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Credit Terminology Explained

When dealing with credit, there are afinancial protection where the borrower is
multitude of terms that you shouldunable to pay rent or mortgage payments, has
understand. These terms are used frequentlyno credit or means of paying for it, and is
when dealing with credit and will help youunable to reconcile with collection agencies.
better comprehend exactly what is involved inThere are two methods of filing for personal
your credit. Read through this creditbankruptcy: Chapter 7 and Chapter 13. A
terminology guide and educate yourself on theChapter 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 aforth in Chapter 7 filing) and converting it
method of calculating your credit balance andto cash to pay off debts. A Chapter 13
Annual Percentage Rate (APR) where paymentsbankruptcy allows a borrower with a steady
and/or credits made during the billing cycleincome to pay off bills over a 36 to 60-month
are subtracted from your balance at the endperiod. Chapter 13 filing is only available
of the previous billing cycle. This method isto those who have predictable income and a
more advantageous to borrowers and creditmeans of paying off their debt over the
card holders. Unlike Average Daily Balanceestablished  period  of  time.
calculations, new purchases during that
billing cycle are not included in AdjustedCredit Score - A credit score is a
Balance calculations, and interest is onlystatistical calculation of the credit
applied to the balance remaining afterinformation 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 planEmpirica. They are all used to calculate the
that allows the borrower to reduce his/herfuture probability of you repaying any loans,
debt  through  monthly payments of principal.based  on  your  historical  credit  history.
Annual Percentage Rate (APR) - APR is theFICO - FICO is a mathematical equation
yearly rate lenders charge borrowers tocalculation lenders use to evaluate the risk
borrow money (also called the cost ofassociated with lending you money. FICO
credit). Lenders must divulge the APR theystands 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 hasLiquidation - Liquidation is the process of
been signed. However, some credit cardconverting assets into cash to pay off
companies and loan companies state in theircreditors. This process is used in personal
agreement that they can change your APR whenand corporate bankruptcy as a solution to
interest  rates  or  indexes  change.getting  out  of  debt  with  lenders.
Average Daily Balance - The Average DailyRepossession - Repossession is the forced or
Balance is a method of calculation of yourvoluntary surrender of merchandise as a
credit balance and interest. It's theresult of the customer's failure to pay what
practice of crediting your account from theis 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. Whenit  to  you  reclaims  it.
calculating the Average Daily Balance, the
lender adds the beginning balance for eachRevolving Account - A Revolving Account is an
day in the billing period and then subtractsaccount that requires a minimum payment each
any payments and/or credits made to yourmonth in addition to a service charge. When
account that day. The end result is yourthe balance decreases, the service charge
Average Daily Balance. New purchases aren'tinterest  also  declines.
necessarily added to your account the day of
the purchase, and won't show in your dailyCredit terminology can be confusing. If
balance. When the purchase is charged to youryou'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 ofcommon credit terms.



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