Consolidation Loan has an adverse credit history when he or she is 90 days or more delinquent on any debt or has been the subject of a default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off of a Title IV debt during the five years preceding the date of the credit report.
Adjustable-rate loans, also known as variable-rate loans, usually offer a lower initial interest rate than fixed-rate loans. The interest rate fluctuates over the life of the loan based on market conditions, but the loan agreement generally sets maximum and minimum rates. When interest rates rise, generally so do your loan payments; and when interest rates fall, your monthly payments may be lowered
Annual fees are fees that credit card issuers charge annually for giving you credit, typically $15 to $55.
Annual membership or maintenance fee is an annual charge for having the line of credit available. Charged regardless of whether or not the line is used
Annual percentage rate (APR) is the cost of credit expressed as a yearly rate. The APR includes the interest rate, points, broker fees, and certain other credit charges that the borrower is required to pay.
Application fees are fees that are paid upon application. May include charges for property appraisal and a credit report.
Appraisal Fee is the charge for estimating the value of property offered as security.
Automated Teller Machines (ATMs) are electronic terminals located on bank premises or elsewhere, through which customers of financial institutions may make deposits, withdrawals, or other transactions as they would through a bank teller.
Balloon payment is a lump-sum payment that may be required when the plan ends.
Bankruptcy is considered the credit solution of last resort. Unlike negative credit information that stays on a credit report for seven years, bankruptcies stay on a credit report for 10 years. Bankruptcy can make it difficult to rent an apartment, buy a house or condo, get some types of insurance, get additional credit, and sometimes, get a job. In some cases, bankruptcy may not be an easily available option.
Billing Error is any mistake in your monthly statement as defined by the Fair Credit Billing Act.
Borrower is an individual who signed and agreed to the terms in the promissory note and is responsible for repaying a loan.
Budget is a plan for how much money you have and how much money you spend. Sticking to a realistic budget allows you to pay off your debts and save for the proverbial rainy day.
Business Days Check with your institution to find out what days it counts as business days under the Truth in Lending and Electronic Fund Transfer Acts.
Cancellation Some student loan programs allow for all or part of the total loan principal and accrued interest to be canceled in certain circumstances. A canceled loan may also be referred to as a "discharged loan."
Cap is a limit on how much the variable interest rate may increase during the life of the plan.
Charge card is a card for which you must pay your balance in full when you get your regular statement.
Closed-End Lease is a lease in which you are not responsible for the difference if the actual value of the item at the scheduled end of the lease is less than the residual value, but you may be responsible for excess wear-and-use charges and for other lease requirements.
Closing costs are fees paid at closing, including attorneys fees, fees for preparing and filing a mortgage, fees for title search, taxes, and insurance.
Collateral is property, such as stocks, bonds or a car, offered to support a loan and subject to seizure if you default.
Consolidation is the process of combining a number of outstanding loans into a single larger, but more manageable, loan.
Conventional loans are mortgage loans other than those insured or guaranteed by a government agency such as the FHA (Federal Housing Administration), the VA (Veterans Administration), or the Rural Development Services (formerly know as Farmers Home Administration, or FmHA).
Cosigner is another person who signs your loan and assumes equal responsibility for it.
Credit is more than just a plastic card used to buy things. It’s your financial trustworthiness. Good credit means that your history of payments, employment and salary make you a good candidate for a loan, and creditors (those who lend money or services) will be more willing to work with you. Having good credit usually translates into lower payments and more ease in borrowing money. Bad credit, however, can be a big problem. It usually results from making payments late or borrowing too much money, and it means that you might have trouble getting a car loan, a credit card, a place to live and, sometimes, a job.
Credit Bureau is an agency that keeps your credit record; also called a credit-reporting agency.
Credit card can be used to buy things and pay for them over time. But remember, buying with credit is a loan; you have to pay the money back. What’s more, if the credit card company sends you a check, it’s not a gift. It’s a loan you have to pay back. In addition to the cost of what you bought, you will owe a percentage of what you spent (interest) and sometimes an annual fee.
Credit counseling Many universities, military bases, credit unions and housing authorities operate nonprofit financial counseling programs. Some charge a fee for their services. Creditors may be willing to accept reduced payments if you are working with a reputable program to create a debt repayment plan.
Credit limit is the maximum amount that may be borrowed under the home equity plan.
Credit History is the record of how you've borrowed and repaid debts.
Credit Insurance is health, life, accident, or disruption of income insurance designed to pay the outstanding balance on a debt.
Credit scoring Most creditors use credit scoring to evaluate your credit record. This involves using your credit application and credit report to get information about you, such as your annual income, outstanding debt, bill-paying history, and the number and types of accounts you have as well as how long you've had them.
Creditworthiness includes your past, present, and future ability to repay debts.
Creditor is a person or business from whom you borrow or to whom you owe money.
Debit card allows you to access the money in your checking or savings account electronically to make purchases. A plastic card, which looks similar to a credit card, that consumers may use at an ATM or to make purchases, withdrawals, or other types of electronic fund transfers.
Default is the failure to repay a loan or otherwise meet the terms of your credit agreement.
Disclosures is information that must be given to consumers about their financial dealings.
Elderly Applicant as defined in the Equal Credit Opportunity Act, a person 62 years or older.
Electronic Fund Transfer (EFT) Systems are a variety of systems and technologies for transferring funds electronically rather than by check.
Equity is the difference between the fair market value (appraised value) of the home and the outstanding mortgage balance.
B<>Escrow is the holding of money or documents by a neutral third party prior to closing. It can also be an account held by the lender (or servicer) into which a homeowner pays money for taxes and insurance.
Finance Charge is the total dollar amount credit will cost.
Fixed-rate loans generally have repayment terms of 15, 20, or 30 years. Both the interest rate and the monthly payments (for principal and interest) stay the same during the life of the loan.
Forbearance can be used to temporarily suspend or reduce monthly loan payments. Borrowers may qualify for forbearance if they are willing but unable to make loan payments due to certain types of financial hardships.
Grace period is the time between the date of the credit card purchase and the date the company starts charging you interest.
Home Equity Line of Credit is a form of open-end credit in which the home serves as collateral.
Identity theft involves someone else using your personal information to create fraudulent accounts, to charge items to another person’s existing accounts, or even to get a job.
Index is the published rate that serves as a base for the interest rate charged on a home equity line and also as the base for rate changes used by the lender.
Interest is a loan expense charged by the lender and paid by the borrower for the use of borrowed money. The expense is calculated as a percentage of the unpaid principal amount (loan amount).
The interest rate is the cost of borrowing money expressed as a percentage rate. Interest rates can change because of market conditions.
Joint Account is a credit account held by two or more people so that all can use the account and all assume legal responsibility to repay.
Late Payment is a payment made later than agreed upon in a credit contract and on which additional charges may be imposed.
Lessee is the party to whom the item is leased. In a consumer lease, the lessee is you, the consumer. The lessee is required to make payments and to meet other obligations specified in the lease agreement.
Lessor is the person or organization who regularly leases, offers to lease, or arranges for the lease of the item.
Liability on an Account is legal responsibility to repay debt.
Loan origination fees are fees charged by the lender for processing the loan and are often expressed as a percentage of the loan amount.
Lock-in refers to a written agreement guaranteeing a home buyer a specific interest rate on a home loan provided that the loan is closed within a certain period of time, such as 60 or 90 days. Often the agreement also specifies the number of points to be paid at closing.
Margin is the number of percentage points the lender adds to the index rate to determine the annual percentage rate.
Minimum payment is the minimum amount that you must pay (usually monthly) on your account. Under some plans, the minimum payment may cover interest only; under others, it may include both principal and interest.
A mortgage is a document signed by a borrower when a home loan is made that gives the lender a right to take possession of the property if the borrower fails to pay off on the loan.
Open-End Credit is a line of credit that may be used repeatedly, including credit cards, overdraft credit accounts, and home equity lines.
Open-End Lease is a lease agreement in which the amount you owe at the end of the lease term is based on the difference between the residual value of the leased property and its realized value. Your lease agreement may provide for a refund of any excess if the realized value is greater than the residual value. In an open-end consumer lease, assuming you have met the use and wear standards, the residual value is considered unreasonable if it exceeds the realized value by more than three times the base monthly payment (sometimes called the “three-payment rule”).
Overages are the difference between the lowest available price and any higher price that the home buyer agrees to pay for the loan. Loan officers and brokers are often allowed to keep some or all of this difference as extra compensation.
Overdraft Checking is a line of credit that allows you to write checks or draw funds with an EFT card for more than your actual balance, with an interest charge on the overdraft.
Payment Amount is the total amount of a borrower's most recent payment.
Point-of-Sale (POS) is a method by which consumers can pay for purchases by having their deposit accounts debited electronically without the use of checks.
Points and Origination Fees are fees paid to the lender for the loan. One point equals 1 percent of the loan amount. Points are usually paid in cash at closing. In some cases, the money needed to pay points can be borrowed, but doing so will increase the loan amount and the total costs. An origination fee covers the lender’s work in preparing your mortgage loan.
Private mortgage insurance (PMI) protects the lender against a loss if a borrower defaults on the loan. It is usually required for loans in which the down payment is less than 20 percent of the sales price or, in a refinancing, when the amount financed is greater than 80 percent of the appraised value.
Realized Value (1) The price the lessor or assignee receives for the leased item at disposition, (2) the highest offer for the leased item at disposition, or (3) the fair market value of the leased item at termination. The realized value may be either the wholesale or the retail value as specified in the lease agreement.
Promissory Note is the binding legal document that a borrower signs when they obtain a loan. It lists the conditions under which they are borrowing and the terms under which they agree to pay back the loan. It will include information about the interest rate and about deferment and cancellation provisions.
Rescission is the cancellation of a contract.
Residual Value is the end-of-term value of the item established at the beginning of the lease and used in calculating your base monthly payment. The residual value is deducted from the adjusted capitalized cost to determine the depreciation and any amortized amounts. It is an estimate that may be determined in part by using residual value guidebooks. The residual value may be higher or lower than the realized value at the scheduled end of the lease.
Security is property pledged to the creditor in case of a default on a loan; see collateral.
Security interest is an interest that a lender takes in the borrower’s property to ensure repayment of a debt.
Service Charge is a component of some finance charges, such as the fee for triggering an overdraft checking account into use.
Thrift institution is a general term for savings banks and savings and loan associations.
Transaction fee is a fee charged each time you draw on your credit line.
Transaction, settlement, or closing costs may include application fees; title examination, abstract of title, title insurance, and property survey fees; fees for preparing deeds, mortgages, and settlement documents; attorneys' fees; recording fees; and notary, appraisal, and credit report fees. Under the Real Estate Settlement Procedures Act, the borrower receives a good faith estimate of closing costs at the time of application or within three days of application. The good faith estimate lists each expected cost either as an amount or a range.
Variable rate is an interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.
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