Understanding Financial Terms
Glossary of Terms
In this section, you'll find definitions for commonly used terms related to credit
and debt. Understanding these terms will help you to make more informed decisions.
Accrued Interest: Interest that
accumulates over time on a debt that you owe.
Annual Percentage Rate (APR): The cost of credit, expressed as
yearly rate. The Federal Truth in Lending Act requires that all offers for credit
indicate the credit's APR so that consumers can understand the cost of credit they
are applying for and so they can compare credit offers.
Bankruptcy: A legal procedure governed by federal law that helps
consumers who have too much debt. There are two bankruptcy options for consumers
-Chapter 13 reorganization and Chapter 11 liquidation. Click here to learn more
about bankruptcy.
Collection Agency: A business
that collects past due debts for other businesses, as well as individuals. Most
collection agencies get paid for their services by taking a percentage of what they collect for their clients.
Collateral: Assets pledge as
security for a secured debt. If you do not pay a debt that you have collateralized,
the creditor can take the collateral.
Credit Agreement: A contract
between a borrower and a creditor that details the amount borrowed, the applicable
interest rate and all other terms of the credit.
Credit History: A record of how
you have managed your credit over time that is maintained by a credit bureau.
Creditors, insurers, employers and landlords use consumer credit record information
as well as credit scores based on that information to make decisions about consumers.
Also called a credit report, credit record or credit file.
Credit Score: A number that is delivered from the information
in your credit history and that is an indicator how well you are likely to manage
credit in the future.
Creditor: A person or business to whom you owe money.
Debt Consolidation: The process
of taking out a larger loan to pay off one or more smaller loans.
Fair Debt Collection Practices Act:
A federal law that regulates the activities of debt collectors and establishes your
rights when you are contacted by a debt collector. Click here to
learn more about the fair debt collection practices act.
Finance Charge: Another term
for the amount of interest you pay a credit card company when you do not your card
balance in full each month as well as the amount of interest you pay on your outstanding
loan balance. The finance charge is expressed as percentage.
Foreclosure: The process whereby a mortgage lender or
another creditor with a lien on your home or on some other piece of real estate
that you own takes that asset because you did not live up to the terms of your agreement
with your creditor.
Grace Period: The time during
which you can pay your account balance in full without incurring finance charges.
Open-End Credit Agreement: A
credit agreement with no specific date by which you must pay the account balance
in full although you must make monthly minimum payments an the balance. Credit cards
are a common example of open-ended credit.
Periodic Rate: An interest rate
that charges periodically. The terms of the change are spelled out in your credit
agreement.
Principal: The amount of money
you borrow. Principal does not include interest.
Unsecured Debt: A debt for which
no assets are pledged to guarantee payment. The most common type of unsecured
debt is credit card debt.
