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Credit Basics
Credit Glossary |
If your shopping for a
credit card, you'll want to take a look at the following credit terms listed below. They
may help you find a better deal among issuers. If anything, you'll be able to master the
fine print on the back of the credit application.
Annual Fee
A flat, yearly charge similar to a membership fee.
Annual Percentage Rate (APR)
The cost of credit as a yearly rate.
Asset
Property that can be used to repay debt, such as stocks and bonds or a car.
Automated Teller Machines (ATMs)
Electronic terminals located on bank
premises or elsewhere, through which customers of financial institutions may make
deposits, withdrawals, or other transactions as they would through a bank teller.
Billing Error
Any mistake in your monthly statement as defined by the Fair Credit Billing Act.
Business Days
Check with your institution to find out what days it counts as business days under the
Truth in Lending and Electronic Fund Transfer Acts.
Charge Account (Regular)
Account in which all purchases within the billing period must be paid in full by the
customer.
Charge Account (Revolving)
Account in which additional purchases are added to the previous balance. The customer must
make the minimum payment each month.
Collateral
Property offered to support a loan and subject to seizure if you default.
Consumer
Someone who buys goods and services.
Cosigner
Another person who signs your loan and assumes equal responsibility for it.
Credit
The right granted by a creditor to pay in the future in order to buy or borrow in the
present; a sum of money due a person or
business.
Credit Bureau
An agency that keeps your credit record. Specializes in collecting financial information
about consumers, which it provides to lenders and credit issuers.
Credit Card
Any card, plate, or coupon book used from time to time or over and over again to borrow
money or buy goods or services on credit.
Credit History
The record of how you've borrowed and repaid debts.
Creditor
A person or business from whom you borrow or to whom you owe money.
Credit-related Insurance
Health, life, or accident insurance designed
to pay the outstanding balance of debt.
Credit Scoring System
A statistical system used to rate credit
applicants according to various characteristics relevant to creditworthiness.
Creditworthiness
Past and future ability to repay debts.
Debit Card (EFT Card)
A plastic card, looks similar to a credit card, that consumers may use to make purchases,
withdrawals, or other types of
electronic fund transfers.
Default
Failure to repay a loan or otherwise meet the terms of your credit agreement.
Disclosures
Information that must be given to consumers about their financial dealings.
Electronic Fund Transfer (EFT) Systems
A variety of systems and technologies for transferring funds electronically rather than by
check.
Finance Charge
The total dollar amount credit will cost.
Grace Period
A time, about 25 days, during which you can pay your credit card bill without paying a
finance charge. Under almost all credit card plans, the grace period only
applies if you pay your balance in full each month. It does not apply if you carry a
balance forward. Also, the grace period does not apply to cash advances.
Interest
Predetermined amount of money a borrower must pay for the temporary use of borrowed funds.
Interest Rate
Interest raes on credit card plans change over time. Some are explicitly tied to changes
in other interest rates such as the prime rate or the Treasury Bill rate and are called
variable rate plans. Others are not explicitly tied to changes in other interest rates and
are called fixed rate plans.
Joint Account
A credit account held by two or more people so that all can use the account and all assume
legal responsibility to repay.
Late Payment
A payment made later than agreed upon in a credit contract and on which additional charges
may be imposed.
Lessee
A person who signs a lease to get temporary use of property.
Lessor
A company that provides temporary use of property usually in return for periodic payment.
Liability on an Account
Legal responsibility to repay debt.
Open-End Credit
A line of credit that may be used over and over again, including credit cards, overdraft
credit accounts, and home equity lines.
Overdraft Checking
A line of credit that allows you to write checks or draw funds by means of an EFT card for
more than your actual balance,
with an interest charge on the overdraft.
Point-of-Sale (POS)
A method by which consumers can pay for purchases by having their deposit accounts debited
electronically without the use of checks.
Security
Property pledged to the creditor in case of a default on a loan; see collateral.
Security Interest
The creditor's right to take property or a portion of property offered as security.
Service Charge
A component of some finance charges, such as the fee for triggering an overdraft checking
account into use.
Statement
Summary of a financial account showing the balance available or how much is due for
payment.
Consumer Handbook to Credit
Protection Laws, Board of Governors of the Federal Reserve System.
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