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Account	Credit agreement between a consumer and a credit-granting agency.

Adverse Action	Refusal to grant credit in the amount or terms in a required application. The creditor may make a counteroffer and the applicant may agree to use it, or the creditor may refuse to increase the amount of credit available to an applicant who has requested an increase.

Aggregate	Sum of the total.

Annual Percentage Rate (APR)	Rate of interest charged by a creditor annually. Calculated on a monthly basis because it is calculated from the balance owed each month, which varies with payments, fees and purchases. Finance charges are the APR calculated into dollars monthly. (Example: Balance owed = $1,000. Annual Percentage Rate (APR) = 15%. Finance charges for the year = $150).

Applicant	Any person who has requested credit or received credit from a creditor.

Arrears	Past due amount on a debt.

Available Credit	Amount in dollars available to use, the difference between the outstanding balance owed and the pre-approved credit limit.

Average Daily Balance	The figure used to calculate the finance charge in one method of finance charge calculation.


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Balloon Payment	Final lump sum payment on installment contract, such as mortgage or car loan, larger than the other payments.

Bankcard	Credit card issued by a bank or credit union tied to a pre-approved line of credit. Could also mean a debit card, which can be used to withdraw funds from the holder's bank account at the time of use.

Bankruptcy	Legal proceeding where debtor is relieved of all or some debts (See Bankruptcy article under Education for more information).

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Capitalization	Items owed on a loan are treated as part of a principal balance (e.g., when arrears are capitalized the amount of arrears is included in the principal before the interest is applied).

Charge Off	Lender's decision to declare a debt uncollectible bad debt and the process of writing off uncollected loans from the account receivables book.

Chargeback	Reversal of a credit card transaction which the merchant (lender) is required to pay back.

Collateral	Property used as security for repayment of secured debt (e.g., car is collateral for auto loan)

Collection	Account in default where the creditor attempts to collect payment, this will reflect a collection status on the account.

Co-applicant or Co-signer	Person who signs his or her name to loan agreement or credit application. If the primary applicant does not pay, the co applicant or cosigner is responsible for repayment of the debt.

Concessions	Benefits received through a debt management program, most often in the form of fee waivers, re-aging, reduced interest rates and acceptance of a reduced monthly payment.

Credit	Right granted by creditor to incur debt and to defer payment of that debt.

Credit Bureau	Reporting agency that assembles information on borrowers to help lenders evaluate credit worthiness, using information about payment history, balance highs, etc.

Credit Limit	Maximum amount a borrower (debtor) may borrow from a lender (creditor).

Credit Rating	Point system used to indicated persons payment history (i.e., FICO score).

Credit Repair	Refers to the steps a debtor may take to get incorrect information removed from a credit report. This is a legitimate thing to do if the information is in fact incorrect. (See “What to Do if a Bill Collector Crosses the Line” for a sample letter for removing negative information.)

Credit Repair Agency	Debtor pays an agency to attempt to remove negative information from debtor's report by inundating credit bureaus with letters arguing that the information is incorrect. This is illegal if the information is in fact correct.

Credit Report	Information about a consumer the credit bureaus keep on file, including payment history, judgment liens, and bankruptcy. Information on a report lasts for 7-10 years.

Credit Score	A numerical score calculated using the information on a credit report. The score created by FICO (Fair Issac) is the most commonly used score, but others are calculated. Normally 700-800 is considered a good score, and 801 and above considered a high score. The higher the score, the more likely a consumer will receive credit and the better the terms will be (as in interest rate, monthly payment, etc.)

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Debt Collector	Agencies or lawyers hired by the creditor to collect monies owed by a debtor. (See “What to Do if a Bill Collector Crosses the Line” for more information and an understanding of debtor rights.)

Debt Management Program	Process involving a debt management agency's making of agreements with a debtor's creditors and lenders, that will provide the debtor with benefits such as a reduced interest rate, waiver of fees, re-age, etc., called concessions. Debtor makes monthly payment to debt management agency, who disburses it to the debtor's creditors.

Default	Not making payments on a debt owed.

Default Judgment	If debtor is sued by a creditor for nonpayment and does not file a response within the specified timeframe, a default judgment can be entered. This means the debtor lost the case and the creditor has won. It is very difficult to get a default judgment “set aside” which means to basically cancel that judgment.

Defendant	Person who is sued by the Plaintiff in a lawsuit.

Deficiency Balance	Difference between amount owed to a creditor who has foreclosed on a debtor's house, and the amount earned at the sale of the property (e.g., $10,000 is owed, property sold for $8,000 = the deficiency balance is $2,000).

Delinquent	Information on a credit report indicating a consumer made payments late (is in default)

Derogatory	The term used to describe negative reporting on a credit report (e.g., past due is a derogatory term because it is negative, and will bring a credit score down).

Discharge	Bankruptcy court erases debts at the end of a bankruptcy proceeding, ending debtor's legal obligation to pay the debt.

Disclosure Statement	Document required by government prepared by a lender to provide information to consumers about their terms, such as APR, finance charge, method of computation of finance charges, minimum payment, etc.

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Equal Credit Opportunity Act	Federal law enacted in 1974 requiring lenders to give consumers equal access to credit.

Equity	Amount of monies debtor would keep if property was sold and all mortgages and liens on the property paid (e.g., Own a house worth $150,000, owe mortgage $50,000, equity is $100,000).

Escrow	Amount set aside for particular purpose, usually requiring legal agreement covering permissible usage of the escrow and how and where the money will be kept.

Eviction	Legal process terminating debtor's right to occupy a home, apartment or business property.

Exempt Property	Items of property debtor is allowed to keep if debtor files for bankruptcy.

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Fair Credit Reporting Act	A federal law requiring credit bureaus to maintain accurate information on consumer credit reports.

Fair Debt Collection Practices Act	Federal law governing conduct of debt collectors and preventing them from using harassment, verbal abuse, lying and other such tactics to collect debts owed.

Fee-waiver	Normally received on an account enrolled in a debt management program, where an account that is past due does not receive past due fees and penalties. The past due amount is reported to the credit bureaus, but no monetary punishment such as fees are being charged to the account.

Finance Charge	Amount of money a loan will cost expressed as a dollar figure (e.g., Balance owed = $1,000. Annual Percentage Rate (APR) = 15%. Finance charges for the year = $150).

Foreclosure	Right of mortgage lender or other creditor with lien on debtor's house to force the sale of the house in order to recover what the debtor owes.

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Grace Period	Time between statement date and payment due date when no finance charges accrue on any purchases made.

Guarantor	Person who pledges to repay loan or debt in the event primary debtor does not pay. By using a guarantor the primary debtor can improve his or her credit rating through consistent payments.

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Homestead Exemption	Available in most states, this is the right for debtor to treat residence as exempt property in a bankruptcy, normally covering a certain dollar amount of equity in the residence.

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Installment Loan	Debtor agrees to pay creditor in payments covering principal and interest at regularly scheduled intervals.

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Judgment	Decision issued by the court at the end of a lawsuit. In order for unsecured creditors (e.g., credit cards) to obtain a wage garnishment or put a lien on a debtor's property a court judgment is required.

Judgment Creditor	Creditor who has sued a debtor and obtained a judgment.

Judgment Debtor	Debtor who has had a judgment placed against them.

Judgment Proof	Debtor has little or no property or income that a creditor could legally take to collect on a judgment.

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Lease	Contract where one person (or company) allows another to use property, equipment, facilities, a car, etc., for a specified term, at a specified rent amount each month.

Levy	The process during which a lien is placed on (or attached to) the debtor's property or execution of the lien.

Lien	Notice attached to a debtor's property by a creditor that indicates monies are owed to that creditor. A lien prevents the debtor from selling the property without paying off the creditor because the lien makes the property title unclear, therefore a new owner will not want to purchase the property.

Liquidation	Sale of property to pay creditors. Also can be used as a shorthand name for Chapter 7 bankruptcy, even though property is not necessarily sold during the process.

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Monthly Payment	Amount of money due on a monthly basis to satisfy a loan obligation.

Mortgage	Agreement where property owner grants a creditor the right to satisfy a debt by selling the property in the event of a default.

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Negative Amortization	In some loan situations, payments due not cover the amount of the interest due for the payment period. So, the debtor makes a payment in one month, but the amount of interest accrued that month is higher than the debtor's payment. At the end of the loan, more is owed than the original balance.

Negative Equit	When the value of property owed is less that the sum total owed on the property and any liens (Example: Own a house worth $150,000, refinance your house for $200,000 to pay off some debts, negative equity is $50,000). .

Net Payoff	Amount owed on a loan that excludes interest and insurance premiums.

Nonexempt Property	Property a debtor is at risk of losing if a creditor gets a judgment against the debtor.

Notice to Quit	This is given to a landlord to the tenant, demanding the tenant leave within a specified time or face eviction proceedings.

NSF Charge	An additional fee creditors charge when allowing users to obtain cash from an ATM despite that there are insufficient funds in the account to support the withdrawal.

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Open-ended Account	The balance must be paid off, but no set date exists for payoff. A minimum payment is usually required each month (e.g., credit cards, store cards).

Open Account	Account available for debit/credit activities.

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Plaintiff	The party that begins a lawsuit.

Post-judgment Interest	Interest on a court judgment that a creditor may add from the date judgment is entered until it is paid.

Power of Attorney	Legal permission for another adult to act on behalf of the debtor. Permission can be granted for specific limited purposes or periods of time (e.g., selling of a home, going through a divorce), called a conventional power of attorney, or for much broader purposes (e.g., adult child handling affairs of elder parent), called a durable power of attorney.

Pre-judgment Attachment	Legal procedure which lets unsecured creditor tie up property or money before obtaining a judgment. The attachment prevents the debtor from selling or spending it, and if the creditor wins the lawsuit the property covered by the attachment can be used to pay the judgment.

Pre-judgment Interest	Interest a creditor is entitled to collect under a loan agreement or by operation of law before obtaining a judgment.

Prepayment Penalty	Fee imposed by those lenders who charge it in the event a loan is paid early, preventing the lender from earning all of the interest that would have been earned had the prepayment not occurred.

Pre-sale	Sale of property before foreclosure or repossession, normally with a lender's consent. Pre-sale will bring higher sale price than a sale occurring after the foreclosure.

Pro-per	Term for representing yourself in a lawsuit.

Punitive Damages	Damages awarded to one party in a lawsuit due to the other party's serious misconduct (e.g., when bankruptcy is filed creditors are no longer allowed to contact the debtor in collection efforts, therefore if the creditor does continue to contact the debtor punitive damages may be awarded to the debtor).

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Reaffirmation	Agreement in bankruptcy process to pay back a debt that would otherwise be discharged in bankruptcy, usually not a good idea.

Re-age	An account in default brought current without payment of the actual past due amount. Federal laws provide a maximum amount of re-ages a consumer may receive on an account during certain time frames.

Reamortization	Payment is recalculated based on loan terms different than the original terms. This is helpful if you need to find a way to reduce your payment. For instance, if you have a ten year loan and have paid on it for the past five years, your lender may consider stretching payment of the remaining balance out to ten more years. (Example: 10 year loan of $10,000, paid at $84 per month, 0% interest rate. After 5 years, remaining balance is $5,000, to be paid over the remaining 5 years. Reamortization will result in stretching this $5,000 loan to 10 years and will bring the monthly payment down to $42 per month.)

Refinancing	Process of paying back old debts by borrowing new money. This may be from a new creditor or the same creditor. IMPORTANT - READ: It is dangerous to refinance a home (secured debt) to pay off creditors (unsecured debt). Unsecured creditors cannot seriously ‘hurt' you if circumstances do not allow you to pay the loan back, but secured creditors can take your home. So if you refinance your home to pay your creditors off you risk not being able to pay your mortgage and losing your home.

Rent to Own	Renting property until you have paid enough on it to qualify for purchasing it. This can be very expensive and most often not a good idea.

Reorganization	Payment process through Chapter 13 bankruptcy where the court supervises the payments over a period of time.

Repossession	Seizure of the collateral property after default on a debt.

Rescission	Right to cancel a contract or loan.

Reverse Mortgage	Refinancing option available to older homeowners who have built up substantial equity in the property. Money is drawn based on the value of the property without the obligation of immediate repayment. The lender expects repayment by way of sale of the property.

Revolving Credit	Accounts where outstanding balance fluctuates dependent upon the usage on the account. Most account payments are tied to the account balance as a percentage of the balance, and have credit limits that may not be exceeded. If the balance is not paid in full each month a service charge is added to the balance.

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Secured Credit Card	Credit obtained by depositing some money into a savings account that debtor does not have access to. Should payments be missed the money will be deducted from the debtor's account.

Secured Debt or Secured Loan	Debt linked to a specific item of property such as a house, car or computer. The property is called collateral. Collateral guarantees payment of the debt, if the debtor does not make payments the collateral is taken.

Security Agreement	Contract signed when a secured loan is obtained, which specifies the property to be used as collateral.

Signature Loan	Loan granted without any collateral.

Statute of Limitation	Legal length of time a creditor has to sue the debtor after debtor defaults on a loan or debt.

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Travel and Entertainment Card	Cards, lines of credit or unknown account types with terms reflecting revolving or installment loans.

Trustee	Person or business responsible for managing assets for others. In bankruptcy the trustee is appointed by the court to administer the case and its assets in order to maximize recovery for unsecured creditors.

Truth in Lending Act	Federal law requiring that lenders provide certain disclosures of the cost and payment terms of the loan.

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Unsecured Debt	Debt not secured by any collateral. If the debt is not paid, the creditor must obtain a judgment, and then can obtain a wage garnishment or seize property to get paid.

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Wage Garnishment	Payment of debt through the debtor's employer. Before the employer gives the debtor his or her paycheck, a portion of the funds are withheld and sent directly to the creditor. Also common in family law to obtain spousal and child support payments.

Workout	Negotiated arrangements with lenders to help repay a debt if you are in default. (Examples: Creditor may add the arrears (past due amount) to the principle balance, to be paid at the end of the loan, so the arrears are not due and owing immediately, this is called re-casting. Creditor may also increase your monthly payment a bit until the arrears are paid in full, and then reduce your payment back to its original amount.)

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