Introduction to Credit

revolving credit

a line of credit extended to individuals or businesses who may use it as often as desired up to a specific dollar limit

annual percentage rate

a measure of the cost of credit; expressed as a yearly rate

FICO

acronym for Fair Isaac Credit Organization; credit score used by most lenders

spending plan

budget; plan which helps one spend money in a wise manner concerning known income, expenses and future goals

installments

buyer gains use of the commodity immediately and pays for it in periodic payments

liability

debt for which one is responsible to pay

foreclosure

event which occurs when a homeowner stops making mortgage payments and the mortgage lender takes possession of the property in order to sell it; the homeowner does not have the right to any money which comes from the sale of home

defaulting

failing to perform a task or fulfill an obligation, especially failing to meet a financial obligation

transaction fees

fees for getting cash advances, making a late payment or exceeding your credit limit

secured

guaranteed by collateral

unsecured

guaranteed only by a signature

fixed interest rate

interest rate which does not fluctuate during the fixed rate period of the loan

adjustable interest rate

interest rate which may fluctuate up or down during the term of the loan

bankruptcy

legal process available for an individual who is overextended financially and is unable to pay debts

intermediate-term loans

loans which will be in repayment for 18 month to 10 years

short-term loans

loans which will be in repayment for less than an 18 month time period

long-term loans

loans which will be in repayment for more than 10 years

means

manner by which a result is obtained or an end is achieved

application fee

money paid to the bank or mortgage company to cover the expenses of processing a loan application

credit Ratings or FICO scores

number calculated by using information on a credit report which shows lenders what risk they take by loaning money to you

credit scores

numerical expression based on a statistical analysis of one's credit files which represents one's creditworthiness; primarily based on credit report information typically sourced from credit bureaus

credit cards

one of the most common types of loans; charged with debt either by passing the numeric strip through a card reader or by manually typing in the number on the front

consumer

person who acquires goods or services for direct use or ownership, usually by purchasing with money

creditor

person who has loaned money to someone on credit through a loan

collateral

property acceptable as security for a loan or other obligation

big ticket purchases

refers to retail good with a high selling price in comparison to other items, for example, cars, homes, etc.

justification

satisfactory reason or excuse for doing something

lump sum

single sum of money which serves as a complete payment

credit

the ability to acquire money, goods or services from others without immediate payment; an agreement to repay the purchase price and whatever interest is incurred

dispute

to question the truth or validity or an entry on a statement

net worth

total assets minus liabilities or debt

interest rate

usual way of calculating interest as a percentage of sum borrowed

credit check

when a potential lender purchases a copy of one's credit report to determine whether or not the person has the ability or character to repay a debt

annual fees

yearly membership or participation fees