Lesson 7

credit bureau

A credit-reporting agency that checks credit information and keeps files on people who apply for and use credit.

over-the-limit fee

A fee charged to credit borrowers who exceed their credit limit.

late fee

A fee charged when a payment is not received on time.

interest

A fee paid for the use of money over time. In other words, it's the cost of borrowing money. Interest is often expressed as a percentage of the amount borrowed.

finance charge

A fee representing the cost of credit. It covers the total cost of credit, including but not limited to interest rates, service fees, late fees, application fees, and appraisal fees.

syndicated loan

A large loan in which a group of banks provide funds for a borrower. Syndicated loans are typically used by corporations or even governments and may involve a fixed amount or a line of credit.

bankruptcy

A legal action in which an individual (or an organization) is unable to repay debts and therefore must surrender his or her assets to creditors or establish a repayment plan.

bond

A loan an investor makes to a government or corporation for a specified amount of time for the purpose of raising capital for the government or corporation. In return the investor receives the principal plus fixed-interest payments periodically for a period of more than one year.

mortgage

A loan used to purchase a home. The property is used as security.

debtor

A person or a business that owes money or services to a creditor.

creditor

A person or a business to which debt is owed.

credit card

A plastic card with a magnetic strip connected to an account that is used to buy goods or services. Credit cards give borrowers the ability to pay balances over time by applying an interest rate to unpaid balances.

line of credit

A preapproved amount of credit given to an individual or a business.

credit report

A record of an individual's or company's bill-paying behaviors.

introductory rate

A temporary interest rate, frequently called a "teaser rate," that is offered by the credit card company. Introductory rates are designed to entice borrowers to apply for a specific credit card and often have strict rules that, if violated, cause the rate to adjust to a much higher percentage.

personal installment loan

A type of loan that has a set number of payments and is repaid with interest over a specific period of time.

student loan

A type of loan that is used by a student to pay for educational costs.

credit rating

An assessment of the creditworthiness of an individual. Financial institutions use this rating to evaluate whether a person should be eligible to receive credit.

fixed rate

An interest rate that doesn't change

variable rate

An interest rate that goes up or down depending on the market rate.

FICO

Fair Isaac Corporation, founded in 1956 by Bill Fair and Earl Isaac. The most common credit-scoring model used by lenders. A FICO score can range from 200-900.

credit

The act of buying something or borrowing money with the promise to repay the lender at a future date. In banking, the term also refers to money received in an account that results in increasing the account balance.

debt-to-income ratio

The amount of debt a person or a household has in relation to their income. Lenders use this ratio to decide if more debt can be taken on by the borrower. A person's debt-to-income ratio is determined by dividing his or her total monthly debts by their gross monthly income.

interest rate

The cost for borrowing money, expressed as a percentage.

default

The failure of a borrower to repay the loan.

annual fee

The once-a-year fee applied to some credit cards

grace period

The period before interest begins to accrue on new purchases. If the balance owed is paid in full, no interest is computed.

minimum payment

The smallest amount a borrower can pay in a billing cycle to keep the account in good standing.

average daily balance

The sum of your balance each day in the billing cycle divided by total number of days in the billing cycle.

annual percentage rate

The yearly interest charge applied to outstanding credit card balances. It is one part of the cost of credit. It refers to the way the interest is compounded rather than to the stated interest rate.