Glossaries
Credit Cards Glossary
Annual Percentage Rate (APR) - The cost of credit as a yearly rate.
Asset - The entire property of a person or company that may be used to pay debts.
Balance - An amount in excess especially on the credit side of an account.
Billing Error - Any mistake in a monthly statement as defined by the Fair Credit Billing Act.
Broker - An agent who negotiates contracts of purchase and sale.
Business Days - Find out from your institution what days it counts as business days under the Truth in Lending and Electronic Fund Transfer Acts. Usually five days.
Certificate of Title - A written opinion or a certificate issued by a title company that states that the seller has a good marketable and insurable title to the property being offered for sale. This certificate offers no protections against hidden defects in the title, which an examination of the records could not reveal.
Check Draft - An official approval package, containing a check draft made out for the maximum amount, that is sent in the mail after you have been approved. This is valid at any franchised auto dealer. A customer simply fills in the exact amount of purchase.
Collateral - Property used as security for the repayment of a loan
Conventional Loan - A loan that is not insured by the government.
Cosigner - A joint signer of a promissory note.
Credit - The balance (as in a bank) in a person’s favor.
Credit Bureau - An agency that keeps your credit record.
Credit Card - A card authorizing purchases on credit.
Credit History - A person’s record of how you have borrowed and repaid debts.
Credit Ratio - The result of your monthly bills on long-term debts divided by the net income or gross monthly income.
Credit Scoring - A system that is used to rate credit applicants.
Credit Scoring System - A system that rates credit applicants according to various characteristics relevant to credit worthiness.
Credit-related Insurance - Life, health, or accident insurance designed to pay the outstanding balance of debt.
Creditor - A person to whom money is owed.
Creditworthiness - A person’s ability to repay on past and future debts.
Daily periodic rate - A customer’s credit card’s APR divided by 365 days in the year.
Debit Card - A secured credit card that is accessible to customers who have savings and checking accounts. The card gives customers access to ATM machines. The card will have a Visa or MasterCard logo on it. Most banks offer these cards to their customers.
Debt-to-Income - A formula that creditors use to calculate your income versus your debt level. A customer with a high percentage of debt versus income will put them in the high-risk borrower category.
Default - Failure to meet the terms of your credit agreement by not repaying your loan.
Delinquency - Failure by the customer to not make their payments on time. Such action can result in collection and lawsuits.
Depreciation - The decrease or decline in the value of a vehicle.
Disclosures - Information that must be given to consumers about their financial dealings.
Down Payment - The amount of money that is paid between the purchase price and loan amount.
Earnest Money - The amount of money that is paid upfront as part of the purchase price to bind a transaction that will ensure payment.
Electronic Fund Transfer - Technology that is used to transfer funds electronically rather than by a check.
Equal Credit Opportunity Act (ECOA) - A federal law that requires lenders to loan without discrimination based on race, color, religion, national origin, sex, marital status or income from public assistance programs. Lenders are able to discriminate against credit risks that are known not to pay their bills.
Equity - The value of a property or of an interest in it in excess of claims against it.
Finance Charge - A customer’s total dollar amount that credit will cost.
Gross Monthly Income - A person’s income before taxes.
Guarantee - An agreement by which one person undertakes to secure another in the possession of something.
Household Income - The total income of all members of a household. An important yardstick used by credit card issuers evaluating applications for joint credit.
Installment Loan - Monthly payments that are applied to the actual purchase of the vehicle. A person will own the vehicle at the end of the loan by making these monthly payments.
Interest - A charge for borrowed money that is generally a percentage of the amount borrowed.
Joint Account - A credit account that is held by two or more people. Both parties use this account and both are held responsible to repay.
Jumbo Loan - A loan over $200,000.
Late Fee - A fee that is added to your credit card statement for failure to pay your bill after the due date.
Late Payment - A payment made after the date agreed upon in a credit contract. An additional fee may be imposed and is referred to as a late fee. These fees run about $25.
Liability on an Account - Legal responsibility to repay debt.
Lien - A legal claim on the property of another for the satisfaction of a debt or duty.
Minimum payment - The minimum amount a card holder can pay to keep the account from going into default. Some card issuers will set a high minimum if they are uncertain of the card holders ability to pay. Most card issuers require a minimum payment of 2 percent of the outstanding balance.
MSRP - Manufacturer’s Suggested Retail Price that represents the manufacturer’s recommended selling price for a vehicle and each of its options.
Negative Amortization - This occurs when monthly payments are not large enough to pay all the interest due on the loan. The unpaid interest is added to the unpaid balance of the loan. This can result in the borrower owing more than the original amount of the loan.
Negative Monthly Income - A person’s debts paid in each month.
Net Effective Income - A person’s gross income minus federal income tax.
Pre-approved - A credit card offer with "pre-approved" only means that a potential customer has passed a preliminary credit-information screening. A credit card company can spurn the customers it invited with "pre-approved" junk mail if it doesn't like the applicant's credit rating.
Prime rate - The interest rate a bank charges to its best or "prime" customers. Each bank will quote a prime lending rate. The rate given to consumers on their credit cards is often based on the prime rate plus a certain percentage, which represents the lender's assessment of the risk in lending, plus its profit margin.
Principal - The amount of money, minus interest, owned on a loan.
Refinancing - Paying off one loan with the proceeds from another loan.
Revolving debt - A continuous debt that is also known as a balance.
Rule of 72 - Divide the number 72 by the percentage rate you are paying on your debt or earning on your investment. This will give you the time it will take in years to double your investment or debt given you make no more deposits or no more payments.
Secured card - A credit card that a card holder secures with a savings deposit to ensure payment of the outstanding balance if the card holder defaults on payments. It is used by people new to credit or people trying to rebuild their poor credit ratings.
Security - Something given as a pledge of payment.
Security Interest - The creditor’s ability to take property offered as security.
Service Charge - Finance charges such as the fee for triggering an overdraft checking account into use, using balance transfer checks, or credit card checks.
Servicing - The steps a lender performs to keep a loan in good standing, such as payment of taxes, insurance, collection of payment, etc.
Settlement - The closing of a loan agreement.
Title - A document that is evidence of an individual’s ownership of property.
Truth in Lending Act - A federal law that requires lenders to provide certain information so borrowers can compare one loan to another. The most important facts lenders must provide are: finance charges in dollars and as an annual percentage rate (APR); the credit issuer or company providing the credit line and the size of the credit line; length of grace period, if any, before payment must be made; minimum payment required; any annual fees; and fees for credit insurance, if any.
Unsecured debt - Debt that is not guaranteed by the pledge of any collateral. Most credit cards are unsecured debt, which is a main reason why their interest rate is higher than other forms of lending, such as mortgages, which employ property as collateral.
V (variable) - If the letter V appears after the annual percentage rate (APR) the interest rate is variable and subject to change.
Verification of Employment - A document that is signed by the borrower’s employer indicating that the borrower is employed with their company and the dollar amount the borrower makes per year.
VISA - VISA cards, a product of VISA USA, are distributed by financial institutions around the world. A VISA card holder borrows money against a credit line and repays those funds with interest if the balance is carried over from month to month in a revolving line of credit. Nearly 600 million credit cards carry one of the Visa brands and more than 14 million locations accept Visa cards.
Warning signs - These are the signals that credit bureaus look for in credit card customers' credit reports. They include frequent late payments, over-the-limit fees, and frequent balance transfers.
Zero balance - What shows on a credit card customer's bill when the outstanding balance has been paid and no new charges have been incurred during the billing cycle.
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