| When dealing with credit, there are a | | | | financial protection where the borrower is |
| multitude of terms that you should | | | | unable to pay rent or mortgage payments, has |
| understand. These terms are used frequently | | | | no credit or means of paying for it, and is |
| when dealing with credit and will help you | | | | unable to reconcile with collection agencies. |
| better comprehend exactly what is involved in | | | | There are two methods of filing for personal |
| your credit. Read through this credit | | | | bankruptcy: Chapter 7 and Chapter 13. A |
| terminology guide and educate yourself on the | | | | Chapter 7 bankruptcy eliminates all debts |
| world of credit. | | | | (minus taxes and possibly alimony payments) |
| | | | by taking all non-exempt property (as set |
| Adjusted Balance - Adjusted Balance is a | | | | forth in Chapter 7 filing) and converting it |
| method of calculating your credit balance and | | | | to cash to pay off debts. A Chapter 13 |
| Annual Percentage Rate (APR) where payments | | | | bankruptcy allows a borrower with a steady |
| and/or credits made during the billing cycle | | | | income to pay off bills over a 36 to 60-month |
| are subtracted from your balance at the end | | | | period. Chapter 13 filing is only available |
| of the previous billing cycle. This method is | | | | to those who have predictable income and a |
| more advantageous to borrowers and credit | | | | means of paying off their debt over the |
| card holders. Unlike Average Daily Balance | | | | established period of time. |
| calculations, new purchases during that | | | | |
| billing cycle are not included in Adjusted | | | | Credit Score - A credit score is a |
| Balance calculations, and interest is only | | | | statistical calculation of the credit |
| applied to the balance remaining after | | | | information obtained in a consumer's credit |
| payments are credited to your account. | | | | report. A common credit score type is the |
| | | | FICO score, others include Beacon and |
| Amortization - Amortization is a payment plan | | | | Empirica. They are all used to calculate the |
| that allows the borrower to reduce his/her | | | | future probability of you repaying any loans, |
| debt through monthly payments of principal. | | | | based on your historical credit history. |
| | | | |
| Annual Percentage Rate (APR) - APR is the | | | | FICO - FICO is a mathematical equation |
| yearly rate lenders charge borrowers to | | | | calculation lenders use to evaluate the risk |
| borrow money (also called the cost of | | | | associated with lending you money. FICO |
| credit). Lenders must divulge the APR they | | | | stands for Fair Isaac Company, the company |
| are charging prior to finalizing the deal. | | | | that originally created the formula. |
| Lenders can not reveal or make changes to the | | | | |
| APR after the lender/borrower contract has | | | | Liquidation - Liquidation is the process of |
| been signed. However, some credit card | | | | converting assets into cash to pay off |
| companies and loan companies state in their | | | | creditors. This process is used in personal |
| agreement that they can change your APR when | | | | and corporate bankruptcy as a solution to |
| interest rates or indexes change. | | | | getting out of debt with lenders. |
| | | | |
| Average Daily Balance - The Average Daily | | | | Repossession - Repossession is the forced or |
| Balance is a method of calculation of your | | | | voluntary surrender of merchandise as a |
| credit balance and interest. It's the | | | | result of the customer's failure to pay what |
| practice of crediting your account from the | | | | is owed. If you purchase an item on credit |
| day your payment is received. In other words, | | | | and fail to pay for it, the entity that sold |
| it's a daily tracking of what you owe. When | | | | it to you reclaims it. |
| calculating the Average Daily Balance, the | | | | |
| lender adds the beginning balance for each | | | | Revolving Account - A Revolving Account is an |
| day in the billing period and then subtracts | | | | account that requires a minimum payment each |
| any payments and/or credits made to your | | | | month in addition to a service charge. When |
| account that day. The end result is your | | | | the balance decreases, the service charge |
| Average Daily Balance. New purchases aren't | | | | interest also declines. |
| necessarily added to your account the day of | | | | |
| the purchase, and won't show in your daily | | | | Credit terminology can be confusing. If |
| balance. When the purchase is charged to your | | | | you're investigating credit options and want |
| account, it affects your balance. | | | | to know what's involved, use this guide to |
| | | | get you up to speed on some of the more |
| Bankruptcy - Bankruptcy is a form of | | | | common credit terms. |