A
Affinity
Card A card that is offered jointly by two organizations.
One is a credit card issuer and the other is a professional
association, special interest group or other non-bank company.
For example, Citibank and American Airlines sponsor the Citibank
AAdvantage card.
Amortization
The process of fully paying off indebtedness by installments
of principal and earned interest over a definite time.
Appraisal
Fee The charge for estimating the value of property
offered as security.
Annual
Fee A yearly fee charged to the card for keeping
the account open. Some cards have this fee and some do not.
Annual
Percentage Rate (APR) The cost of carrying a
balance on a loan expressed as an annual percentage. To calculate
the amount owed in interest each month divide the APR by 12.
For example, if the APR is 18% the monthly rate is 1.5%.
Asset
Anything owned by an individual that has a cash
value. This includes property, goods, savings or investments.
Average
Daily Balance The average
daily balance is a method used to calculate finance charges.
It is calculated by adding the outstanding balance on each day
in the billing period, and dividing that total by the number
of days in the billing period. The calculation includes new
purchases and payments.
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B
Bad
Credit A term used to describe a poor credit
rating. Common practices that can damage a credit rating include
making late payments, skipping payments, exceeding card limits
or declaring bankruptcy. "Bad Credit" can result in being denied
credit.
Balance
The total amount of money owed. It includes any unpaid balance
from the previous month, new purchases, cash advances, and any
charges such as an annual fee, late fee or interest. The balance
should not be confused with the monthly payment (the minimum
payment allowed each month), which is generally 2% - 5% for
revolving credit cards.
Balance
Transfer Moving a balance (debt) from one credit
card to another. This is often done with special checks or forms,
or may be offered as an option on some credit card applications.
The usual reason is to shift an ongoing debt to an account with
a lower interest rate.
Balloon
Payment A large extra payment that may be charged
at the end of a loan or lease.
Bankruptcy
Bankruptcy is a legal declaration of the inability
to repay debts. Bankruptcy should be viewed as a last resort.
It will have a severe impact on a credit rating and will remain
on a credit report for ten years. Furthermore, bankruptcy is
not a solution in all cases. Federal student loans, Federal
tax debt and child support are all exempt from bankruptcy protection.
Bankruptcy agreements vary but there are two types of agreements
that most people choose: Chapter 7 and Chapter 13.
- Chapter 7
- In a Chapter 7 agreement, the court resolves
most debts by selling assets and property so that the filer
is given a fresh financial start. The court takes
all assets including cars, homes, furnishings, jewelry or
anything else of value. The assets are sold to pay off the
debt. There are some debts that a person may wish to repay
on their own instead of having the court resolve it. This
is called reaffirmation. Reaffirmation is a special payment
plan with the court. For example, if a car loan is reaffirmed,
the person keeps the car and makes payments under new terms.
Chapter 7 bankruptcy will not eliminate debts due to taxes,
child support, alimony, student loans, court fines or personal
injury caused by driving drunk or under the influence of
drugs. A Chapter 7 filing will remain on a credit report
for 10 years.
- Chapter 13
- In a Chapter 13 agreement, the court creates
a debt repayment plan that allows the filer to keep their
property. In order to file Chapter 13, a person must have
a source of income and promise to pay part of their income
to creditors. The court allows the filer to keep any assets
that have debts against them if they pay them off under
terms determined by the court. A Chapter 13 filing will
remain on a credit report for 10 years. With Chapter 13,
there is a better chance of obtaining future loans and credit.
Billing
Cycle The number of days between statement dates.
This is generally about 25 days..
Buydown
A lump sum payment made to the creditor by the borrower or by
a third party to reduce the amount of some or all of the consumer's
periodic payments to repay the indebtedness.
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C
Closed-end
Credit Generally, any loan or credit sale agreement
in which the amounts advanced, plus any finance charges, are
expected to be repaid in full over a definite time. Most real
estate and automobile loans are closed- end agreements.
Collateral
Property that is offered to secure a loan or other credit and
that becomes subject to seizure on default. (Also called security.)
Community
Reinvestment Act (CRA) Encourages banks to help
meet the credit needs of their communities for housing and other
purposes, particularly in neighborhoods with low or moderate
incomes, while maintaining safe and sound operations.
Cosigner
Another person who signs for a loan and assumes equal liability
for it.
Credit
The promise to pay in the future in order to buy or borrow in
the present. The right to defer payment of debt.
Creditworthiness
A creditor's measure of a consumer's past and future ability
and willingness to repay debts.
Credit
Card Any card, plate, or coupon book that may
be used repeatedly to borrow money or buy goods and services
on credit.
Credit
History A record of how a person has borrowed
and repaid debts.
Credit
Scoring System A statistical system used to
determine whether or not to grant credit by assigning numerical
scores to various characteristics related to creditworthiness.
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D
Default
Failure to meet the terms of a credit agreement.
Discount
An amount deducted from the regular price for those who purchase
with cash instead of credit.
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F
Finance
Charge The total dollar amount paid to get credit.
Fixed
Rate A traditional approach to determining the
finance charge payable on an extension of credit. A predetermined
and certain rate of interest is applied to the principal.
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G
Graduated
Payment Repayment terms calling for gradual
increases in the payments on a closed-end obligation. A graduated
payment loan usually involves negative amortization.
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L
Liability
on an Account Legal responsibility to repay
debt.
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N
Negative
Amortization Repayment schedule calling for
periodic payments that are insufficient to fully amortize the
loan. Earned but unpaid interest is added to the principal,
increasing the debt. Eventually, payments must be rescheduled
to fully pay off the debt.
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O
Open-end
Credit A line of credit that may be used repeatedly
up to a certain limit, also called a charge account or revolving
credit.
Open-end
Lease A lease that may involve a balloon payment
based on the value of the property when it is returned. (Also
called finance lease.)
Overdraft
Checking Account A checking account associated
with a line of credit that allows a person to write checks for
more than the actual balance in the account, with a finance
charge on the overdraft.
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P
Points
Finance charges paid by the borrower at the beginning of a loan
in addition to monthly interest; each point equals one percent
of the loan amount.
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R
Renegotiable
Rate A type of variable rate involving a renewable
short- term "balloon" note. The interest rate on the loan is
generally fixed during the term of the note, but when the balloon
comes due, the lender may refinance it at a higher rate. In
order for the loan to be fully amortized, periodic refinancing
may be necessary.
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S
Security
Interest The creditor's right to take property
or a portion of property offered as security.
Seller's
Points A lump sum paid by the seller to the
buyer's creditor to reduce the cost of the loan to the buyer.
This payment is either required by the creditor or volunteered
by the seller, usually in a loan to buy real estate. Generally,
one point equals one percent of the loan amount.
Service
Charge A component of some finance charges,
such as the fee for triggering an overdraft checking account
into use.
Statement
The monthly bill from a credit card issuer that describes and
summarizes the activity on an account. A statement includes
the outstanding balance, purchases, payments, credits, finance
charges and other transactions for the month.
Statement
Date The date on which a statement is generated,
and the month's finance charges (interest) are added to the
balance.
Surcharge
An extra charge imposed on those who purchase with a credit
card instead of cash. (Currently, surcharges for credit card
purchases are prohibited.)
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V
Variable
Rate A variable rate agreement, as distinguished
from a fixed rate agreement, calls for an interest rate that
may fluctuate over the life of the loan. The rate is often tied
to an index that reflects changes in market rates of interest.
A fluctuation in the rate causes changes in either the payments
or the length of the loan term. Limits are often placed on the
degree to which the interest rate or the payments can vary.
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