| TERM |
DEFINITION |
| Asset |
Anything you own or have a right to own in the future (i.e., you are in someone's will). |
| Collateral |
Property acceptable as security for a loan or other obligation. |
| Charge Off |
Lenders "charge off" unpaid debt balances when they believe the debt will never be repaid. It does not mean that the debt is forgiven. It paints the debtor in a very poor light. A charge off indicates to a potential creditor that not only was there financial trouble at one time but further more, the debtor did not make any effort to deal with the problem. |
| Credit Bureau |
An agency which collects and distributes information about the creditworthiness of individual consumers such as a person's credit habits and payment history. This information is used to assign a credit score which indicates how creditworthy a person is. Prospective lenders / creditors use this information to decide whether to extend credit to the applicant. A credit bureau does not make any decisions about whether an individual should or should not be extended credit. |
| Credit Rating |
A published ranking of the likelihood of a borrower to default on a loan. The highest rating is usually AAA, and the lowest is D. Lenders use this information to decide whether to approve credit to the individual. |
Credit Score
or
FICO Score |
This is a measure of credit risk which reflects a person's credit worthiness. It is calculated from a credit report using a standardized formula and takes into account payment history, timeliness of payments, absence of credit references and unfavorable credit card use. The lowest score is 300 and the highest is 900. Lenders may use a credit score to determine whether to provide a loan and what rate to charge. |
| Creditor |
A entity or person who extends credit to others and where a repayment obligation exists. It does not include any person or company who receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another. |
| Creditworthiness |
Also known as Debt-to-Income Ratio. The measurement an individual's or company's ability to meet debt obligations. Deserving of financial credit. |
| Debt Collector |
Any person who regularly collects debts owed to others. This includes attorneys who collect debts on a regular basis. |
| Debt-to-Income Ratio |
Also known as creditworthiness, this is a comparison of your gross income to your total debt. Most lenders use this ratio to determine your financial well-being. It is calculated by using your monthly debt divided by your monthly income. The lower the percentage the better your financial picture. |
| Equity |
Equity is the difference between what is owed on your home and the value. Most home equity lenders will allow you to borrow up to 80% of that value. |
| Fair Isaac and Company (FICO) |
Fair Isaac (FICO) is the company responsible for creating the popular FICO score. This three digit score is created using information from your credit report and ranges from 300-900. |
| Interest |
The average annual percentage rate you pay toward your loan. |
| Lender |
A private, public or institutional entity which makes funds available to others to borrow. |
| Principal |
This is the amount of money that is actually owed not including interest. If you purchased an item for $200 on your credit card that would be the principal balance. |
| Secured debt |
Secured debt has collateral. Examples are a home mortgage or car loan. |
| Term |
The time required to repay a loan. |
| Unsecured debt |
Unsecured debt has no collateral. Credit card debt is an example of unsecured debt. |
