Glossary
ACQUISITION EXPENSE:
The primary costs to a Lender in establishing a car loan for a customer, including the credit investigation and loan documentation process.
ADD-ON-RATE:
The Add-On Interest rate assumes full use of the amount of money financed for the full term of the contract as though one payment were to be made at the maturity of the contract. It does not take into consideration a declining balance during the term of the contract as is the case with the ANNUAL PERCENTAGE RATE.
ANNUAL FEE:
An annual (yearly) fee charged by a credit card company each year for use of a credit card. This is a separate fee from interest rate on purchases. While annual fees were once common, they have largely disappeared, although certain types of credit cards such as secured cards or those that offer airline frequent flier miles as a reward still often come with an annual fee.
APPLICATION SCORING:
The use of a statistical model to objectively evaluate and “score” credit applications and credit bureau data in order to assess likely future performance. Scores help businesses make decisions such as whether to accept or decline the application.
ASSIGNMENT:
A written document transferring from one party to another party ownership of a contract or of a right, title or interest in a vehicle.
Authorized user:
An authorized user is any person who has permission to use a credit card account, but is not responsible for paying the bill. In that way, it differs from joint credit, in which both parties are obliged to pay. In some cases, the user will receive a credit card in his or her name, even though it is linked to someone else’s account.
AVAILABLE CREDIT:
Available credit is the amount that is available to be charged to a credit card amount; the difference between the credit limit and outstanding charges on the account.
AVERAGE DAILY BALANCE:
Average daily balance is the method by which most credit cards calculate your payment due. An average daily balance is determined by adding each day’s balance and then dividing that total by the number of days in the billing cycle.
BAD CREDIT:
A term used to describe poor credit rating. Common practices that can damage a credit rating include making late payments, skipping payments, exceeding card limits or declaring bankruptcy. “Bad Credit” can result in being denied future credit.
Balance:
On a credit card account or credit line, the balance is the amount owed.
BALANCE TRANSFER:
A balance transfer occurs when the outstanding balance of one credit card (or several credit cards) is moved to another credit card account. This is often done by consumers looking for a lower interest rate. Many credit card issuers offer introductory balance transfer APRs that are lower than the standard rates. Balance transfers usually have fees.
BALANCE TRANSFER FEE:
A balance transfer fee is a fee charged by a credit card company to transfer a balance from one account to another. This fee can be anywhere from 1 percent to 5 percent of the balance amount. The fee may or may not have a cap — in other words, a maximum amount. Contact the credit card issuer for their specific fees.
BALANCE-TO-LIMIT RATIO:
Balance-to-limit ratio is used in the calculation of credit scores. It compares the amount of credit being used to the total credt available to the borrower. Having a low ratio — in other words, not much debt but a lot of available credit — is good for your credit score. Also known as a credit utilization ratio.
BANKRUPTCY:
A proceeding in U.S. Bankruptcy Court that may legally release a person from repaying debts owed. Credit reports normally include bankruptcies for up to 10 years.
BASIS POINT:
A basis point is one-hundredth of 1 percentage point. If your credit card rate goes from 16.49 to 16.99 percent, it has risen 50 basis points.
BATCHING:
The second step in processing a credit card. At the end of a day, the merchant reviews all the day’s sales to ensure they were authorized and signed by the cardholder. It then transmits all the sales at once, called a batch, to the acquirer to receive payment.
BILLING CYCLE:
The billing cycle is the time between billing statements. With credit card statements, the time between billing statements may vary.
BILLING STATEMENT:
A billing statement is a written record prepared by a financial institution, usually once a month, listing all transactions for an account, including deposits, withdrawals, checks, electronic transfers, fees and other charges, and interest credited or earned. The statement is usually mailed to the customer. Also simply called a statement or monthly statement.
BREAKAGE:
Breakage refers primarily to gift cards that are lost or left unused. It is also the portion of funds left on a partially used gift card that are never cashed out. Breakage is the reason that gift cards can sometimes be bought for less than face value, because the retailer can be sure a certain proportion will go unused. Also referred to as “spoilage.”
BUSINESS CARD (BUSINESS CREDIT CARD):
A business credit card is sought by corporate executives or business owners in order to separate keep business expenses from personal charges. Often, business credit cards offer business oriented rewards, such as travel benefits.
CARD ISSUER:
Any financial institution, bank, credit union or company that issues (or causes to be issued) plastic cards to cardholders.
CARD MEMBER AGREEMENT:
The card member agreement provides the terms and conditions of a credit card account. This agreement is required by federal law as a consumer disclosure. It also represents a binding agreement between card issuers and their customers. It must include the annual percentage rate, the monthly minimum payment formula, annual fees and dispute resolution processes. Changes in the cardholder agreement can be made, with written advance notice, at any time by the issuer. Cardholders have the right to cancel their cards if they do not accept such changes in terms, and pay off existing balances under the previous account terms in such instances.
CASH ADVANCE:
A cash advance is a cash loan from a credit card, using an ATM, a bank withdrawal or “convenience” checks. Credit card cash advances have many disadvantages for consumers. Generally, you cannot take a cash advance for the full amount of your available credit. The interest rate on cash advances is often significantly higher than it is on purchases or balance transfers. If you carry balances with both high-interest cash advances and low-interest purchases on the same card, it is current industry practice to apply payments to the low-rate balance first, increasing total interest rate costs. A transaction fee, which is a percentage of the cash advance, is usually charged. There is typically no grace period for cash advances.
CASH ADVANCE FEE:
A cash advance fee is a charge that a credit card issuer charges a customer for accessing the cash credit line on his or her account, either through an ATM, convenience check or at a bank’s teller window. The fee is a percentage of the amount withdrawn, usually with a minimum dollar amount charged for smaller transactions. Finance charges typically accrue from the date of the advance, without a normal grace period that is present with purchases.
CHAPTER 11 BANKRUPTCY:
Chapter 11 bankruptcy is a legal procedure that allows businesses to reorganize under a court-approved plan. Chapter 11 bankruptcy allows business entities protection from creditors during the reorganization period.
CHAPTER 13 BANKRUPTCY:
Under Chapter 13 bankruptcy, a creditor repays debts under a three- to five-year plan that is supervised by the bankruptcy court. Chapter 13 bankruptcy was encouraged by the 2005 revision to bankruptcy law, which sought to force more debtors to repay debts.
CHAPTER 7 BANKRUPTCY:
Chapter 7 bankruptcy is the most common type of bankruptcy filing for individuals who can no longer pay their bills. While this legal procedure allows debt to be discharged, it is ruinous to credit records, meaning that future loans will be very expensive, if they can be found at all.
CHARGE CARD:
A charge card is a payment card that requires a full payment of the charge each billing cycle by the statement due date. Unlike credit cards, which give borrowers a revolving line of credit that can be accessed and paid down over time, charge cards do not allow balances to be carried forward and do not charge an interest rate.
CHARGE-OFF:
Charge-offs are the value of uncollected credit card balances removed from the books and charged against a bank’s loss reserves. The rate is the amount of charge-offs divided by the average outstanding credit card balances owed to the issuer. Having a charge-off has a serious, negative impact on a consumer’s credit.
CHARGE-OFF RATE:
The charge-off rate is the amount of charge-offs divided by the average outstanding credit card balances owed to the issuer. Charge-off is actually an accounting term that means a company has decided it has no chance to collect a debt and charges it off its books. A rising charge-off rate is a sign of an economy under stress.
CO-SIGNER:
A co-signer is a person who signs an agreement to pay off a loan for someone else if that someone else defaults. Co-signing is a technique often used among family and friends to allow a person with good credit to vouch for a person with new credit or bad credit to get a loan. The presence of a co-signer makes lenders more willing to approve loans for high-risk borrowers. While co-signing allows the person with bad credit to get a loan, it puts the person with good credit on the hook for the entire amount borrowed.
COLLATERAL:
The property that is pledged as security for an obligation (e.g. a vehicle financed for a customer under a retail sales contract) gives the lender the right to retake and sell the collateral for the purpose of liquidating the debt in case of nonperformance by the customer.
COLLECTION:
In the credit world, collection is an effort by a collections department or agency to get a past-due debt repaid. Having a debt in collections shows up on credit reports, and badly damages the ability to borrow at reasonable rates.
CONSUMER CREDIT FILE:
A consumer credit file is the collection of an individual consumer’s debt repayment records, stored at a credit reporting agency (credit bureau). Credit scores are based on consumer credit files, and determine whether an individual will get a credit card or other loan, and at what rate.
CREDIT BUREAU:
A credit bureau is a company that catalogs and sells information regarding the payment behavior of consumers and issues credit reports with related information. The three major national credit bureaus are Experian, Equifax and TransUnion. Also called a credit reporting agency.
CREDIT BUREAU RISK SCORE:
A credit bureau risk score is a snapshot of a person’s credit history, based only on the information available through credit bureaus. It the risk score evaluates people for the benefit of lenders, to help them decide the risk of whether a debt will be repaid.
CREDIT CARD ACCOUNTABILITY, RESPONSIBILITY AND DISCLOSURE ACT OF 2009:
Signed into law on May 22, 2009, the federal act limits when credit card interest rates can be increased on existing balances, requires 45 days’ advance notice of significant changes in credit card terms and gives consumers at least 21 days to pay their monthly bills. It is also known as the Credit CARD Act of 2009.
CREDIT HISTORY:
A record of how a consumer has repaid credit obligations in the past.
CREDIT INQUIRY:
A credit inquiry is created when a lender pulls someone’s credit record. It creates a record in a credit report of each time the borrower, a lender or a potential lender obtains a copy of the consumer’s credit report. Credit inquiries, especially multiple inquries, may negatively impact credit scores. See hard inquiry and soft inquiry.
CREDIT LIFE INSURANCE:
Credit life insurance is a type of insurance sold by affiliates of credit card issuers. Those who purchase credit life insurance may, under limited circumstances, have the insurance repay outstanding card balances in the event of the death of the primary cardholder.
CREDIT LINE:
A credit line is the amount of money that can be charged to a credit card account. The size of a credit line, and how much of it has been borrowed, have a large influence on consumer credit scores. Low credit utilization — that is, a credit line on which little has been borrowed — leads to a higher credit score. Credit line is also known as a credit limit.
CREDIT OBLIGATION:
An agreement by which a person is legally bound to pay back borrowed money or used credit.
CREDIT REPORT:
Information communicated by a credit reporting agency that bears on a consumer’s credit standing. Most credit reports include: consumer name, address, credit history, inquiries, collection records, and any public records such as bankruptcy filings and tax liens.
CREDIT REPORTING AGENCY (CRA):
A credit reporting agency (CRA) is a company that catalogs and sells information regarding the payment behavior of consumers and issues credit reports with related information. The three major national credit reporting agencies are Experian, Equifax and TransUnion. Also called a credit bureau.
CREDIT RISK:
The likelihood that an individual will pay his or her credit obligations as agreed. Borrowers who are more likely to pay as agreed pose less risk to creditors and lenders.
CREDIT SCORE:
This term is often used to refer to credit bureau risk scores. It broadly refers to a number generated by a statistical model which is used to objectively evaluate information that pertains to making a credit decision.
CREDIT STATEMENT:
A form used to supply the finance sources with the customer’s personal and credit history, and details of the proposed transaction and insurance information.
CREDIT UTILIZATION RATIO:
A credit utilization ratio is used in the calculation of credit scores. It compares the amount of credit being used to the total credit available to the borrower. Having a low ratio — in other words, not much debt but a lot of available credit — is good for your credit score. Also known as a balance-to-limit ratio.
CVV:
CVV is one of the credit card industry’s several acronyms for the credit card security code that helps verify the legitimacy of a credit card. Depending on the card, the security code can be a three-digit or four-digit number, printed on either on the back of the card or the front. CVV stands for “card verification value” code. Other card issuers call their security codes CVV2 (Visa), CVC2 (MasterCard) or CID (American Express).
DEBIT CARD:
While debit cards and credit cards are alike in appearance, they differ in one critical aspect: A debit card withdraws money from a bank account, while a credit card creates a loan. Think of them as “pay now” (debit) versus “pay later” (credit). Today’s debit card users often have the choice of authorizing transactions by either PIN or signature. While that choice often makes no differnece to the consumer, it makes a great deal of difference to the merchant and transaction processors. A PIN transaction uses one payment system, the signature uses another, each carrying different fees.
DEBT-TO-INCOME RATIO:
Debt-to-income ratio is the ratio of all personal debt — including credit card debt — to gross (personal) income. For consumers, debt-to-income ratio comes into play when they attempt to qualify for a mortgage. A high amount of credit card debt can force a consumer into paying higher rates on a mortgage, or could even cause it to be denied.
DEFAULT:
A failure to make a loan or debt payment when due. Usually an account is considered to be “in default” after being delinquent for several consecutive 30-day billing cycles.
DELINQUENT:
A failure to deliver even the minimum payment on a loan or debt payment on or before the time agreed. Accounts are often referred to as 30, 60, 90 or 120 days delinquent because most lenders have monthly payment cycles.
DELINQUENT ACCOUNT:
A borrower (account) with one or more installment payments past due. A borrower is usually considered delinquent when 15 to 30 days have elapsed (depending on the Lienholder’s policy).
DEFICIENCY:
The amount still owed by a borrower after a repossession or foreclosure has been sold and the proceeds applied to the account.
DIRECT MAIL:
Despite growth in online credit applications, direct mail is the means by which the most credit card offers are delivered, and accepted.
DORMANT ACCOUNT:
A dormant account is a bank account with infrequent or no use. In the case of credit cards, if no activity is recorded for the account, some card issuers will close the account and revoke charging privileges. A dormant account is also called an inactive account.
ELECTRONIC FUNDS TRANSFER ACT:
The Electronic Funds Transfer Act is 1978 federal legislation that establishes the liabilities and rights of consumers whose funds are electrnically transfered.
EQUAL CREDIT OPPORTUNITY ACT (ECOA):
The Equal Credit Opportunity Act was enacted by Congress in 1974 to prohibit discrimination in lending. It applies to all types of consumer lending, including credit cards.
FAIR CREDIT BILLING ACT (FCBA):
The Fair Credit Billing Act is a federal law enacted to protect consumers from unfair billing practices, such as unauthorized charges, charges for unaccepted or undelivered goods and services and other disputed charges. The law applies to revolving charge accounts and open-end credit accounts, such as credit cards. To dispute a charge, send the creditor your name, address, account number and a description of the billing error to the address given for “billing inquiries.” The creditor must receive the letter within 60 days of sending the flawed bill and must acknowledge your complaint in writing within 30 days after receiving it. The dispute must be solved within two billing cycles, but no more than 90 days.
FAIR CREDIT REPORTING ACT (FCRA):
The Fair Credit Reporting Act was enacted to govern how credit bureaus maintain, share and correct information in credit reports. It sets out, for example, a method by which consumers can force inaccurate information to be removed from credit files. A 2003 amendment to the act granted consumers the right to get a free copy of their credit reports yearly from each of the three major credit bureaus.
FAIR ISAAC:
Fair Isaac is the company that created the popular FICO credit score. Fair Isaac renamed itself FICO, after its credit score, in March 2009.
FICO® SCORES:
Credit bureau risk scores produced from models developed by Fair Isaac Corporation are commonly known as FICO scores. Fair Isaac credit bureau scores are used by lenders and others to assess the credit risk of prospective borrowers or existing customers, in order to help make credit and marketing decisions. These scores are derived solely from the information available on credit bureau reports.
FRAUD ALERT:
A fraud alert is a security alert placed on a credit card account or credit bureau listing by either the customer or the issuer when a fraudulent account activity is either experienced or suspected.
FRAUDULENT TRANSACTION:
A fraudulent transaction is one unauthorized by the credit cardholder. Such transactions are categorized as lost, stolen, not received, issued on a fraudulent application, counterfeit, fraudulent processing of transactions, account takeover or other fraudulent conditions as defined by the card company or the member company.
FULL RECOURSE:
Dealer endorsement on a retail sales contract in which the Dealer unconditionally guarantees payment in the event of default by the borrower of the full unpaid balance owing on a retail sales contract.
GRACE PERIOD:
The grace period is the time during which you are allowed to pay your credit card bill without having to pay interest. The grace period varies by credit card issuer. In recent years, the grace period has been shortening; 28 days used to be common, 21 days is common now. The grace period usually applies only to new purchases. Most credit cards do not give a grace period for cash advances and balance transfers; instead, interest charges start right away. If you carried over any part of your balance from the preceding month, you may not have a grace period for new purchases. Instead, you may be charged interest as soon as you make a purchase, in addition to being charged interest on the earlier balance you have not paid off.
HARD INQUIRY:
Hard inquiry is a credit scoring term. It describes when a consumer has applied for a loan. The potential lender checks the consumer’s credit report, which creates a small negative impact on the consumer’s credit score. An occasional hard inquiry, or a quick burst of hard inquiries, have little impact on credit scores; the credit scoring formulas recognize routine loan shopping. What hurts a credit score most are multiple hard inquiries over a long period. A hard inquiry is also known as a “hard pull.”
HOME EQUITY LINE:
The use of equity in a home as a means of financing a vehicle purchase. This type of loan offers attractive rates and provides fully deductible interest, but it does reduce the borrower’s net worth in his/her home.
Inquiry:
An item on a consumer’s credit report that shows that someone with a “permissible purpose” (under FCRA rules) has previously requested a copy of the consumer’s report. Fair Isaac credit bureau risk scores take into account only inquiries resulting from a consumer’s application for credit.
Installment debt: Debt to be paid at regular times over a specified period. Examples of installment debt include most mortgage and auto loans.
INSTALLMENT SALES CONTRACT:
Also called a RETAIL SALES CONTRACT or a TIME PURCHASE. All refer to a credit obligation paid over a specified period of time through regularly monthly payments.
INTEREST ONLY:
The Lender holding a retail sales contract may allow a borrower to make an “interest only” payment in the event of a financial problem or emergency.
INTEREST RATE CAP:
An interest rate cap is the maximum amount of interest that can be charged to a customer. Rate caps may be imposed by a credit card agreement, or by state or federal law.
INTRODUCTORY RATE (OR INTRO APR):
Introductory annual percentage rate (APR) is a low rate offered by a credit card company as an incentive to apply for the card. The APR will usually go up after the introductory period is over. The introductory rate is also known as the teaser rate.
Insurance bureau score: An insurance rating based solely on credit bureau data stored at the major credit bureaus. It offers a snapshot of an individual’s insurance risk at a particular point in time, and helps insurers evaluate new and renewal auto and homeowner insurance policies.
JOINT ACCOUNT:
A joint account is a bank account equally shared by two or more individuals. Parties involved all share the associated rights and liabilities of the account and are regarded by law as co-owners of the account. This means that if anything happens to the account, such as defaults, overdrafts and fraud, all parties are affected.
LATE CHARGES:
Charges added to past due installments on retail sales contracts to compensate for “lost” interest earnings and added costs of special handling for collection.
LATE PAYMENT:
A delinquent payment; a failure to deliver a loan or debt payment on or before the time agreed. These are see on the bureaus marked as 30, 60, and 90 days past due.
LENDER:
Financial institution (Bank, GMAC, Ford Credit, etc.) which finances the automobiles purchased by customers from a Dealer, or mortgages purchased through a mortgage broker.
LIBOR:
LIBOR (the London Interbank Offered Rate) is benchmark rate used as an index in setting many consumer variable rate loans. The LIBOR itself is based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market). Like the consensus prime rate, it is often used as a referenced rate on which many variable interest rates are based.
LIEN:
A contract or mortgage which holds the financed collateral as security against default of payment for such collateral.
LIENHOLDER:
The financial institution holding a contract as collateral for funds advanced to a retail automobile buyer.
LINE OF CREDIT:
A line of credit is an open-ended, revolving loan, in which the borrower may access money up to a certain limit, pay it back and borrow it again. Periodic interest charges will go up and down, depending on how much is borrowed. Lines of credit may be secured (as with home equity line of credit) or unsecured (as with credit cards).
LOW EQUITY:
A type of contract deviation in which the borrower’s true equity is less than 30% of the cash selling price.
MATURITY DATE:
The date on which the final monthly payment installment becomes due.
MAXIMUM CHARGE:
The Lender’s fixed percentage rate which is the maximum interest rate that may be assessed to a borrower in connection with the financing of a retail sales contract.
MEDICAL IDENTITY THEFT:
Medical identity theft is the theft or unauthorized use of a person’s personal information to obtain unauthorized medical goods and services.
MERCHANT BANK:
A merchant bank is one that has a merchant agreement with a merchant to accept(acquire) deposits generated by bank card transactions.
MINIMUM PAYMENT:
The minimum payment is the lowest amount of money that you are required to pay on your credit card statement each month. See your credit card “terms and conditions” document to see how your credit card’s minimum payment is calculated.
NEGATIVE INFORMATION:
Negative information, in a credit sense, is information contained in a credit report that makes it less likely a lender will loan money. The length of time that negative information can stay in a credit report is set by the Fair Credit Reporting Act. Most negative but accurate information can stay for seven years. Some bankruptcy information will stay as long as 10. The act also gives consumers the right to challenge and remove inaccurate information from a credit report.
NET PAY-OFF:
The amount of money required to “payoff” the interest of the Lienholder holding a retail sales contract on a vehicle that the dealership is taking in as a trade-in.
ONE PAY:
A contract where the entire balance is due in one payment (usually 7 days). This type of contract gives a customer a chance to take delivery of his/her vehicle immediately and still be able to arrange for credit outside of the dealership.
OPT OUT:
Under the Credit CARD Act of 2009, consumer gained the right to opt out of interest rate increases, fee increases and other significant changes in terms. Issuers must give 45 days’ notice of the changes and notify consumers of their opt-out rights and procedures. However, to discourage spending sprees, the law also calls for the new interest rate to apply to new purchases after 14 days. Consumers who opt out have a minimum of five years to pay off their existing debt under the old terms.
OVER EXTENDED:
Occurs when a customer applies for credit on a vehicle purchase that potential lenders feel would result in it being difficult for the customer to pay this and other obligations. (See DEBT-TO-INCOME RATIO).
PAST DUE:
An indebtedness that has not been paid on the due date.
Penalty rate:
The penalty rate, also called the default rate, is the very high interest rate charged by the credit card issuer when a borrower violates the card’s terms and conditions. The penalty rate is most often triggered by late payments or going over the card’s limit.
PRE-APPROVED:
A conditional offer of credit from a credit card issuer based on a pre-qualification of the individual’s credit from an abbreviated credit bureau report. Upon acceptance of such an offer, the issuer makes a credit decision (usually after obtaining more detailed credit information) and assigns an annual percentage rate based on the most up-to-date credit profile of the customer.
PREPAID ACCOUNT:
A borrower’s account paid in full in advance of the final maturity date.
PREPAID CARDS:
A prepaid card is a form of secured card that is tied to a previously deposited cash balance. Purchases made with prepaid cards are checked for approval against existing funds. Essentially a stored-value card, they usually carry major association logos and can be spent in the same way.
PREPAYMENT CHARGE:
The amount deducted from any rebate due a customer when he/she prepays an account. This charge compensates the Lienholder for cost incurred in processing the prepayment.
PRIME CREDIT:
A person with prime credit has a credit record that is strong enough to be offered good or excellent terms by someone extending credit. People with subprime credit get worse deals offered, if they get any at all. There is no one exact score that divides prime credit and subprime credit consumers; it depends on the product and each creditor sets its own rules.
PRIME RATE (or PRIME INTEREST RATE):
The prime rate used to be defined as the interest rate at which banks lend to their most creditworthy (prime) customers. Now, it is simply an index that is 3 percentage points above the federal funds rate set by the Federal Reserve. Banks set their own rates, but tend to move in unison. The most common measure of the prime rate is the Wall Street Journal prime rate, which surveys banks on their prime rates. Variable rate credit cards are usually pegged to the prime rate, with the cards’ rates set at the prime plus a margin.
PRIVATE LABEL CREDIT CARD:
Private label credit cards are cards branded for a specific retailer, independent dealer or manufacturer. If the retailer does not manage the private label card, a third-party issues the cards and collects the payments from cardholders. Terms and conditions for private label credit cards are made by contracts between the retailer and the third party. Retailers prefer to have their own card because it offers customers another way to shop with them, thus increasing sales.
REBATE:
Portion of the finance charge refunded to a customer because of prepayment of a retail sales contract.
REPOSSESSION:
A vehicle reclaimed from a borrower’s possession by the finance source or dealer because of default of payment of the contract, or some other default, under the terms of the retail sales contract.
REPOSSESSION RATE:
A percentage kept by the Finance source for a particular dealership that measures the number of vehicles repossessed annually to the number of accounts outstanding during that period of time.
REVOLVING DEBT:
Debt owed on an account that the borrower can repeatedly use and pay back without having to reapply every time credit is used. Credit cards are the most common type of revolving account.
REVOLVING LINE OF CREDIT:
A revolving line of credit refers to a bank or merchant offering a certain amount of always available credit to an individual or corporation for an undetermined amount of time. The debt is repaid periodically and can be borrowed again once it is repaid. Borrowing using a credit card is an example of using a revolving line of credit.
RIGHT OF OFFSET:
This give a lender (Bank, Savings and loan, etc.) the right to confiscate any or all deposits from a direct borrower’s checking or savings account to correct any payment deficiency or default.
Score:
See “credit score”.
Scoring model:
A statistical formula that is used, usually with the help of computers, to estimate future performance of prospective borrowers and existing customers. A scoring model calculates scores based on data such as information on a consumer’s credit report.
Secured credit cards:
Secured credit cards require collateral usually a cash deposit with the issuing institution for approval. They are designed for people with no credit or poor credit.
Security code:
The security code on a credit card is the brief number that is printed on the card that helps verify its legitimacy. Depending on the card, the security code can be a three-digit or four-digit number, printed on either on the back of the card or the front, and goes by several names. The most common is CVV, which stands for “card verification value” code. Other card issuers call their security codes CVV2 (Visa), CVC2 (MasterCard) or CID (American Express).
SOFT INQUIRY:
The term used to describe a credit report check that does not impact the borrower’s credit score. Also known as a “soft pull.”
STRAW PURCHASE:
Occurs when a borrower finances a vehicle as a favor to a third party, who usually has a bad credit rating. Lenders abhor this practice, and would call the loan immediately if aware of this arrangement.
SUBPRIME CREDIT CARD:
A credit card designed for those with little credit history or bad credit. These types of bad -credit credit cards typically carry higher fees and interest rates to offset the increased risk involved with subprime lending.
TERMS AND CONDITIONS:
Terms and conditions is the common name for the document in which credit card issuers describe in detail their practices. After a consumer applies for a credit card and receives it in the mail, the first use of the card turns the terms and conditions into a legal contract.
TRUTH IN LENDING ACT:
The Truth in Lending Act (TILA) is the primary federal law governing the extension of consumer credit by lenders in the United States. Congress instituted the the Truth in Lending Act in 1968 to ensure more accurate disclosure of credit terms so that consumers could compare the various credit terms available in the credit marketplace, to avoid the uninformed use of credit, and to protect themselves against inaccurate and unfair credit billing and credit card practices. The regulation that implements TILA’s requirements is Regulation Z, which is administered by the Federal Reserve. Under Regulation Z, card issuers are required to disclose the terms and conditions to potential and existing cardholders at various times.
USURY:
The lending of money at exorbitant interest rates. Many states have usury laws that cap interest rates, but a 1978 Supreme Court rulings allowed credit cards or other lenders to ignore those laws if the lender is headquartered in a state that does not have them. Most major card issuers have located their headquarters in states with no usury laws, and hence there is no cap on most credit cards’ interest rates.
UTILIZATION RATIO:
Utilization ratio is used in the calculation of credit scores. It compares the amount of credit being used to the total credit available to the borrower. Having a low ratio — in other words, not much debt but a lot of available credit — is good for your credit score. Also known as a balance-to-limit ratio.
VANTAGESCORE:
A credit score product launched in March 2006 by the three major credit bureaus (Equifax, Experian and TransUnion) as a competitor product to Fair Isaac’s FICO Score. Like FICO, VantageScore is a three digit numeric value that assesses a borrower’s credit risk. VantageScores range from 501 to 990, with a higher score representing a lower risk to the creditor.
WAGE GARNISHMENT:
Wage garnishment is a court-ordered technique of debt collection in which a debtor’s paycheck is deducted a set amount and paid to a creditor or a court until the debt is paid in full.
ZERO LIABILITY POLICY:
Major credit card issuers, concerned about public reactions to identity theft and fraud, have voluntarily adopted zero liability policies to product consumers. Zero liability policies go beyond the requirements of federal law, which limit individuals’ out-of-pocket expenses to $50 if a credit card is lost or stolen and then used fraudulently.
