Ch. 4: Types of Credit

Fair Credit Reporting Act

A federal law that helps to ensure the accuracy, fairness and privacy of the information in consumer credit bureau files

Late payment fee

A fee charged if your payment is received after the due date

Penalty APR

A higher interest rate triggered by being late with or missing a credit card payment

Payment History

A history of the payments you have made on all credit you have obtained; 35% of your credit score is based on this

Equal Credit Opportunity Act

A law that protects consumers from discrimination in the granting or denying of credit

Credit Card Agreement

A legal document that outlines the terms and conditions for using your credit card

bankruptcy

A legal proceeding carried out to allow individuals or businesses freedom from their debts, while simultaneously providing creditors an opportunity for repayment

mortgage

A loan taken by individuals and businesses to make real estate purchases without paying the entire value of the purchase up front

statement

A monthly record of your account transactions provided by your credit card company electronically or on paper

Adjustable Rate Mortgage (ARM)

A mortgage in which the initial interest rate is normally fixed for a specified period of time after which it is reset periodically, often every month

down payment

A partial payment made in cash at the beginning of the purchase of a good or service, while the remaining balance is due later or is financed as part of a loan

Authorized User

A person who has permission to use and/or carry another person's credit card, but isn't legally responsible for paying the bill

credit card

A plastic card that allows you to make purchases now with borrowed money, which then you must repay to the lender in one lump sum or in monthly payments with interest

Credit History

A record of a person's use of credit over time; 15% of your credit score is based on the length of your credit history

Payday Loan

A small loan, offered through a business, lent at a high interest rate, and meant to be paid as soon as you receive your next paycheck

charge card

A special type of credit card with no interest because you must pay the balance in full each month

Home Equity

The value of ownership built up in a home or property that represents the current market value of the house minus any remaining mortgage payments

Consumer Financial Protection Bureau (CFPB)

A U.S. government agency that helps protect consumers by regulating financial products and services, like mortgages, credit cards, and student loans

credit counselor

A certified financial advisor who works for an accredited nonprofit specializing in helping consumers repay debt in a responsible manner

home equity loan

A consumer loan extended to a homeowner that uses the borrower's home as collateral

cash back

A credit card benefit that pays the cardholder a small percentage of their net expenditures, often as cash, payment toward their balance, reward points, travel miles, or gift cards

cash advance

A credit card service that allows cardholders to withdraw a certain amount of cash, either through an ATM or directly from a bank, typically at a high interest rate or for a fee

charge-off

A declaration by a creditor (usually a credit card account) that an amount of debt is unlikely to be collected; occurs when a consumer becomes severely delinquent on a debt

credit report

A document with information about a person's credit activity and history

credit score

A three-digit number (ranging from 300-850) based on an individual's credit history detailed in a credit report

credit

An agreement in which a borrower receives something of value now and agrees to repay the lender in the future, generally with interest

collections

An attempted recovery of a past-due credit obligation or debt by a collection department or agency

Soft Inquiry

An inquiry into your credit history as part of a background check. This does not affect your credit score.

Hard Inquiry

An inquiry into your credit history, typically in advance of applying for a loan. Hard inquiries can negatively affect your credit for 12 months and remain on your credit history for two years.

secured debt

Debt tied to a specific tangible asset that can be used as collateral and repossessed if payments are not made

installment loan

Loan used to finance a specific purchase for a specific amount of time, during which regular payments pay the accrued interest and a portion of the principal

default

Long-term failure to repay a loan according to the terms agreed to, which has a substantial negative impact on the borrower's credit score

interest rate

The rate charged for borrowing money usually expressed as a percent of the amount borrowed

Introductory APR

The typically low rate charged during the introductory period after a credit account is opened, after which the regular, typically higher, APR will apply

Cosigner

Someone who legally agrees to take responsibility for a person's debt if they cannot repay it

balance transfer

The act of transferring debt from one credit card account to another, usually for a fee

interest

The amount you owe as the cost of borrowing money

Annual Percentage Rate (APR)

The cost you pay each year to borrow money, including fees, expressed as a percentage

credit limit

The maximum amount that may be borrowed on a credit card

FICO score

The most commonly used credit score

Grace Period

The number of days between a borrower's statement date and when payment is due, often without accruing interest

credit bureau

a consumer reporting agency that collects and reports information related to the borrowing and debt-paying habits of individual consumer. The three major credit bureaus are Experian, Equifax, and Trans Union

revolving credit

an open line of credit that can be used for any purchases as long as you're under the credit limit. Payment amounts vary each pay period based on the size of the debt.

repossession

the taking away of property after a borrower has defaulted on payments