Credit and Debt Management Vocabulary

Flashcards covering essential credit concepts, loan types, debt repayment strategies, and borrowing rules from the lecture notes.

Credit

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

Amortization

The paying off of debt over time in equal installments; part of each payment goes toward the loan principal while the other part goes toward interest.

Revolving credit

An open line of credit that can be used for any purchases as long as you are under the limit; its payments vary monthly based on size of debt.

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.

APR

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

Grace period

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

Minimum payment

The smallest amount of a credit card bill that a credit card holder must pay during a billing cycle to remain in good standing with the lender.

Credit bureau

A consumer reporting company that collects and sells information about how individual people manage their credit (Equifax, Experian, TransUnion).

Credit report

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

Credit score

A three-digit number ($300\text{-}850$) based on an individual's credit history detailed in a credit report.

Collateral

Something valuable that the lender can take as payment if you cant or dont repay your secured loan.

Cosigner

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

Downpayment

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 a part of a loan.

Credit Utilization

A measurement of your outstanding debt divided by your total available credit; a general rule of thumb is to keep this under $30\%$.

Schumer Box

A standard table that legally must appear in a credit card agreement showing basic information about the card's rate and fees.

High rate (Avalanche) repayment method

A method of debt repayment whereby the borrower prioritizes paying down debts with the highest interest rates first.

Debt Snowball repayment method

A method of debt repayment whereby the borrower prioritizes paying down debts with the smallest balances first.

Balance transfer

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

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.

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.

Secured loan

A loan backed by collateral, which the lender takes if you fail to repay the debt.

Unsecured loan

A loan that requires no collateral and is approved based strictly on your creditworthiness and income; because the lender has higher risk, interest is often higher.

Secured credit card

A credit card where you pay a refundable security deposit up front when opening the account, make regular monthly payments, and have activity reported to major credit bureaus before potentially upgrading to an unsecured card.

20/4/10 rule

A budgeting guideline for buying a car: $20\%$ down payment, finance the car for no more than $4$ years, and keep total monthly expenses at or below $10\%$ of your gross monthly income.

28/36 rule

A guideline used by lenders where you spend no more than $28\%$ of gross monthly income on housing expenses (front-end) and no more than $36\%$ on total debt payments combined (back-end).

Fixed rate mortgage

A home mortgage characterized by predictable monthly payments, but higher initial interest rates.

Variable rate mortgage

A home mortgage characterized by lower initial interest rates, but payment uncertainty.