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Card A card that is offered jointly by two
organizations. One is a credit card issuer and the other is a professional
association, special interest group or other non-bank company. For
example, Citibank and American Airlines sponsor the Citibank AAdvantage
The process of fully paying off indebtedness by installments of
principal and earned interest over a definite time.
The charge for estimating the value of property offered as security.
A yearly fee charged to the card for keeping the account open. Some
cards have this fee and some do not.
Rate (APR) The cost of carrying a balance on a loan
expressed as an annual percentage. To calculate the amount owed
in interest each month divide the APR by 12. For example, if the
APR is 18% the monthly rate is 1.5%.
owned by an individual that has a cash value. This includes property,
goods, savings or investments.
Balance The average daily
balance is a method used to calculate finance charges. It is calculated
by adding the outstanding balance on each day in the billing period,
and dividing that total by the number of days in the billing period.
The calculation includes new purchases and payments.
B Bad Credit
A term used to describe a poor credit rating. Common practices that
can damage a credit rating include making late payments, skipping
payments, exceeding card limits or declaring bankruptcy. "Bad Credit"
can result in being denied credit.
The total amount of money owed. It includes any unpaid balance from
the previous month, new purchases, cash advances, and any charges
such as an annual fee, late fee or interest. The balance should
not be confused with the monthly payment (the minimum payment allowed
each month), which is generally 2% - 5% for revolving credit cards.
Moving a balance (debt) from one credit card to
another. This is often done with special checks or forms, or may
be offered as an option on some credit card applications. The usual
reason is to shift an ongoing debt to an account with a lower interest
A large extra payment that may be charged at the end of a loan or
Bankruptcy Bankruptcy is a legal declaration of the inability to
repay debts. Bankruptcy should be viewed as a last resort. It will
have a severe impact on a credit rating and will remain on a credit
report for ten years. Furthermore, bankruptcy is not a solution
in all cases. Federal student loans, Federal tax debt and child
support are all exempt from bankruptcy protection. Bankruptcy agreements
vary but there are two types of agreements that most people choose:
Chapter 7 and Chapter 13.
In a Chapter 7 agreement, the court resolves most debts by
selling assets and property so that the filer is given a fresh
financial start. The court takes all assets including cars,
homes, furnishings, jewelry or anything else of value. The assets
are sold to pay off the debt. There are some debts that a person
may wish to repay on their own instead of having the court resolve
it. This is called reaffirmation. Reaffirmation is a special
payment plan with the court. For example, if a car loan is reaffirmed,
the person keeps the car and makes payments under new terms.
Chapter 7 bankruptcy will not eliminate debts due to taxes,
child support, alimony, student loans, court fines or personal
injury caused by driving drunk or under the influence of drugs.
A Chapter 7 filing will remain on a credit report for 10 years.
In a Chapter 13 agreement, the court creates a debt repayment
plan that allows the filer to keep their property. In order
to file Chapter 13, a person must have a source of income and
promise to pay part of their income to creditors. The court
allows the filer to keep any assets that have debts against
them if they pay them off under terms determined by the court.
A Chapter 13 filing will remain on a credit report for 10 years.
With Chapter 13, there is a better chance of obtaining future
loans and credit.
The number of days between statement dates. This is generally about
A lump sum payment made to the creditor by the borrower or by a
third party to reduce the amount of some or all of the consumer's
periodic payments to repay the indebtedness.
Credit Generally, any loan or credit sale agreement
in which the amounts advanced, plus any finance charges, are expected
to be repaid in full over a definite time. Most real estate and
automobile loans are closed- end agreements.
Property that is offered to secure a loan or other credit and that
becomes subject to seizure on default. (Also called security.)
Reinvestment Act (CRA) Encourages banks to help
meet the credit needs of their communities for housing and other
purposes, particularly in neighborhoods with low or moderate incomes,
while maintaining safe and sound operations.
Another person who signs for a loan and assumes equal liability
The promise to pay in the future in order to buy or borrow in the
present. The right to defer payment of debt.
A creditor's measure of a consumer's past and future ability and
willingness to repay debts.
Any card, plate, or coupon book that may be used repeatedly to borrow
money or buy goods and services on credit.
A record of how a person has borrowed and repaid debts.
System A statistical system used to determine whether
or not to grant credit by assigning numerical scores to various
characteristics related to creditworthiness.
F Finance Charge
The total dollar amount paid to get credit.
A traditional approach to determining the finance charge payable
on an extension of credit. A predetermined and certain rate of interest
is applied to the principal.
Amortization Repayment schedule calling for periodic
payments that are insufficient to fully amortize the loan. Earned
but unpaid interest is added to the principal, increasing the debt.
Eventually, payments must be rescheduled to fully pay off the debt.
Credit A line of credit that may be used repeatedly
up to a certain limit, also called a charge account or revolving
Lease A lease that may involve a balloon payment
based on the value of the property when it is returned. (Also called
Checking Account A checking account associated with
a line of credit that allows a person to write checks for more than
the actual balance in the account, with a finance charge on the
Rate A type of variable rate involving a renewable
short- term "balloon" note. The interest rate on the loan is generally
fixed during the term of the note, but when the balloon comes due,
the lender may refinance it at a higher rate. In order for the loan
to be fully amortized, periodic refinancing may be necessary.
Interest The creditor's right to take property or
a portion of property offered as security.
Points A lump sum paid by the seller to the buyer's
creditor to reduce the cost of the loan to the buyer. This payment
is either required by the creditor or volunteered by the seller,
usually in a loan to buy real estate. Generally, one point equals
one percent of the loan amount.
A component of some finance charges, such as the fee for triggering
an overdraft checking account into use.
The monthly bill from a credit card issuer that describes and summarizes
the activity on an account. A statement includes the outstanding
balance, purchases, payments, credits, finance charges and other
transactions for the month.
Date The date on which a statement is generated,
and the month's finance charges (interest) are added to the balance.
A category of financial products which are marketed to customers
with damaged credit (or sometimes, no credit, or just low income.)
Subprime customers are often defined as those with FICO scores between
500 and 620.
An extra charge imposed on those who purchase with a credit card
instead of cash. (Currently, surcharges for credit card purchases
Rate A variable rate agreement, as distinguished
from a fixed rate agreement, calls for an interest rate that may
fluctuate over the life of the loan. The rate is often tied to an
index that reflects changes in market rates of interest. A fluctuation
in the rate causes changes in either the payments or the length
of the loan term. Limits are often placed on the degree to which
the interest rate or the payments can vary.