Debt and credit

Terms for borrowing, interest and the ways people pay a debt down.

0 to 9

0% APRA promotional interest rate of zero percent for a set period, during which the promotional balance doesn't grow with interest.

A

AmortizationPaying off a loan through regular scheduled payments, each split between interest and principal, until the balance reaches zero at the end of the term.

Annual feeA yearly charge some credit cards bill simply for keeping the account open, listed in the card's Schumer box and charged again each anniversary.

Authorized userA person the cardholder lets carry and use a card on their credit card account, without being legally responsible for the bill.

B

Balance transferMoving what you owe on one credit card to another card, usually to use a low promotional interest rate for a set time.

BankruptcyA federal court process for people and businesses that can't pay their debts, ending in a discharge of many debts after an asset sale or a repayment plan.

Biweekly mortgage paymentPaying half your monthly mortgage payment every two weeks, which adds up to 26 half payments, or one extra full payment, each year.

C

Car loanAn installment loan used to buy a vehicle, repaid in monthly payments over a set term, with the vehicle as collateral.

Cash-out refinanceReplacing your mortgage with a new, larger one and taking the difference, minus closing costs, in cash.

Chapter 13 bankruptcyA form of bankruptcy in which you keep your property and repay creditors through a court-approved plan lasting three to five years.

Chapter 7 bankruptcyA form of bankruptcy in which a court trustee sells property the law doesn't protect to pay creditors, and most remaining debts are discharged, usually within months.

Charge-offWhen a lender writes an unpaid account off as a loss and closes it; you still owe the money, and the mark can stay on your credit report for up to seven years.

Closing costsThe fees and upfront charges you pay to finalize a mortgage, apart from the down payment, itemized on your Loan Estimate and Closing Disclosure.

CosignerA person who signs a loan alongside the borrower and becomes legally responsible for repaying it if the borrower doesn't.

Credit builder loanA small loan that's held in a locked account while you repay it, so your on-time payments build a credit record before you receive the money.

Credit bureauA company that collects information about how people use credit and sells it as credit reports; Equifax, Experian and TransUnion are the three nationwide ones.

Credit card grace periodThe time between a card statement and its due date when purchases collect no interest, as long as you pay the full statement balance.

Credit card rewardsCash back, points or miles a credit card pays you on your spending, worth only what the program lets you redeem them for.

Credit counselingAdvice from a trained counselor, usually at a nonprofit agency, on your budget and debts, which can lead to a debt management plan or other next steps.

Credit freezeA free block you place on your credit report at each bureau so lenders can't read it for a new application until you lift it; also called a security freeze.

Credit historyThe record of how you've handled credit over the years, as shown on your credit reports: which accounts you've had, for how long, and whether you paid on time.

Credit limitThe most your card company lets you owe on a credit card or line of credit at one time.

Credit lockA bureau's own service that blocks access to your credit report, much like a freeze, but under the company's terms instead of federal freeze law, sometimes for a fee.

Credit mixThe variety of credit types on your report, such as cards, retail accounts, installment loans and a mortgage; it makes up 10% of a FICO Score.

Credit monitoringA service that watches your credit reports and alerts you to changes, such as a new account or inquiry; it warns you after the fact and doesn't prevent fraud.

Credit reportA record of how you've borrowed and repaid, kept by credit bureaus and sold to lenders, landlords, insurers and others who decide whether to deal with you.

Credit scoreA three-digit number calculated from your credit report that lenders use to judge how likely you are to repay; common models run from 300 to 850.

Credit utilizationThe share of your available revolving credit you're using, found by dividing your card balances by your credit limits.

Current balanceThe total you owe on a credit card right now, including charges and payments made since your last statement.

D

Debt collectorA person or company that collects debts owed to someone else, such as a collection agency, debt buyer or collection lawyer, limited by the FDCPA.

Debt consolidationRolling several debts into one new loan or card balance, usually to get a single payment and, ideally, a lower interest rate.

Debt management planA repayment plan set up by a credit counseling organization: you make one monthly payment to it, and it pays your creditors, often at lower rates.

Debt payoff planA written plan for clearing your debts: every balance, rate and minimum listed, an order to pay them in, and the extra you'll add each month.

Debt settlementPaying a creditor a lump sum that's less than the full balance, often through a for-profit company, in exchange for the creditor treating the debt as resolved.

Debt snowballA way to pay off debts where you pay the minimum on all of them and put every extra dollar toward the smallest balance first.

Debt validation letterEither the notice a debt collector must send listing the debt and your rights, or the letter you send back disputing it or asking for proof.

Debt-free dateThe month your last debt is scheduled to reach a zero balance, based on the balances, interest rates and payments you plan to keep making.

Debt-to-income ratioYour total monthly debt payments divided by your gross monthly income, shown as a percentage; lenders use it to judge whether you can take on a new payment.

DefermentA formal pause on federal student loan payments for a qualifying reason, during which subsidized loans don't build interest.

DelinquencyBeing behind on a required payment; in credit reporting, an account becomes a reported delinquency once a payment is at least 30 days past due.

Down paymentThe share of a home's price you pay upfront in cash when you buy it; the mortgage covers the rest.

E

EscrowOn a mortgage, an account your servicer keeps to pay your property taxes and homeowners insurance, funded by part of each monthly payment.

Extra paymentMoney paid toward a loan on top of the required payment, usually to lower the principal sooner, which cuts the interest and can shorten the loan.

F

Federal student loanA student loan made by the U.S. Department of Education, with a fixed rate set by law and federal repayment plans and protections.

FICO scoreA credit score made by the company FICO from your credit report; base FICO Scores, including the widely used FICO Score 8, run from 300 to 850.

Fixed interest rateAn interest rate that's set when you borrow and stays the same for the life of the loan, so the monthly payment doesn't change.

ForbearanceA temporary pause or reduction in loan payments that a lender or servicer allows, while interest usually keeps building on the balance.

Fraud alertA note on your credit report asking lenders to verify your identity before opening credit; you place it at one bureau, which must tell the other two.

G

Good debt vs bad debtA common way to sort borrowing: debt that may build wealth or income at a manageable rate versus costly debt for things that lose value.

H

Hard inquiryA check of your credit report by a lender after you apply for credit; it shows on your report for up to two years and can lower some scores a little.

HELOCA home equity line of credit: a revolving line secured by your home that you can draw on, repay and draw on again during a set draw period.

Home equityThe part of your home you own outright: its current value minus everything you still owe on loans secured by it.

Home equity loanA loan secured by your home's equity that pays out one amount at the start and is usually repaid at a fixed rate; often called a second mortgage.

I

Identity theftWhen someone uses your name, account details or other personal information without permission to open accounts, make charges or commit other fraud.

Income-driven repaymentA federal student loan repayment plan that sets your monthly payment from your income and family size instead of from your balance.

Installment loanA loan you receive as one lump sum and repay in a set number of scheduled payments, such as a car loan, mortgage or personal loan.

Interest rateThe yearly percentage a lender charges for borrowing money, not counting fees; the APR adds certain fees to show a fuller cost.

L

Late paymentA payment that reaches the lender after its due date; on credit reports, one that's 30 days or more past due.

Length of credit historyHow long you've been using credit, measured by the ages of your oldest, newest and average accounts; it makes up 15% of a FICO Score.

Loan defaultFailing to repay a loan as the contract requires, usually after missed payments, which lets the lender use stronger ways to collect.

Loan forgivenessA program that cancels some or all of a loan's remaining balance once you meet its rules, most often a federal student loan program.

Loan origination feeA charge a lender makes for setting up a loan, usually a percentage of the amount borrowed, either paid up front or taken out of the money you receive.

Loan termHow long you have to repay a loan, usually stated in months for a car loan and in years for a mortgage.

M

Medical debtMoney owed for health care, such as hospital, doctor, lab or ambulance bills; unpaid bills can go to collections and, in some cases, onto credit reports.

MortgageA loan used to buy or refinance a home, secured by the home itself and repaid in monthly installments over a set term.

N

Negative equityOwing more on a loan than the thing it paid for is worth, most often a car loan balance that's higher than the car's value.

P

Payment historyThe record in your credit reports of whether you paid each credit account on time, late or not at all; it's about 35% of a FICO Score.

Personal loanAn installment loan, usually unsecured, that a bank, credit union or online lender pays out as a lump sum you can use for almost any personal purpose.

Prepayment penaltyA fee some lenders charge if you pay off a loan, or a large part of it, before the end of its term, most often through a sale or a refinance.

Private mortgage insuranceInsurance that protects a mortgage lender if the borrower stops paying, often required on a conventional loan with less than 20% down.

Private student loanA student loan from a bank or other private lender, priced by your credit and governed by its contract rather than federal student loan rules.

R

RefinancingReplacing a loan you already have with a new one, usually to get a lower rate, a different term or a different payment.

Rent reportingHaving your rent payments added to your credit reports, through your landlord or a reporting service, so on-time rent can count toward some credit scores.

Revolving creditCredit you can borrow, repay and borrow again up to a set limit, such as a credit card or a line of credit.

S

Secured credit cardA credit card backed by a cash deposit you pay up front, which usually sets your credit limit; used mostly to build or rebuild credit.

Secured debtMoney you owe that's backed by collateral, such as a home or car, which the lender can take if you don't repay.

Soft inquiryA credit check that isn't tied to an application, such as checking your own report or a preapproved offer; it doesn't affect your credit scores.

Statement balanceWhat you owed on a credit card when the billing cycle closed, as printed on that month's statement.

Statement dateThe day a credit card's billing cycle closes and the statement balance is set; the due date comes afterward.

Statute of limitations on debtThe state-set time limit for a creditor or collector to sue you over an unpaid debt; after it passes, the debt is called time-barred.

Store credit cardA credit card offered by a retailer, either usable only at that store or co-branded with a card network, often with store discounts and a higher APR.

Student loanMoney borrowed to pay for college or career school, repaid with interest after you leave school; it comes from the federal government or a private lender.

U

Unsecured debtMoney you owe that isn't backed by collateral, such as credit card balances, medical bills and most student loans.

V

VantageScoreA credit scoring model from the company VantageScore; version 4.0 runs from 300 to 850 and gives payment history the most weight, at 41%.

Variable interest rateAn interest rate that can rise or fall over the life of a loan or card because it's tied to an index, such as the prime rate, plus a set margin.