Managing Credit

Amounts Owed

How much you owe each creditor individually and in total; 30% of your credit score is based on this

Annual Percentage Rate (APR)

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

Authorized User

A person who has permission to use and/or carry another person's credit card, but isn't legally responsible for paying the bill

Bankruptcy

A legal proceeding carried out to allow individuals or businesses freedom from their debts, while simultaneously providing creditors an opportunity for repayment

Charge-Off

A declaration by a creditor (usually a credit card account) that an amount of debt is unlikely to be collected; occurs when a consumer becomes severely delinquent on a debt

Collections

An attempted recovery of a past-due credit obligation or debt by a collection department or agency

Consumer Financial Protection Bureau (CFPB)

A U.S. government agency that helps protect consumers by regulating financial products and services, like mortgages, credit cards, and student loans

Credit

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

Credit Bureau

A consumer-reporting company that collects and sells information about how individual people manage their credit (e.g. Equifax)

Credit Counselor

A certified financial advisor who works for an accredited nonprofit specializing in helping consumers repay debt in a responsible manner

Credit History

A record of a person's use of credit over time; 15% of your credit score is based on the length of your credit history

Credit Report

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

Credit Score

A three-digit number (ranging from 300-850) based on an individual's credit history detailed in a credit report

Credit Utilization Rate

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

Debt

Something, typically money, that you owe to a person or a business

Debt Management Plan

A detailed plan drawn up by a debt management company (DMC) and sent to an individual's creditors (entities they owe money). It groups several credit card debts into one payment, cuts your interest rate and creates a 3- to 5-year repayment plan.

Debt Settlement

An agreement made between a creditor and a consumer in which the total debt balance owed is reduced and/or fees are waived, and the reduced debt amount is paid in a lump sum instead of revolving monthly

Debt Snowball Method

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

Default

Long-term failure to repay a loan according to the terms agreed to, which has a substantial negative impact on the borrower's credit score

Emergency Fund

Money set aside for unanticipated expenses or loss of income

Equal Credit Opportunity Act

A law that protects consumers from discrimination in the granting or denying of credit

Fair Credit Reporting Act

A federal law that helps to ensure the accuracy, fairness and privacy of the information in consumer credit bureau files

Federal Trade Commission (FTC)

A government organization whose role is to protect consumers and competition by preventing anti-competitive, deceptive, and unfair business practices through law enforcement, advocacy, and education

FICO Score

The most commonly used credit score

Foreclosure

A legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments by forcing the sale of the property

Hard Inquiry

An inquiry into your credit history, typically in advance of applying for a loan. Hard inquiries can negatively affect your credit for 12 months and remain on your credit history for two years.

High Rate Method

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

Interest Rate

The rate charged for borrowing money usually expressed as a percent of the amount borrowed

Lawsuit

A civil legal action by one person or entity (the "plaintiff") against another person or entity (the "defendant"), to be decided in a court

New Credit

The number of recently opened credit accounts and all new credit inquiries; 10% of your credit score is based on this

Payment History

A history of the payments you have made on all credit you have obtained; 35% of your credit score is based on this

Net Worth

A measurement of your assets (money you've saved or things of value you own) minus your liabilities (money you owe others); also called wealth

Repossession

The taking back of property after a borrower has defaulted on payments

Soft Inquiry

An inquiry into your credit history as part of a background check. This does not affect your credit score.

Tax Lien

A legal claim by a government entity to take an individual's property or income when their taxes are not paid in full

Thin File

A term used to describe someone with little to no credit history

Types of Credit

Also known as your credit mix. This can include a mix of accounts from credit cards, retail accounts, installment loans, finance company and mortgage loans. 10% of your credit score is based on this.

Debt Consolidation Loan

A type of loan that combines a person’s existing debts into a single loan with one monthly payment

Debt Relief Company (Debt Settlement Company)

A high-risk company that charges high fees and claims to eliminate a person’s debt for them

Dodd-Frank Act

A law passed in response to the 2007-2008 financial crisis that included creating the Consumer Financial Protection Bureau (CFPB) to protect consumers from risky and abusive financial products

Chapter 7 Bankruptcy

A type of bankruptcy for people and businesses with limited incomes, which sells off their assets to repay their debts. It is also known as “liquidation bankruptcy”

Chapter 13 Bankruptcy

A type of bankruptcy for people who can afford monthly payments that allows them to keep their assets. It is also known as “reorganization bankruptcy”

Good Debt

A debt that is likely to increase a person’s net worth or generate future income

Fair Debt Collection Practices Act

A law that limits what debt collectors can do while trying to collect debts.

Buy, Borrow, Die Strategy

A tax strategy used by wealthy Americans that involves taking out low-interest loans to use as income

Truth in Lending Act

A law that requires lenders to share specific loan cost information and notify borrowers of changes