Glossary of Credit & Debt-Related Terms
Annual Fee
The bank charge for use of the card levied each year, which can range from $15 -$300, billed directly to the customer's monthly statement.
Annual Percentage Rate (APR)
The cost of credit on a yearly basis, expressed as a percentage rather than a dollar amount. Creditors are required by law to disclose the APR.
ARM (Adjustable Rate Mortgage)
A mortgage that has an interest rate which changes over the life of the loan, usually increasing at regular intervals.
Balance Transfer Fees
The fee charged customers for transferring an outstanding balance from one credit card to another. Card issues offer teaser rates to encourage balance transfers.
Bankruptcy
A legal proceeding that can legally release a person from repaying debts.
Cash Advance Fees
A charge by the bank for using credit cards to obtain cash from the available cash. This fee can be stated in terms of a flat per transaction fee or a percentage of the amount of cash advance.
Charge Off
A debt that has been written off by the creditor as uncollectible; the debt remains valid and subject to collection.
Closing Costs
Fees associated with servicing a mortgage loan, like bank fees, broker fees, and the costs of transferring ownership of the property.
Collateral
That which you promise to give to the bank if you do not pay back a loan.
Credit Insurance
Protection against loss of life, disability, unemployment, etc.. Pays or cancels your monthly payments for a time period, if consumer loses their job through not fault of their own. Polices and protection plans vary. Usually monthly fee is based on the amount of the credit card balance.
Debt Management Plan
A repayment plan that helps consumers pay off their debts over a set period of time with consolidated payments, often with reduced monthly payments, interest rates, and fees.
Default Purchase Rate
If you default on your account, your card issuer, may sell your debt to another company or collection agency. If that happens, you could be responsible for a different, and higher rate.
Deficiency
Any amount one still owes on a contract after the creditor sells the collateral and applies the proceeds to the unpaid obligation.
Double Billing Cycle
Some companies use a double billing cycle, which means that while the due date on your statement refers to your minimum payment, the due date to pay off your entire balance is different. If that due date is two weeks earlier, and you pay off your entire balance on your card by the due date stated on your bill, then the company could still charge you interest for the two-week interim period.
Equity
The value of mortgaged property after the deduction of charges against it.
FICO Score
A credit score, ranging from 300-850, devised by Fair, Isaac Corporation, which lenders use to determine whether they will extend credit to a consumer and at what interest rates.
Finance Charge
The charge for using the card, comprised of interest costs and other fees. The finance charge can be calculated with the following formula: (average daily balance) x (daily periodic rate) x (number of days in billing cycle).
Fixed Expense
Expenses that don’t change from month to month; any bill that is the same amount every month, like rent, mortgage payments, car payments, etc.
Fixed Interest Rate
When a loan’s interest rate stays the same throughout the term of the loan.
Foreclosure
The legal proceeding in which a mortgage lender repossesses a borrower's property due to the borrower's failure to repay the loan.
Grace Period
A time period during which a borrower can pay the full balance of credit due and not incur any finance charges. (some creditors have in their terms and conditions no grace period and the finance charges are based on how many days the account carried a balance before being paid off. There is typically no grace period on cash transactions such as cash advance, balance transfers and the fees associated with the cash transaction).
Gross Income
Your total income, before any taxes or other deductions have been applied.
Installment Debt
Debts that are repaid with a fixed number of payments of equal amount, like an auto loan.
Judgment
A court order placing a lien on a debtor’s property as security for a debt owed to a creditor.
Late Fee
The fee charged customers for paying late or less than the required minimum payment due by the due date.
Net Income
Your income after taxes and other withholdings have been deducted, or your “take-home” pay.
Notice of Reaffirmed DebtsNotice of Reaffirmed Debts
If you have ever defaulted on a debt, be careful that your solicitations for "new" cards don't mention your old debts. Some credit card issuers buy old debts from other companies and then offer "new" cards to people in debt, only to shock the cardholder on their first statement with the old debt.
Open Debts
Also known as open lines of credit, or “charge cards”, these debts are due in full at the end of each month; the most common open credit line is the traditional American Express card.
Overlimit Fee
The fee charged customers for going over their credit line.
Periodic Expenses
Expenses that come less frequently than once per month, like auto club memberships or insurance premiums that are due a few times per year, or things like auto registration or property taxes that are due once per year.
PMI (Private Mortgage Insurance)
This protects the lender if the borrower defaults on a mortgage loan. The premium is added to the cost of the loan, making the monthly mortgage payment higher.
Revolving Debt
A credit arrangement that allows a customer to borrow repeatedly against a pre-approved line of credit when purchasing goods and services. The debt does not have a fixed payment amount.
Reward Program Fee
The fee charged customers to be enrolled in a rewards program. Some creditors do not charge a fee.
Secured Loan
A loan that is backed by collateral, such as an auto loan or a loan that finances the purchase of some appliances or furniture.
Tax Lien
A claim against property, or assets, field by the taxing authority for unpaid taxes.
Transaction Fees
Fees for various transactions. Like using your card for cash advances.
Universal Default Rate
Is a policy some lenders/creditors use that allows them to punish borrowers who pay any creditor late. It is most commonly used by credit card companies and revealed in the fine print of their contracts with consumers.
Unsecured Loan
A loan that is not backed by collateral; it is guaranteed only by the borrower’s promise to repay.
Variable Expenses
Expenses that are due each month but are not consistent in their amounts, like credit card bills, groceries, utility bills and gas.
Variable Interest Rate
When a loan’s interest rate may change during the term of the loan, as written in the loan agreement.
