Credit

FICO Score

Credit score (based on a model originally developed by the Fair Isaac Corporation in the 1950s) from 300-850 that rates a person's credit worthiness (how likely they are to make on-time payments to loans and credit issuers)

collateral

something pledged as security for repayment of a loan, to be forfeited in the event of a default/failure to repay that loan.

interest

the price paid for the use of borrowed money

Bankruptcy

A condition under which a person or corporation is declared unable to pay their debts. This stays on an individual's credit report for 10 years.

finance charge

A fee for borrowing money, added to a monthly credit card bill.

Fair Debt Collection Practices Act

A law that protects consumers from abusive, deceptive, and unfair practices by creditors and collection agencies.

credit reporting agencies

Agencies that create credit reports based on the information they receive from lenders regarding a borrower's account history with that lender. Sometimes called credit bureaus. Equifax, Experian, and TransUnion are the three major ones.

Truth in Lending Act

An act which requires lenders to inform borrowers of all direct, indirect and true costs of credit.

APR

Annual percentage rate; the annual rate of interest that is charged for using credit

predatory lending

Any of a number of fraudulent, deceptive, discriminatory, or unfavorable lending practices - for example: to take advantage of ill-informed consumers and charge excessively high fees. Many of these practices are illegal, while others are legal but not in the best interest of the borrowers.

3 C's of Credit

Character (credit history), Capacity (ability to repay), Capital (assets)

interest rate

Percentage of amount borrowed to be added to the amount loaned (or credit used) and paid back.

Foreclosure

Process by which the holder of a mortgage (a bank or other financial institution) sells the property of a homeowner who has not made interest and/or principal payments on time as stipulated in the mortgage contract.

Repossession

Process of a lender taking something back (like a car) due to failure to make payments.

installment credit

credit used to finance a single high-priced item through a series of equal payments made over a set period of time (like once a month).

Consumer Credit Counseling Services

Services offered by organizations that help consumers find a way to repay debts through careful budgeting and management of funds. For example, some nonprofit organizations provide debt counseling for individuals with serious debt problems/financial issues.

Payday Loan

This is a high-cost, short-term loan for a relatively small amount (usually a few hundred dollars). The loan borrower gets a cash advanced based on their paycheck. These loans are generally made to people with very low or no credit, must be repaid on the next payday, and carry VERY high interest rates. These loans are risky — it's easy to get trapped in a cycle of debt and can be expensive to get out.

FICO

This is an acronym for the Fair Isaac Corporation, the company that developed the FICO score, which is the most commonly used credit score in the United States. There are others, but FICO is most commonly used. When someone says 'credit score,' it's almost always FICO they're talking about.

credit card

a small plastic card issued by a bank, business, or other financial institution, allowing the holder to purchase goods or services on credit now and pay for them later.

revolving credit

a type of open credit agreement that allows consumers to pay all or part of the outstanding balance on a loan or credit card.