Credit

3 C’s of credit (capacity, character & collateral)

They are a lender's framework to assess borrower risk, focusing on Character (credit history/reputation for repayment), Capacity (ability to repay via income vs. expenses/debt), and Collateral (assets securing the loan), often expanded to the 5 Cs (adding Capital & Conditions) for a full picture of creditworthiness.

APR (Annual Percentage Rate)

The total annual cost of a loan, expressed as a percentage

Auto finance companies

They provide loans and leases for buying or leasing new or used vehicles, allowing customers to pay over time instead of a single lump sum.

Balance owed

A balanced investment portfolio or the fundamental accounting principle where a company's assets equal its liabilities plus owners' equity

Bank

A licensed financial institution that accepts deposits, provides loans, and offers various financial services like managing accounts and facilitating payments

Bankruptcy

When your unable to pay debts/bills. A legal process under federal court supervision for individuals or organizations unable to repay debts

Bankruptcy: Chapters 7 and 13

The most common types of bankruptcy. Chapter 7: A liquidation process that quickly discharges most unsecured debts. Chapter 13: A reorganization plan that allows individuals with a steady income to repay debts over three to five years while keeping their asset

Cash advances

A cash advance is getting cash using your credit line

Charge cards

A payment card requiring the full balance to be paid monthly. Different from credit cards

Collateral

Something pledged as security for repayment of a loan, to be forfeited in the event of a default. A house or a car can be taken away

Collateralized loan

A secured loan backed by specific assets (collateral) like real estate or equipment, giving the lender the right to seize and sell that asset if the borrower defaults

Consolidation loans

Only one, new loan used to pay off multiple existing loans to simplify payments

Consumer Credit Counseling Services(CCCS)

Non-profit organizations that offer free or low-cost help with budgeting, financial education, and debt management plans (DMPs) for people struggling with debt.

Consumer debt

Money borrowed by individuals personal, family, or household needs, like buying cars, homes (mortgages), paying for education (student loans), or using credit cards

Co-signed loans

A second person legally agreeing to repay a loan if the main borrower fails to do it

Credit card companies

The entities that issue cards (banks/credit unions or the networks that process transactions. Examples are Chase, Citi, Visa, Mastercard and Amex

Credit cards

If you are under 21 you have to have a co-signer or show proof of sufficient income to repay the debt. Each month you receive a statement that lists all of your purchases. The total amount is called your balance. If you pay the full amount=no interest for the service. If you do not pay the full amount=it becomes a loan to you from the card issuer and you begin to pay interest on this loan. Entitles you to make purchases based on your promise to pay for these purchases at a later date. Every card has a credit limit (maximum amount you can borrow) Features: They let you shop now and pay later, without using cash. Used wisely, they can help you establish good credit history. Provide “zero liability” protection. Many credit cards offer a rewards program that lets you earn free airline miles, cash, etc. Credit card purchases are loans and you will pay interest on these loans unless you pay the balance in full each month. Credit cards make impulse buying easier.

Credit history

Long-term record of borrowing and repaying money, detailing your financial responsibility through data on loans, credit cards, payment timeliness, amounts owed, and types of credit used, all compiled in your credit report by bureaus.

Credit rating

An independent assessment of a borrower's (company, government, or individual) ability to meet its debt obligations, expressed as a letter grade like, AAA, BBB, indicating creditworthiness, with higher ratings signifying lower default risk and lower borrowing costs for the issuer

Credit report

A detailed history of your borrowing and repayment behavior compiled by credit bureaus from lenders and public records, showing accounts, balances, payment patterns, bankruptcies, and inquiries

Credit reporting agency

Also called a credit bureau. A company that collects and sells consumers' financial and credit information (like payment history, debts, account balances) to lenders, landlords, employers, and others

Credit score

300-850. Around 300 is bad. 700 and up is good. It is harder to increase your credit score than decrease it

Credit risk

The potential for financial loss a lender or investor faces if a borrower fails to meet their debt obligations as agreed

Debtors anonymous

12 step program for helping people in debt. It’s kind of like Alcoholics Anonymous

Default

A borrower's failure to meet a legal or contractual obligation, most commonly missing scheduled payments (principal or interest) on a loan, bond, or mortgage, triggers penalties like fees, collateral seizure (foreclosure/repossession), or legal action, and severely damaging credit

Due date

When something is due. Examples; bills, invoice, loan

Finance charge

The total amount of of borrowing money or using credit, encompassing all fees and interest paid to a lender for extending credit

Fixed rate of interest

A set rate that doesn't change over the entire life or a specified term of a loan or investment, providing predictable payments and budgeting stability, unlike variable rates that fluctuate with market conditions

Foreclosure

The legal process where a lender takes possession of a property (like a home) and forces its sale to recover unpaid mortgage debt when the borrower defaults on payments

Garnishment

A legal process where a court orders a portion of a person's wages, bank account funds, or other assets to be withheld and sent directly to a creditor to satisfy a debt, like unpaid child support, taxes, or defaulted loans

Grace period

A set amount of time after a due date where a payment can be made without a penalty, such as a late fee or interest charge. A common feature in financial products like credit cards and loans

Home equity loans

A second mortgage that lets you borrow a lump sum against your home's equity (market value minus mortgage balance) at a fixed interest rate, repaid with fixed monthly payments over a set term, using your house as collateral, which means foreclosure is a risk if you default

Identity theft

The illegal use of someone's personal details like SSN, bank info to commit fraud, such as opening new credit accounts, draining existing bank accounts, or making unauthorized purchases, causing financial harm and ruining credit histories

Installment loans/credit

A lump sum of money borrowed and repaid over a set period with fixed, regular payments (installments) that cover both principal and interest.

Interest (APR)

The yearly cost of borrowing money, expressed as a percentage, that includes the basic interest rate plus mandatory fees and other loan costs

Late fee

A penalty charged for not paying a bill or returning an item by the agreed-upon due date, common on credit cards, loans, and invoices, designed to encourage timely payments and cover costs from delays

Lien

A right to keep possession of property belonging to another person until a debt owed by that person is discharged.

Credit limit

The maximum amount of money a lender will allow you to borrow on a credit card or line of credit

Line of credit

A right to keep possession of property belonging to another person until a debt owed by that person is discharged.

Liquidation

The process of bringing a business to an end by selling all its assets to pay off creditors and distribute any remaining funds to shareholders. This typically happens when a company is insolvent (unable to pay its debts) or is voluntarily closing down.

Low credit rating

A low credit rating means a numerical score indicates a higher risk for lenders, typically below 600, suggesting a history of missed payments or high debt, leading to higher interest rates, loan denials, or stricter terms for credit, loans, and even housing or jobs.

Minimum amount due

The smallest payment you must make by the due date to keep your account in good standing, avoid late fees, and prevent negative marks on your credit report.

Minimum payment

The smallest amount you must pay on a revolving debt, like a credit card, by the due date to keep the account in good standing, avoid late fees, and prevent negative impacts on your credit score, though paying only this amount accrues significant interest and extends the debt

Mortgage

A legal agreement where a lender provides a loan to a borrower to purchase real estate (like a home), using that property as collateral; if the borrower defaults, the lender can foreclose and take ownership to recoup their money

Mortgage brokers/lenders

A broker is an independent professional who helps borrowers find and secure a mortgage by working with multiple lenders. A lender directly provides the funds for a home loan

Overspending

You spend more money than you earn or budgeted

Ownership

A legal right and financial stake in an asset, company, or property, entitling the owner to its benefits and control

Pawn shops

Offers secured, short-term loans where customers provide personal property (like jewelry, electronics) as collateral for cash, with the item held by the shop until the loan plus fees/interest is repaid

Pawn ticket

A legal receipt and contract document you get from a pawnbroker to the borrower in a collateral-based loan transaction.

Payday loans

A short-term, high-interest, unsecured loan for a small amount typically due on the borrower's next payday

Penalty

A monetary charge or fine imposed for breaking a law, rule, or contract, serving as punishment, deterrent, or to cover costs, like parking tickets, late fees, or court-ordered payments for legal violations

PIN

A secret, usually 4-6 digit, numeric code used to authorize financial transactions and access accounts

Predatory lending

An unfair, deceptive, or abusive loan term that takes advantage of borrowers

Prepayment

The act of a borrower paying back all or part of a loan balance before the scheduled maturity date

Promotional Rate

A temporary, lower-than-standard interest rate or a higher-than-average rate (for savings/CDs) offered by financial institutions to attract new customers or encourage specific actions, such as new purchases or deposits, before reverting to the normal rate after a set period.

Repossession

When a lender legally reclaims property (collateral) from a borrower who has defaulted on loan payments

Revolving credit

A flexible loan allowing borrowers to repeatedly use, repay, and reuse funds up to a set credit limit

Secured Credit card

A financial tool requiring a refundable cash deposit that acts as collateral. Allows lenders to offer credit to people with no or poor credit history by minimizing risk

Secured loans

Debt backed by collateral—an asset (like a house or car) that the borrower pledges, giving the lender a legal claim (a lien) on it

Unsecured loans

A loan not backed by collateral

Tax preparers

A financial professional who assists individuals, businesses, and organizations in preparing and filing their income tax returns in compliance with federal and state tax laws.

Title for goods

Signifies legal ownership or property rights

Truth in Lending Act of 1968

A U.S. federal law requiring lenders to provide clear, standardized disclosures about the costs and terms of consumer credit

Usury

The illegal practice of lending money at an interest rate higher than the maximum legally allowed by state law

Variable interest

A rate that changes over the life of a loan or investment, fluctuating up or down with market conditions

Variable rate

An interest rate that changes over time