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