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Article #377: Credit Terminology Explained

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






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