| 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 |
| will help you better comprehend exactly | | | | reconcile with collection agencies. |
| what is involved in your credit. Read | | | | There are two methods of filing for |
| through this credit terminology guide | | | | personal bankruptcy: Chapter 7 and |
| and educate yourself on the world of | | | | Chapter 13. A Chapter 7 bankruptcy |
| credit. | | | | eliminates all debts (minus taxes and |
| Adjusted Balance - Adjusted Balance is a | | | | possibly alimony payments) by taking all |
| method of calculating your credit | | | | non-exempt property (as set forth in |
| balance and Annual Percentage Rate (APR) | | | | Chapter 7 filing) and converting it to |
| where payments and/or credits made | | | | cash to pay off debts. A Chapter 13 |
| during the billing cycle are subtracted | | | | bankruptcy allows a borrower with a |
| from your balance at the end of the | | | | steady income to pay off bills over a 36 |
| previous billing cycle. This method is | | | | to 60-month period. Chapter 13 filing is |
| more advantageous to borrowers and | | | | only available to those who have |
| credit card holders. Unlike Average | | | | predictable income and a means of paying |
| Daily Balance calculations, new | | | | off their debt over the established |
| purchases during that billing cycle are | | | | period of time. |
| not included in Adjusted Balance | | | | Credit Score - A credit score is a |
| calculations, and interest is only | | | | statistical calculation of the credit |
| applied to the balance remaining after | | | | information obtained in a consumer's |
| payments are credited to your account. | | | | credit report. A common credit score |
| Amortization - Amortization is a payment | | | | type is the FICO score, others include |
| plan that allows the borrower to reduce | | | | Beacon and Empirica. They are all used |
| his/her debt through monthly payments of | | | | to calculate the future probability of |
| principal. | | | | you repaying any loans, based on your |
| Annual Percentage Rate (APR) - APR is | | | | historical credit history. |
| the yearly rate lenders charge borrowers | | | | FICO - FICO is a mathematical equation |
| to 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 | | | | FICO stands for Fair Isaac Company, the |
| 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 |
| loan companies state in their agreement | | | | off 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 | | | | lenders. |
| Daily Balance is a method of calculation | | | | Repossession - Repossession is the |
| of your credit balance and interest. | | | | forced or voluntary surrender of |
| It's the practice of crediting your | | | | merchandise as a result of the |
| account from the day your payment is | | | | customer's failure to pay what is owed. |
| received. In other words, it's a daily | | | | If you purchase an item on credit and |
| tracking of what you owe. When | | | | fail to pay for it, the entity that sold |
| calculating the Average Daily Balance, | | | | it to you reclaims it. |
| the lender adds the beginning balance | | | | Revolving Account - A Revolving Account |
| for each day in the billing period and | | | | is an account that requires a minimum |
| then subtracts any payments and/or | | | | payment each month in addition to a |
| credits made to your account that day. | | | | service charge. When the balance |
| The end result is your Average Daily | | | | decreases, the service charge/interest |
| Balance. New purchases aren't | | | | also declines. |
| necessarily added to your account the | | | | Credit terminology can be confusing. If |
| day of the purchase, and won't show in | | | | you're investigating credit options and |
| your daily balance. When the purchase is | | | | want to know what's involved, use this |
| charged to your account, it affects your | | | | guide to get you up to speed on some of |
| balance. | | | | the more common credit terms. |
| Bankruptcy - Bankruptcy is a form of | | | | |