Let us define credit jargon for you. Review our extensive list of finance and credit definitions so you can be understand the terminology.
1/1 ARM: An adjustable-rate mortgage that has a set initial interest rate for the first year. After that period, the mortgage rate adjusts each year. Each annual rate adjustment is based on (or “indexed to”) another rate, often the yield on a U.S. Treasury note.
10/1 ARM: An adjustable-rate mortgage that has a set initial interest rate for the first 10 years. After that period, the mortgage rate adjusts each year.
203(b): FHA program which provides mortgage insurance to protect lenders from default; used to finance the purchase of new or existing one- to four family housing; characterized by low down payment, flexible qualifying guidelines, limited fees, and a limit on maximum loan amount.
203(k): this FHA mortgage insurance program enables homebuyers to finance both the purchase of a house and the cost of its rehabilitation through a single mortgage loan.
3/1 Interest-Only ARM: An adjustable rate mortgage in which none of the payments go toward paying off the loan principal for the first three years.
3-in-1 Credit Report: Also called a merged credit report, this type of report includes your credit data from TransUnion, Equifax and Experian in a side-by-side format for easy comparison.
80-10-10 Loan: A combination of an 80% loan-to-value first mortgage, a 10% home equity loan and a 10% down payment. The loans can be used to eliminate the need for private mortgage insurance.
Acceleration: When a creditor claims the total balance of a loan is due immediately. This can not usually occur unless you have fallen behind on payments. In the case of a home mortgage, receipt of a letter stating that a loan has been "accelerated" is normally an important warning sign of foreclosure.
Accord and Satisfaction: This is the legal term which applies when you make clear that you consider your payment the full and final resolution of a disputed debt. If the creditor accepts the payment, the law treats that acceptance as the final payment of the debt.
Account Number: A unique number given to you by a creditor to identify a consumer's account with them.
Accounts Receivable: credit extended by any person or company to another (normally unsecured) with usual repayment terms requiring a monthly payment to amortize the balance owed.
ACH: Automated Clearing House. This is a national network that allows for transferring funds electronically between businesses, consumers and financial institutions.
Adjustable Rate Mortgage (ARM): A home loan where the interest rate is changed periodically based on a standard financial index. ARMs offer lower initial interest rates with the risk of rates increasing in the future. In comparison, a fixed rate mortgage (FRMs) offers a higher rate that will not change for the length of the loan. ARMs often have caps on how much the interest rate can rise or fall.
Affinity Card: This is a credit card that gives a certain amount to a charity of your choice, depending on how much you spend. It is generally best to avoid any charity that wants you to sign up for such a card – don’t let guilt lead you to a high interest rate.
Alternative Mortgage: Any home loan that is not a standard fixed-rate mortgage. This includes ARM’s, reverse mortgages and jumbo mortgages.
American Association of Debt Management Organizations (AADMO): The largest trade association for credit counseling and debt management industries that works to ensure operation and viability of the credit counseling and debt management organizations.
Amortization: The process of gradually repaying a debt with regularly scheduled payments.
Amount Financed: The amount of money you are getting in a loan, calculated under rules required by federal law. This is the amount of money you are borrowing after deduction of certain loan charges that the Truth in Lending Act defines as finance charges, i.e., principal minus finance charges. You should think of the amount financed as the real amount you are borrowing. You will find the amount financed for a loan on the disclosure statement that is given to you when the loan papers are signed.
Annual Fee: The amount that some companies charge for using their card. Not all cards have this charge.
Annual Percentage Rate (APR): This is your overall interest rate, calculated yearly, and given as a percentage of your balance.
Annual Percentage Rate or Overall Cost for Comparison (APR): An APR is the true and total cost of borrowing. Where an APR is quoted it will be based on the total charge for credit including fees and other charges for arranging a loan. This figure allows you to compare the cost of different loan products.
AnnualCreditReport.com: The official website for obtaining your free credit report disclosures from the credit bureaus, Equifax, Experian and TransUnion. You have the right to request your credit reports online, by phone or by mail for free once every 12 months under FACT Act regulations. This free service can only be used once a year and does not include your credit scores or any credit monitoring services.
Application Fee: Amount a lender charges to process loan application documents. Quality lenders do not charge these fees (though they may charge many others).
Application Scoring: A specific kind of statistical scoring that businesses use to evaluate an applicant for acceptance or denial. Similar to credit scoring, application scoring often factors in other relevant details such as employment status and income to determine risk.
Application: the first step in the official loan approval process; this form is used to record important information about the potential borrower necessary to the underwriting process.
ARM: Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly -payment amount, however, is usually subject to a Cap.
Arrears. The total amount you are behind on a debt. Usually the amount of all back payments plus any collection costs.
Asset: Assets are things owned by a person that have cash value. This can include homes, cars, boats, savings and investments.
Assignee Liability. A legal term that means that the purchaser of a loan may be held liable for legal claims against the original lender. Typically, the original lenders sell loans in the secondary market after the loan closes. If a predatory lending claim arises, assignee liability ensures that the borrower can pursue legal action. Assignee liability also encourages loan purchasers to conduct thorough due diligence.
Assignee. When a mortgage is transferred from one party to another (usually because the loan is purchased for investment purposes), the party that assumes ownership of the mortgage, as well as the rights and responsibilities attached to that mortgage, is known as the "assignee." An assignee may receive all or part of a security interest.
Assignment. The transfer of a mortgage or deed of trust to another party usually evidenced by a document showing that the current mortgage holder (assignor) assigned its rights to the new holder (assignee).
Association of Independent Consumer Credit Counseling Agencies (AICCCA): A national membership organization that promotes quality and consistent delivery of credit counseling services. The association has established, by consensus among their members, service and conduct standards to protect both the organization’s members as well as the various agencies’ clients.
Assumable mortgage: a mortgage that can be transferred from a seller to a buyer; once the loan is assumed by the buyer the seller is no longer responsible for repaying it; there may be a fee and/or a credit package involved in the transfer of an assumable mortgage.
Assumption: An agreement between a seller and buyer where the buyer takes over the loan payments from the seller.
Authorized User: Anyone who uses your credit cards or credit accounts with your permission. More specifically, someone who has a credit card from your account with their name on it. An authorized user is not legally responsible for the debt but is maybe reported to the Credit Bureaus.
Auto/Car Title Loan. A short term loan secured by a borrower's car title. A typical car title loan has a triple-digit annual interest rate, requires repayment within one month, and is made for much less than the value of the car. Many borrowers who cannot afford to pay off their loans repeatedly extend them for additional fees. In some states, lenders are allowed to keep the surplus from the sale of the car if the borrower defaults on payment.
Automated Clearing House (ACH): An ACH is responsible for all the electronic cash transactions that occur daily, typically during the week only. In the UK BACS Ltd is our clearing house, which is owned by a number of banks and other financial institutions on behalf of the payments industry.
Automated Teller Machines (ATMs): Electronic terminals located on bank premises or elsewhere, through which customers of financial institutions may make deposits, withdrawals, or other transactions as they would through a bank teller.
Automatic Number Identifier (ANI): The ability of a company to identify an 800- number caller's name and address. Every time a consumer calls one of these toll-free 800 numbers, there is a record of that call; the debt collection community frequently uses this to locate a consumer's home or business location after they have gone underground.
Automatic Stay. An automatic end to creditor collection activity. Filing bankruptcy is the only way to get this protection. If the debtor filed other bankruptcy cases that were dismissed within the previous twelve months, however, s/he may not get an automatic stay or it may only last for the first thirty days of the bankruptcy case.
Back-End Ratio or Back Ratio: The sum of your monthly mortgage payment and all other monthly debts (credit cards, car payments, student loans, etc.) divided by your monthly pre-tax income. Traditionally, lenders wouldn’t give people loans that increased this ratio past 36%, but they often do now. (See Debt-to-Income Ratio)
Bad Debt Expense: An accounting category reserved for debts deemed uncollectible.
Balance Transfer: This is when you transfer your debt (‘balance’) from one credit card to another. The usual reason for this is to try and keep as much debt as possible on a lower-interest card.
Balance: An amount in excess especially on the credit side of an account.
Balloon Mortgage: a mortgage that typically offers low rates for an initial period of time (usually 5, 7, or 10) years; after that time period elapses, the balance is due or is refinanced by the borrower.
Balloon Payment: A large extra payment that may be charged at the end of a loan or lease.
Bank. A financial institution that accepts deposits, makes loans, and performs other services for its customers. According to Robert Frost, “a bank is a place where they lend you an umbrella in fair weather and ask you for it back when it begins to rain.”
Bankruptcy: A proceeding that legally releases a person from repaying a portion or all debts owed. Bankruptcy damages your credit for 7-10 years and should only be considered as a last resort if you cannot repay your debts.
Beacon Score: A specific credit score developed by Equifax. There are thousands of slightly different credit scoring formulas used by bankers, lenders, creditors, insurers and retailers. Each score can vary somewhat in how it evaluates your credit data.
Billing Error: Any mistake in your monthly statement as defined by the Fair Credit Billing Act.
Bi-Weekly Mortgage: A mortgage that schedules payments every two weeks instead of the standard monthly payment. The 26 bi-weekly payments are each equal to one-half of a monthly payment. The result is that the mortgage is paid off sooner.
Borrower: The individual who is requesting the loan and who will be responsible to pay it back.
Bounce Loans. A short-term loan granted by a bank to cover an overdraft incurred by using either paper check or debit cards. Banks charge high penalty fees for each overdraft, ranging from $20 to $35 per overdraft plus a per-day fee of $2 to $5 at some banks until the account is brought to a positive balance. With “bounce loan” programs, banks pay themselves back the amount of the overdraft and fees out of the next deposit.
Broker Premium: The amount a mortgage broker is paid for serving as the middleman between a lender and a borrower. This premium comes from the surcharge a broker applies to a discounted loan before offering it to a borrower.
Broker: An agent who negotiates contracts of purchase and sale.
Broker’s Price Opinion. An evaluation of property value typically based on a drive-by exterior examination, public data sources, and recent comparable sales, that is obtained by a servicer as an alternative to a full appraisal after a loan is in default or when the loan is being modified.
Budget: a detailed record of all income earned and spent during a specific period of time.
Cap. A ceiling that limits how much the interest rate on the loan may be adjusted. There are periodic caps, which limit how much the interest may be adjusted per period, and a lifetime cap, which limits how much the interest rate may be adjusted over the life of the loan.
Capitalization. Capitalization occurs when items owed on a loan are treated as part of a new principal balance. When arrears are "capitalized," the amount of the arrears is included in the principal before the interest rate is applied. Often, capitalization and reamortization go hand in hand. If the arrears are "capitalized" and the loan is "reamortized," your lender will recalculate your payment using the existing interest rate and the new principal balance.
Capitalized. In the student loan context, certain loans, such as subsidized FFEL loans, the government pays the interest that accrues while the student is enrolled in school at least half-time and during periods of deferment. However, with subsidized loans in forbearance, unsubsidized loans or PLUS loans, the student or the student’s parents are responsible for paying interest as it accrues. When the interest is not paid, it is capitalized or added to the principal balance, which increases the outstanding principal balance on the loan. Interest that is capitalized subsequently accrues interest, adding an additional expense to the loan.
Card Issuer: The bank, building society, store or company that provides your credit card.
Cardholder: The person who is issued a credit card and/or any authorized users.
Cash Advance Rate: The rate of interest charged for credit card transactions that involve the withdrawal of cash - across the counter in a bank, or from a cash dispensing machine etc.
Cash Advance: A cash loan requested from your creditor, usually through using your credit card at an ATM machine. Or a loan advance on your paycheck. These loans include special interest rates charged on the amount of the advance.
Cash reserves: a cash amount sometimes required to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.
CashBack: Some cards offer a 'reward' of giving you anything from 0.1% - 2% of the card purchase amount back. However, interest rate and the terms and conditions for cash back schemes vary significantly between card companies.
Cash-Out Refinance: A new mortgage for an existing property in which the amount borrowed is greater than the amount of the previous mortgage. The difference is given to the borrower in cash when the loan is closed.
Cease-Commend: Term used, by the debt collection industry to describe the status of an account. When a consumer has cease-commend a debt collector this means that they have invoked federal law by sending a Cease & Desist letter via certified mail, forcing the debt collector to cease collection activity of that account.
Certificate of Title: A written opinion or a certificate issued by a title company that states that the seller has a good marketable and insurable title to the property being offered for sale. This certificate offers no protections against hidden defects in the title, which an examination of the records could not reveal.
Chapter 11 Bankruptcy: A complex type of bankruptcy usually filed by businesses that wish to restructure their debts.
Chapter 12: Bankruptcy filing reserved for working ranches, farms, etc.
Chapter 13: A type of consumer bankruptcy filing that allows the consumer to pay off creditors within a specific time period, no longer than five years. Also referred to as a "wage earner" plan.
Chapter 20: Ploy used by some bankruptcy attorneys to delay a foreclosure of real property by filing a Chapter 13 petition, then quickly converting the filing to a Chapter 7.
Chapter 7: A consumer bankruptcy filing that liquidates all non-exempt assets to pay off creditors.
Charge-Off: When a creditor or lender writes off the balance of a delinquent debt, no longer expecting it to be repaid. A charge-off is also known as a bad debt. Charge-off records remain on your credit report for 7 years and will harm your credit score. After a debt is charged-off, it can be sold to a collections agency.
ChexSystems: A credit reporting company that tracks your banking history and provides this data to banks when you apply for a new checking account. Negative records, such as bounced checks, can be kept in their database for up to five years. If there are errors on your ChexSystems record, you can contact the company to submit a dispute.
Closed-end loan. A loan with a fixed term.
Closing agent. The mortgage closing or settlement is usually conducted by an agent for the lender. This person is called the closing agent. Often this agent is an attorney.
Closing Costs: The amounts charged to a consumer when they are transferring ownership or borrowing against a property. Closing costs include lender, title and escrow fees and usually range from 3-6% of the purchase price.
Closing. The process of signing loan papers which obligate the borrower to repay a loan. This term is associated with the signing of a mortgage loan. It is also called the settlement.
Collateral: An asset or property used as security against a loan.
Collections: When a business sells your debt for a reduced amount to an agency in order to recover the amounts owed. Credit card debts, medical bills, cell phone bills, utility charges, library fees and video store fees are often sold to collections. Collection agencies attempt to recover past-due debts by contacting the borrower via phone and mail. Collection records can remain on your credit report for 7 years from the last 180 day late payment on the original debt.
Combined Loan-to-Value Ratio: The total amount you are borrowing in mortgage debts divided by the home’s fair market value. Someone with a $50,000 first mortgage and a $20,000 equity line secured against a $100,000 house would have a CLTV ratio of 70%.
Commitment Fee: A fee paid by a borrower to a lender in exchange for a promise to lend money on certain terms for a specified period. Usually charged in order to extend a loan approval offer for longer than the 30-60 day standard period. Quality lenders don’t usually charge these fees.
Commitment. An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the completion of paperwork or compliance with stated conditions. The commitment may guarantee an interest rate or other terms until a future date. See “lock.”
Conforming Loan: A mortgage that meets the requirements for purchase by Fannie Mae and Freddie Mac. Requirements include size of the loan, type and age. Current loan size limits for single-family homes range between $200,000 and $400,000. Loans that exceed the conforming size are considered jumbo mortgages and usually have higher interest rates.
Consolidation. In the student loan context, consolidation loans allow borrowers to combine different types of federal student loans to simplify repayment. Consolidation is similar to refinancing of a loan. Borrowers have the option to consolidate all, just some, or even just one of their existing student loans. There is generally no minimum or maximum size for a Direct Consolidation Loan. Not all student loans are eligible for consolidation. Each program has its own rules.
Consumer Credit Counseling Service: To help consumers deal with debt problems, this non-profit organization has offices throughout the United States.
Contingency basis: A fee paid to a third party for their involvement in either a legal proceeding or debt collection. This fee is normally paid only when a successful outcome to a legal proceeding or debt has been collected, either in part or in full.
Convenience Check: Checks provided by your credit card company that you can use to access your available credit. These checks often have different rates and terms than your standard credit card charges.
Conventional Loan: A loan that is not insured by the government.
Convertible ARM: An adjustable rate mortgage that can be converted to a fixed-rate mortgage under specified conditions.
Co-Signer: An additional person who signs a loan document and takes equal responsibility for the debt. A borrower may want to use a co-signer if their credit or financial situation is not good enough to qualify for a loan on their own. A co-signer is legally responsible for the loan and the shared account will appear on their credit report. Having a co-signer is only helpful if the co-signer’s credit or financial standing is better than the primary borrower.
Credit bureau score: a number representing the possibility a borrower may default; it is based upon credit history and is used to determine ability to qualify for a mortgage loan.
Credit Bureaus: Also known as credit reporting agencies, these companies collect information from creditors and lenders about consumer financial behavior. This data is then provided to businesses that want to evaluate how risky it would be to lend money to a potential borrower. Once a low-tech system of regional credit reporting agencies, the industry is now consolidated into the three national credit bureaus - Equifax, Experian and TransUnion. FICO is not a credit bureau; instead they are company that develops credit scoring formulas.
Credit Card: Any card, plate, or coupon book used from time to time or over and over again to borrow money or buy goods or services on credit.
Credit Counseling: A service that helps consumers repay their debts and improve their credit. Usually non-profit companies, most of these agencies offer helpful and affordable services. Consumers should be aware that there are also credit counseling agencies that are expensive, ineffective and even damaging to the client’s credit (see Credit Repair). Consumers should carefully review the company’s reputation and services before signing up.
Credit File: Another term for your credit report. The term credit file is usually used to indicate the full record of your credit history maintained by a credit bureau. Your credit report may not include all the information in your credit file.
Credit grantor: Companies or individuals that extend financing to consumers. A credit grantor can be a mortgage company willing to finance a house, a bank willing to finance an automobile, or a major national credit grantor willing to extend credit through the issuance of a charge card such as Visa, MasterCard or Discover.
Credit History: Another term for the information on your credit report. Your credit history is a record of how you have has repaid your credit obligations in the past.
Credit Insurance. Insurance designed to pay off a borrower's mortgage debt if the borrower dies or is otherwise incapable of meeting the loan obligation. When sold in a "single premium" or "lump sum," all premiums are charged in advance and typically added to the loan balance, increasing the overall cost by requiring the borrower to pay interest on the premiums over the life of the loan. Since single-premium credit insurance has fallen into disfavor, lenders have introduced analogous products such as "debt cancellation" contracts.
Credit Limit: Your credit limit is the maximum amount you can spend or withdraw from your card. Going over your credit limit will result in your card no longer being accepted, and you being charged an over-limit fee.
Credit manager: Individual that oversees the lending department in a bank, department store or other credit-granting entity. Many times this individual will work closely with the collections manager to develop collections strategies for past due/bad debts.
Credit Obligation: An agreement where a person becomes legally responsible for paying back borrowed money.
Credit record: National grading system filed by subject's name, birth date and social security number. Major companies providing these services include TRW, Transunion and Equifax.
Credit Repair: A generally unscrupulous or illegal form of credit counseling that promises the impossible, such as erasing accurate records from your credit report.
Credit Report: The individual records of consumer financial behavior kept by Credit Bureaus and provided to businesses when they want to evaluate potential borrowers. Credit reports include records on: consumer name, current and former addresses, employment, credit and loan histories, inquiries, collection records, and public records such as bankruptcy filings and tax liens.
Credit Score: A numerical evaluation of your credit history used by businesses to quickly understand how risky a borrower you are. Credit scores are calculated using complex mathematical formulas that look at your most current payment history, debts, credit history, inquiries and other factors from your credit report. Credit scores usually range from 300-850, with 680 or higher considered to be “good” credit scores. There are thousands of slightly different credit scoring formulas (including FICO, Beacon and Empirca scores) used by bankers, lenders, creditors, insurers and retailers. Each score can vary somewhat in how it evaluates your credit data.
Credit Scoring System: A statistical system used to rate credit applicants according to various characteristics relevant to creditworthiness.
Credit: The balance (as in a bank) in a person’s favor.
Creditor. Also called a lender. Any person or business to whom you owe money.
Credit-related Insurance: Health, life, or accident insurance designed to pay the outstanding balance of debt.
Creditworthiness: A consumer's ability to meet debt obligations, as determined by a creditor.
Criss-cross: A directory, also known as a City Directory, which is frequently used by the debt collection community to find out information about a debtor's neighbors. One section lists households and businesses by street address; another lists all telephone numbers by exchange (in numerical order) and to whom each number is assigned. A powerful tool of information intimidation utilized to put fear into unwitting consumers.
Cure a Default. If you have defaulted on a debt, this is a process for correcting the default. Most often, a "cure" refers to getting caught up on missed payments (paying the arrears). A cure may also be called reinstatement.
Debit Card (EFT Card): A plastic card, looks similar to a credit card, that consumers may use to make purchases, withdrawals, or other types of electronic fund transfers.
Debt Collector: The most common use of this term applies to anyone who collects debts. However, under the federal Fair Debt Collection Practices Act "FDCPA," the term "debt collector" only applies to collection agencies and lawyers (or their employees) that are collecting debts for others. State laws may cover other types of collectors.
Debt Consolidation: A process of combining debts into one loan or repayment plan. Debt consolidation can be done on your own, with a financial institution or through a counseling service. Student loans are often consolidated in order to secure a lower interest rate.
Debt Counseling: A type of credit counseling that focuses specifically on helping people with debt issues. Instead of consolidating debts into one loan, debt counseling agencies negotiate with your creditors using pre-set agreements and spread your payments over a longer period in order to reduce the monthly amount due. Usually non-profit companies, most of these agencies offer helpful and affordable services. Consumers should be aware that there are also debt counseling agencies that are expensive, ineffective and even damaging to the client’s credit score.
Debt Management Plan. Debt management plans are offered by many credit counseling agencies. Through debt management plans (DMPs), consumers send the credit counseling agency a monthly payment, which the agency then distributes to the consumer’s creditors. In return, the consumer is supposed to get a break, usually in the form of creditor agreements to waive fees and to lower interest rates.
Debt Settlement: A process where you pay an agency to negotiate directly with your creditors in the hopes of making significantly reduced settlements for your debts. Working with a debt settlement company can result in damaged credit from numerous late payments and collection records. Consumers should fully investigate the practices, reputation and costs of working with a debt settlement company before signing up.
Debt: The amount of money owed.
Debtor. Any person who owes money to another. In bankruptcy, the term "debtor" refers to the person who begins a bankruptcy case.
Debtor's Examination. Also known as "post-judgment process," "asset examination," and "supplementary process." This is normally a court ordered proceeding in which a debtor must appear in court or in an attorney's office to answer questions about current income and assets from which a judgment may be collected. In many states, failure to appear at a debtor's examination can result in an arrest warrant.
Debtors' havens: Term that refers to states such as Texas and Florida which have liberal laws protecting debtors from creditors.
Debt-to-Available-Credit Ratio: The amount of money you owe in outstanding debts compared to the total amount of credit you have available though all credit cards and credit lines. This ratio measures how much of your available credit you are using. The higher your debt to available credit ratio, the more risky you appear to potential lenders.
Debt-to-Income Ratio: The percentage of your monthly pre-tax income that is used to pay off debts such as auto loans, student loans and credit card balances. Lenders look at two ratios: The front-end ratio is the percentage of monthly pre-tax earnings that are spent on house payments. In the back-end ratio, the borrower’s other debts are factored in along with the house payments.
Deceptive forms: Another trick of the debt collector trade, these forms can take on a variety of intimidating looks-from threatening (but non-binding) documents that appear to have been issued by a court of law to demand letters that look like something issued by the IRS. Of course they're illegal ... you don't think that will stop the debt collectors from using them, do you?
Deed in lieu of foreclosure: Technique used with mixed results by consumers unable to continue making payments on their homes. Sometimes lenders will allow debtors to deed the property back to the lender instead of suffering through the embarrassment of a foreclosure sale on the courthouse steps.
Deed of Trust. In some states, this is the term used for a pledge of real estate as collateral. It is similar to a mortgage.
Deed. A deed is an instrument that transfers ownership from the seller to the buyer upon the closing of the sale.
Deep discount: When a creditor sells Accounts Receivable or Bad Debts at an amount normally less than 50% of the outstanding balance.- Many times these sales are made to companies that specialize in buying these types of "dead assets."
Default Judgment. A judgment in a lawsuit against a party who did not meet legal requirements in connection with the case. The most common reason for a default judgment is failing to file an answer or other necessary papers before deadlines specified by law.
Default Rate. The interest rate the creditor will charge once the borrower defaults on the loan. If a default interest rate is listed in a loan contract, it is always higher than the contract interest rate.
Default: The status of a debt account that has not been paid. Accounts are usually listed as being in default after they have been reported late (delinquent) several times. Defaults are a serious negative item on a credit report.
Defaulted student loans: Loan made to students to attend secondary educational institutions at low interest rates. These loans were guaranteed by the federal government as an inducement to banks to make these loans but as a result, were poorly researched before being made. Over $13 billion of these loans exist and are now owned by the U.S. government. Revised laws now enable consumers to restructure these loans. Contact the Department of Education in Washington, DC.
Deferment: Contractually agreed-to period of time a borrower is allowed to suspend payment on a debt. Usually applies to student loans and suspends the accrual of interest or late fees on the outstanding loan balance.
Deficiency. The amount a debtor owes a creditor on a debt after the creditor seizes and sells the collateral. A deficiency arises when the collateral is sold for less than the amount of the debt. Normally, a creditor must bring a lawsuit to collect a deficiency.
Delinquency: A term used for late payment or lack of payment on a loan, debt or credit card account. Accounts are usually referred to as 30, 60, 90 or 120 days delinquent because most lenders have monthly payment cycles. Delinquencies remain on your credit report for 7 years and are damaging to your credit score.
Demand Draft Checks: A type of electronic check that can be created online by entering account numbers listed on the bottom of a personal check and that can be cashed without a signature. This system was originally designed to help telemarketers take check payments over the phone. Now it is one of the fastest growing fraud tools.
Deregulation. In the lending context, the process started in the 1980s of loosening or eliminating regulation of the lending industry. Deregulation resulted, in part, in the removal of usury caps and borrower protections. Since then, abusive lending practices have increased.
Direct Loans. Student loans issued directly from the federal government to the student, with the assistance of the school or other entity that originates the loan. The main types of Direct Loans are Stafford, consolidation, and PLUS.
Discharge: A court may release a debtor from debts included in a bankruptcy. Certain debts cannot be discharged.
Disclosure Statement. This term is commonly used to refer to the document that explains loan terms according to the Truth in Lending Act.
Disclosures: Information that must be given to consumers about their financial dealings.
Discount point: normally paid at closing and generally calculated to be equivalent to 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan.
Discovery. This term covers a variety of legal processes by which the parties to a lawsuit obtain information from each other and documents related to the case.
Dispossession of property: Taking away property against the owner's wishes, normally as a result of non-payment.
Dispute: A consumer has the right to dispute information on his or her credit report if it is believed to be inaccurate or incomplete.
Down Payment: The amount of money that is paid between the purchase price and loan amount.
Earnest Money: The amount of money that is paid upfront as part of the purchase price to bind a transaction that will ensure payment.
EEM: Energy Efficient Mortgage; an FHA program that helps homebuyers save money on utility bills by enabling them to finance the cost of adding energy efficiency features to a new or existing home as part of the home purchase
Elderly Applicant: As defined in the Equal Credit Opportunity Act, a person 62 or older.
Electronic Fund Transfer (EFT) Systems: A variety of systems and technologies for transferring funds electronically rather than by check.
Empirica Score: A specific credit score developed by TransUnion. There are thousands of slightly different credit scoring formulas used by bankers, lenders, creditors, insurers and retailers. Each score can vary somewhat in how it evaluates your credit data.
Equal Credit Opportunity Act (ECOA): A law that protects consumers from discrimination on the basis of race, sex, public assistance income, age, marital status, nationality or religion in the credit and lending process.
Equifax: One of the three national credit bureaus (also known as credit reporting agencies) that collects and provides consumer financial records.
Equity Stripping. Loan terms on mortgages (usually refinances) designed to maximize the lender's revenues by increasing the borrower's loan balance; this practice reduces the borrower's equity in the home. Equity stripping may occur in various ways, but the most common is charging excessive fees that are financed as part of the new loan.
Equity: The fair market value of a home minus the unpaid mortgage principal and liens. You build up equity in a home as you pay down your mortgage and as the property value increases.
Erroneous information: False, misleading or incorrect data. Frequently found in consumer medical or credit files across America.
Escrow Closing or Settlement. The occasion where the purchase of a home is financed or a non-purchase money loan (see home equity loan) and mortgage is signed, the buyer pays the mortgage, and closing costs are paid.
Escrow. Amounts set aside for a particular purpose. A formal escrow usually requires a legal agreement that covers permissible usage of the escrow and how and where the money is to be kept. One type of escrow is money you pay to your mortgage company to cover taxes and insurance. Escrow is also used when you have a dispute with a creditor. You may choose to set up an escrow to pay the debt in the event you lose the dispute.
Eviction. A legal process terminating the right to occupy a home, apartment or business property. State law eviction proceedings are required before putting someone out.
Exempt assets: Assets not at risk of being seized or forfeited as a result of legal action.
Exempt Property. Property that the law allows you to keep when you are being faced with collection on an unsecured debt. In bankruptcy, exempt property is protected from sale to satisfy the claims of creditors. Your exemption applies to your equity in the property after deduction for the amounts you owe to pay liens on that property.
Exemptions. These are laws that give you the right to keep your exempt property.
Experian: One of the three national credit bureaus that collects and provides consumer financial records. Experian (formerly known as TRW) operates the ConsumerInfo, FreeCreditReport and CreditExpert brands.
Expiration Term: The set number of years that a record will remain on your credit report as mandated by the FCRA. Most negative records stay on your credit report for 7-10 years. The shortest expiration term is two years for inquiry records. The longest expiration term is 15 years for paid tax liens or indefinitely for unpaid tax liens. Positive information can also stay on your credit report indefinitely.
Exploding ARM (adjustable rate mortgage). A common type of "hybrid" ARM in the subprime mortgage market that includes both a fixed- and adjustable-interest rate component. A "2/28" hybrid ARM comes with an initial short-term fixed interest rate for two years, followed by rate adjustments, generally in six-month increments for the remainder of the loan's term. Typically the introductory rate is artificially low, giving homeowners a dramatic increase in housing costs after the introductory period expires.
Fair and Accurate Credit Transaction (FACT) Act: The FACT Act was signed into law December 2003 and includes several consumer credit industry regulations. This law requires credit bureaus to provide all US residents with a free copy of their credit report once every 12 months. The law also includes new privacy regulations, identity theft protections and dispute procedure requirements.
Fair Credit Reporting Act. A federal (national) law that regulates credit bureaus and the use of credit reports.
Fair Debt Collection Practices Act. A federal (national) law that governs the conduct of debt collectors and that prevents many abusive collection tactics.
Fair Housing Act: a law that prohibits discrimination in all facets of the homebuying process on the basis of race, color, national origin, religion, sex, familial status, or disability.
Fair market value: the hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.
Fannie Mae. See Federal National Mortgage Association.
Federal Deposit Insurance Corporation (FDIC). An independent agency created by Congress in 1933 to maintain financial stability and public confidence in the nation's banking system. The FDIC insures deposits in banks and thrift institutions for up to $100,000. The agency also directly examines and supervises about 5,300 banks and savings banks, more than half of the institutions in the U.S. banking system.
Federal Family Education Loans (FFEL). This is the generic name for the major forms of guaranteed federal student loans. Private lenders provide the funds for these loans. Lenders have incentives to participate in the guaranteed loan programs because the government reimburses them when borrowers default. The main types of FFEL loans are Stafford, consolidation, and PLUS loans.
Federal Housing Administration (FHA). One of the agencies of the federal government that insures first mortgage lenders against loss when a loan is made following FHA regulations. The FHA does not lend money; it only insures the loan.
Federal National Mortgage Association (Fannie Mae) and Federal Home Mortgage Corporation (Freddie Mac). A high percentage of mortgages are now held by investors. The two largest investors that purchase mortgages on the secondary market are Fannie Mae and Freddie Mac. These “government sponsored enterprises” were created by Congress to provide liquidity or capital in the housing market by purchasing mortgages. This helps put money back into the hands of the originating lender so that new loans can be made. The originating lender must follow certain guidelines specified by Freddie Mac and Fannie Mae when qualifying the borrower for a loan, commonly called underwriting guidelines.
Federal Reserve Board (Fed). The central bank of the United States. It was created by Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system. Its central agency conducts US monetary policy, and its 12 regional banks support and regulate commercial banks and thrifts.
FHA: Federal Housing Administration; established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.
FICO Score: A specific credit score developed by Fair Isaac Corporation. There are thousands of slightly different credit scoring formulas used by bankers, lenders, creditors, insurers and retailers. Each score can vary somewhat in how it evaluates your credit data.
FICO Score: This score, developed by the Fair Isaac Corporation, aids lenders in decision-making involving credit on secured and unsecured debt. It is calculated using statistics from a consumer’s credit history including past payment behavior, number and types of existing credit, credit limits and any other information such as defaults, bankruptcies and so on. The scores range from 330 to 850 with the majority tending to fall between 650 to 749.
File Freeze: Residents of select states (currently California, Louisiana, Texas, Vermont and Washington) can request that the credit bureaus freeze their credit reports. This freeze stops new credit from being issued in your name by blocking creditors, lenders, insurers and other companies from accessing your credit data. In some cases, a $10 fee for each credit bureau is required to process the file freeze. The freeze can also be temporarily or permanently undone for an additional fee.
Finance Charge: The total cost of using credit. Besides interest charges, the finance charge may include other costs such as cash-advance fees.
Finance company. A company engaged in making loans to individuals or businesses. Unlike a bank, it does not receive deposits from the public.
Financial management: Technique used to balance income vs. expenses. Responsible financial management usually results in an excess of monies available. (This style of managing finances has yet to be mastered by the United States Government.)
First Mortgage: The primary loan on a real estate property. This loan has priority over all other “secondary” loans.
Fixed Rate Mortgage (FRM): A mortgage with an interest rate that remains constant for the entire duration of the loan. FRMs have longer terms (15-30 years) and higher interest rates than adjustable rate mortgages but are not at risk for changing interest rates.
Fixed Rate: A fixed rate card is one where you are given a rate when you sign up for the card and that rate, at least in theory, stays the same for the whole time you have the card. In practice, though, interest rates can and will be changed for almost any reason.
Fixed Rate: An interest rate for a credit card or loan that remains constant.
Fixed-Rate Option: A home equity line of credit financing option that allows borrowers to specify the payments and interest on a portion of their balance. This can be done a few times during the life of the loan, usually for an additional fee.
Flaky loans: Questionable loans made by banks in the 1980s such as student loans or land development loans. (see defaulted student loans)
Flipping. The practice of refinancing a mortgage loan without providing a net benefit to the homeowner. Although some borrowers may receive cash as a result of flipped loans, the benefit of this compensation may be outweighed by the costs of losing equity or taking on unaffordable debt. See property flipping.
Flood insurance: insurance that protects homeowners against losses from a flood; if a home is located in a flood plain, the lender will require flood insurance before approving a loan.
Forbearance. In the student loan context: forbearance involves a loan holder agreeing to a temporary stoppage of payments, an extension of time for making payments, or acceptance of smaller payments. Interest continues to accrue during a forbearance period.
Force-Placed Insurance. The insurance policy your lender will “force” you to purchase if your insurance is cancelled or if your lender does not have proof of your insurance coverage. Force-placed insurance is very expensive.
Foreclosure Rescue Scam. This scam targets those who have fallen behind on their mortgage payments. A con artist promises to help consumers save their home but is actually intent on stealing the home or most of its accumulated equity.
Foreclosure: When a borrower is in default on a loan or mortgage, the creditor can enact a legal process to claim ownership of the collateral property. Foreclosure usually involves a forced sale of the property where the proceeds go toward paying off the debt.
Fraud Alert: If you suspect that you are a victim of identity theft, you may contact the credit bureaus to request that a 90-day fraud alert is placed on your credit reports. This alert notifies potential creditors to take extra steps to verify your identity before opening a new account. If you have been a victim of identity theft you only need to contact one bureau to have a temporary 90 day alert added to all three of your credit reports . This 90 day alert notifies potential creditors that your identity may have been stolen and suggests that they take extra steps to confirm your identity before opening a new account. If it turns out that your identity has been stolen, you can request an extended 7 year alert by providing documentation of the crime (such as a police report). There is also a special 1 year fraud alert available for military personnel on activity duty.
Fraudulent activity: Transaction designed to swindle consumers or creditors, normally cheating these groups out of goods, services or assets. (see sign of the beast)
Fraudulent Transfer. Giving away property to keep it out of the hands of creditors. The law allows creditors to sue to get the property back.
Front-End Ratio or Front Ratio: A calculation of the percentage of your monthly pre-tax income that goes toward a house payment. The general rule is that your front ratio shouldn’t exceed 28%.
Garnishment: When a creditor receives legal permission to take a portion of your assets (bank account, salary, etc) to repay a delinquent debt.
Ginnie Mae: Government National Mortgage Association (GNMA); a government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment; as With Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders.
Good Faith Estimate (GFE). An itemization of the estimated closing costs. Lenders or brokers must provide this list to the loan applicant for a mortgage loan within 3 business days after receipt of the application. The GFE is intended to assure that consumers have adequate information about closing costs early on to enable them to shop for those, as well as interest rates. This disclosure is required by the Real Estate Settlement Procedures Act.
Government Mortgage Guarantors. There are special government programs that provide mortgage insurance or guarantees to lenders who make purchase-money mortgage loans to homebuyers who meet certain criteria. These programs are offered through the federal government (the Federal Housing Administration, part of the Department of Housing and Urban Development; the Rural Housing Service, part of the Department of Agriculture; and the Veterans Administration) or by a state housing finance agency. In addition to the insurance, these loans come with an obligation on the part of the insured lenders to work with homeowners to cure defaults.
Government National Mortgage Association (Ginnie Mae). A quasi-governmental agency that guarantees pools of Federal Housing Administration (FHA) and Veteran Administration (VA) insured-loans that had been securitized for investment purposes.
Grace Period: A period of time, often about 25 days, during which you can pay your credit card bill without incurring a finance charge. With most credit card accounts, the grace period applies only if you pay your balance in full each month. It does not apply if you carry a balance forward or in the case of cash advances. If your account has no grace period, interest will be charged on a purchase as soon as it is made.
Guarantee: An agreement by which one person undertakes to secure another in the possession of something.
Guarantor. A person who agrees to pay another person's debt in the event that he or she does not pay. The term guarantor is often used interchangeably with cosigner, even though there are some minor legal distinctions in the collection process.
Guaranty Agency. An organization that administers the Federal Family Education Loan (FFEL) Program. This agency is the best source of information on FFEL loans. For the name, address, and telephone number of the agency in any particular state, contact the Federal Student Aid Information Center at 1-800-4-FED
Hard Inquiry: A record of a business request to see your credit report data for the purpose of an application for credit. Hard inquiries appear on your credit report each time you complete an application for a credit card, loan, cell phone, etc. Hard inquiries can remain on your credit report for up to 2 years and can cause your credit score to drop slightly.
Hazard Insurance. Insurance that covers property loss or damage, usually paid for by borrowers and required when obtaining a mortgage.
HELP: Homebuyer Education Learning Program; an educational program from the FHA that counsels people about the homebuying process; HELP covers topics like budgeting, finding a home, getting a loan, and home maintenance; in most cases, completion of the program may entitle the homebuyer to a reduced initial FHA mortgage insurance premium-from 2.25% to 1.75% of the home purchase price.
High-LTV Equity Loan: A specific kind of home loan that causes your loan-to-value ratio to be 125% or more. When the total principal of a loan leaves the borrower with debt that exceeds the fair market value of the home, the interest paid on the portion of the loan above that value may not be tax deductible.
Holder. The mortgage holder “owns” the borrowers' mortgage. Since many mortgages are assigned by the originator to a purchaser on the secondary market, very often the mortgage holder will not be the bank or mortgage company who made the loan.
Home Equity Line of Credit: An open-ended loan that is backed by the part of a home’s value that the borrower owns outright. This type of loan is used much like a credit card. Home equity lines of credit can be effective ways to borrow large sums of money with a relatively low interest rate. These types of loans should be used with caution. If a borrower is unable to pay back the loan for some reason (loss of job, illness, etc.) they risk losing the home they used as collateral.
Home Equity: The part of a home’s value that the mortgage borrower owns outright. This is the difference between the fair market value of the home and the principal balances of all mortgage loans.
Home inspection: an examination of the structure and mechanical systems to determine a home's safety; makes the potential homebuyer aware of any repairs that may be needed.
Home Ownership and Equity Protection Act (HOEPA). This is a federal (national) law that provides special protection to homeowners when they obtain home mortgage loans at high interest rates or with high fees.
Home warranty: offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; ,overage extends over a specific time period and does not cover the home's structure.
Homeowner's insurance: an insurance policy that combines protection against damage to a dwelling and Is contents with protection against claims of negligence )r inappropriate action that result in someone's injury or )property damage.
Homestead Exemption. The right, available in most states and in the bankruptcy process, to treat your residence as exempt property that can not be sold to satisfy the claims of unsecured creditors. In most states, the homestead exemption covers a certain dollar amount of your equity in your residence. A home can not normally be sold to pay claims of your creditors unless your equity in the home exceeds the amount of the exemption. A homestead exemption will not normally protect you from foreclosure when you have voluntarily pledged your home as collateral.
Hot checks: Drafts on a bank account that will be or have been returned by the bank for insufficient funds to pay face amount of check issued.
Household Income: The total income of all members of a household. An important yardstick used by credit card issuers evaluating applications for joint credit.
Housing counseling agency- provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and home buying.
Housing Expense Ratio: The percentage of your monthly pre-tax income that goes toward your house payment. The general rule is that this ratio shouldn’t exceed 28%. This is also known as the “front ratio.”
HUD: the U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.
HUD1 Statement: also known as the "settlement sheet," it itemizes all closing costs; must be given to the borrower at or before closing.
Income Verification: Loan applications may require fully documented proof of an applicant’s income. Loans of this type usually offer lower interest rates than no-income or “no-doc” verification loans.
Index. A published rate often used to establish the interest rate charged on adjustable rate mortgages or to compare investment returns. Examples of commonly used indexes include Treasury bill rates, the prime rate, LIBOR (the London Interbank Offered Rate), and the 11th District cost-of-funds-index (issued by the San Francisco Federal Home Loan Bank).
Individual Taxpayer Identification Number (ITIN): This nine digit identification number is issued by the Internal Revenue Service to taxpayers who don’t have a Social Security number, such as people who are not US citizens. This number can be used to apply for credit and loans or to access credit reports.
Inflation: the number of dollars in circulation exceeds the amount of goods and services available for purchase; inflation results in a decrease in the dollar's value.
Inquiry: An item on your credit report that shows that someone with a “permissible purpose” under FCRA regulations has previously requested a copy of your credit report data.
Insolvent. A person or business that does not have sufficient assets to pay its debts.
Installment Account: A type of loan where the borrower makes the same payment each month. This includes personal loans and automotive loans. Mortgage loans are also installment accounts but are usually classified by the credit reporting system as real-estate accounts instead.
Installment Loan: Monthly payments that are applied to the actual purchase of the vehicle. A person will own the vehicle at the end of the loan by making these monthly payments.
Insurance: protection against a specific loss over a period of time that is secured by the payment of a regularly scheduled premium.
Interest Free Period: The time between when you buy something on the card and the date when you must pay your monthly bill. This can be 50 days or more and is interest-free. So if you settle your bill in full every month, it's free borrowing.
Interest Rate Cap: A limit on how much a borrower’s percentage rate can increase or decrease at rate adjustment periods and over the life of the loan. Interest rate caps are used for ARM loans where the rates can vary at certain points.
Interest Rate: A measure of the cost of credit, expressed as a percent. For variable-rate credit card plans, the interest rate is explicitly tied to another interest rate. The interest rate on fixed-rate credit card plans, though not explicitly tied to changes in other interest rates, can also change over time.
Interest: The amount you'll pay on any money you still owe after the interest-free period each month.
Interest-Only Loan: A type of loan where the repayment only covers the interest that accumulates on the loan balance and not the actual price of the property. The principal does not decrease with the payments. Interest-only loans usually have a term of 1-5 years.
Introductory Rate: A temporary, low interest rate offered on a credit card in order to attract customers. This low rate usually lasts for about six months before converting to a normal fixed or variable rate. With some offers, the introductory rate can be revoked or terminated early if you make a late payment or violate some other terms of the account.
Investor. A company that invests in mortgages that other companies have originated. They purchase the mortgage for a set amount and collect monthly payments, usually through a servicer.
IRS refund offset program: Effort initiated by the Department of Education to recover defaulted student loans by seizing the tax refunds of consumers with the assistance of the Internal Revenue Service.
Joint Account: A credit account held by two or more people so that all can use the account and all assume legal responsibility to repay.
Judgment Lien. A lien that attaches to property as the result of a judgment. For example, if you lose a collection lawsuit, the creditor normally has the right to an attachment on any real estate that you own.
Jumbo Mortgage: A loan that exceeds the limits set by Fannie Mae and Freddie Mac (usually when the loan amount is more than $200,000-400,000). Also known as a non-conventional or non-conforming loan, these mortgages usually have higher interest rates than standard loans.
Kickback. Money paid by one of the settlement service providers, e.g., the lender, title company, or closing attorney, for referring a customer.
Late Payment: A delinquent payment or failure to deliver a loan or debt payment on or before the time agreed. Late payments harm your credit score for up to 7 years and are usually penalized with late payment charges.
Lease purchase: assists low- to moderate-income homebuyers in purchasing a home by allowing them to lease a home with an option to buy; the rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment.
Lender: The individual or financial institution who will be providing the loan.
Lessee: A person who signs a lease to get temporary use of property.
Lessor: A company that provides temporary use of property usually in return for periodic payment.
Liability on an Account: Legal responsibility to repay debt.
Lien: A legal claim on the property of another for the satisfaction of a debt or duty.
Liquidation. Sale of property to pay creditors. The term is also used as a shorthand name for the chapter 7 bankruptcy process, even though property is not always sold in that bankruptcy process.
Loan Application. A standard form that creditors use to obtain personal and financial information from a borrower before deciding whether to make a loan.
Loan fraud: purposely giving incorrect information on a loan application in order to better qualify for a loan; may result in civil liability or criminal penalties.
Loan Origination Fee: A fee charged by a lender for underwriting a loan. The fee often is expressed in “points;” a point is 1% of the loan amount.
Loan Processing Fee: A fee charged by a lender for accepting a loan application and gathering the supporting paperwork, usually about $300.
Loan Term. The loan term is the length of time before the loan is due to be repaid in full. Most mortgage loans have 15 or 30-year terms. Many predatory consumer loans (payday loans, car title loans, refund anticipation loans) have very short loan terms, which increase the APR earned by the lender and/or pressure consumers into extending their loans at additional fees.
Loan: money borrowed that is usually repaid with interest.
Loan-to-Value Ratio (LTV): The percentage of a home’s price that is financed with a loan. On a $100,000 house, if the buyer makes a $20,000 down payment and borrows $80,000, the loan-to-value ratio is 80%. When refinancing a mortgage, the LTV ratio is calculated using the appraised value of the home, not the sale price. You will usually get the best deal if your LTV ratio is below 80%.
Lock. The interest rate selected by the borrower at a certain time during the loan process that is guaranteed by the lender for a specific number of days. This is called “locking” the rate. Once the rate is locked, neither the lender nor the borrower can change it.
Loss mitigation: a process to avoid foreclosure; the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan
Low-Documentation Loan: A mortgage that requires less income and/or assets verification than a conventional loan. Low-documentation loans are designed for entrepreneurs or self-employed borrowers - or for borrowers who cannot or choose not to reveal information about their incomes.
Low-Down Mortgages: Secured loans that require a small down payment, usually less than 10%. Often, low-down mortgages are offered to special kinds of borrowers such as first-time buyers, police officers, veterans, etc. These kinds of loans sometimes require that mortgage insurance is purchased by the borrower.
Mandatory Arbitration. A clause in a loan contract that requires the borrower to use arbitration to resolve any legal disputes that arise from the loan. Mandatory arbitration typically means borrowers lose their right to pursue legal actions, including any appeals, in a court of law. Evidence indicates that arbitration is often costly for borrowers and may reduce their chances of receiving a fair outcome. Borrowers often are unaware that a mandatory arbitration agreement has been included in their documents. Most credit card agreements have a binding mandatory arbitration clause.
Margin. The number added to the index to determine the interest rate on an adjustable rate mortgage. For example, if the index rate is 6%, and the current note rate is 8.75%, the margin is 2.75%.
Market Value: The dollar amount that would be paid for a vehicle by a winning buyer.
Maxed Out: A slang term for using up the entire credit limit on a credit card or a line of credit. Borrowing the maximum limit on cards or equity lines hurts your credit score.
Merged Credit Report: Also called a 3-in-1 Credit Report, this type of report shows your credit data from TransUnion, Equifax and Experian in a side-by-side format for easy comparison.
Minimum Payment: The minimum amount that a credit card company requires you to pay toward your debt each month, usually between $10-$50 dollars.
Mortgage banker: a company that originates loans and resells them to secondary mortgage lenders like :Fannie Mae or Freddie Mac.
Mortgage Broker. An individual who offers to arrange financing for a homeowner. In theory, the broker operates as the agent for the homeowner, seeking the best product. States vary as to whether or not the brokers are regulated.
Mortgage insurance premium (MIP): a monthly payment -usually part of the mortgage payment - paid by a borrower for mortgage insurance.
Mortgage Insurance. See Private Mortgage Insurance.
Mortgage Interest Expense: A tax term for the interest paid on a loan that is fully deductible, up to certain limits, when you itemize income taxes.
Mortgage Modification: a loss mitigation option that allows a borrower to refinance and/or extend the term of the mortgage loan and thus reduce the monthly payments.
Mortgage Refinance: The process of paying off and replacing an old loan with a new mortgage. Borrowers usually choose to refinance a mortgage to get a lower interest rate, lower their monthly payments, and avoid a balloon payment or to take cash out of their equity.
Mortgage Servicer. A bank, mortgage company, or a similar business that communicates with property owners concerning their mortgage loans. The servicer usually works for another company that owns the mortgage. It may accept and record payments, negotiate workouts, and supervise the foreclosure process in the event of a default.
Mortgage. An agreement in which a property owner grants a creditor the right to satisfy a debt by selling the real property in the event of a default.
Mortgage-Backed Security. A type of investment backed by pools of mortgage loans, with payments on the underlying mortgages generating the return to investors. By selling mortgages in the secondary mortgage market, where they are collected and packaged as investments, lenders are able to generate more funds for future lending.
Mortgagee. The entity that obtains a security interest in the real property of another, usually a lender.
Mortgagor. The owner of real property who grants a mortgage to another, usually a lender.
National Association of Certified Credit Counselors (NACCC): A non-profit, credentialing organization that oversees the education and certification requirements of its members. The organization works to increase professionalism, standards and ethics in the credit counseling industry.
National Student Loan Data System. The Department of Education's database for federal student financial aid. NSLDS receives data from schools, guaranty agencies and from the federal Department of Education.
Negative Amortization: This occurs when monthly payments are not large enough to pay all the interest due on the loan. The unpaid interest is added to the unpaid balance of the loan. This can result in the borrower owing more than the original amount of the loan.
Negative Equity. Negative equity arises when the value of an item of property you own is less than the total you owe on all the liens on that property. For example, if you own a home worth $100,000 and borrow $125,000 to consolidate debts, you have negative equity of $25,000.
Negative information (or remarks): Statements or grades assigned on credit reports due to late payment, non-payment or default on debts owed to creditors. Bankruptcies and hens also show up under this category.
Net Effective Income: A person’s gross income minus federal and state income taxes.
No-Documentation Loan: A mortgage in which the applicant provides only the minimum information - name, address and Social Security number. The underwriter decides on the loan based only on the applicant’s credit history, the appraised value of the house and size of down payment. This type of loan usually has higher interest rates than a standard loan.
Non-dischargeable debt: Debt that cannot be eliminated through bankruptcy court. Some types of IRS debt, student loans and certain types of judgments fit into this category.
Non-Purchase Money Security Interest. A non-purchase money security interest arises when you agree to give a lender collateral that was not purchased with money from that loan. For example, a finance company may insist that you give a lawn-mower or living room set as collateral for a loan you take out to pay for car repairs.
Non-Sufficient Funds (NSF). Fees are charged for non-sufficient funds (NSF) when a checking account is overdrawn. The threat of these charges contribute to the pressure payday borrowers are under to renew loans and pay repeated fees. NSF fees differ from overdraft fees, which are charged for the extension of a loan using bank funds to cover the amount you would have overdrawn.
Note. This term is commonly used as a name for a contract involving the loan of money.
Notice of Right to Cancel. This document explains your right to cancel a loan in some circumstances. You should receive such a notice in connection with most door-to-door sales and for mortgage loans that are not used to buy your residence.
Office of the Comptroller of the Currency (OCC). Charters, regulates and supervises all national banks. It also supervises all federal branches and agencies of foreign banks.
Office of Thrift Supervision (OTS). The successor thrift regulator to the Federal Home Loan Bank Board and a division within the Treasury Department. The OTS is responsible for the examination and regulation of federally chartered and state chartered savings associations.
Old debt: Debt that has been charged off/written off by a creditor, normally referred to an outside 'third party" collector. Old debts are usually those debts/accounts that have not had charge or payment activity for over 2 years and are the easiest to negotiate payment/removal from credit reports with creditors.
Ombudsman. There is an ombudsman office in the Department of Education that is supposed to help borrowers with student loan problems. Borrowers should first try to resolve problems on their own before calling the Ombudsman. Many guaranty agencies have their own ombudsman offices.
Open account: An account with a creditor that is still on the books and, in the opinion of the original creditor, collectible. These types of accounts usually are reported/updated to the credit bureaus and report late payments. They can be the most difficult to negotiate with a creditor.
Open-End Credit: line of credit that can be used over and over again. This includes overdraft credit accounts, credit cards, and home equity lines
Open-End Lease: A lease which may involve a balloon payment based on the value of the property when it is returned.
Open-ended Loan. A loan without a definite term, or end date.
Opt-Out: You can opt-out from pre-approved credit card offers, insurance offers and other third party marketing by calling 1-888-5-OPT-OUT. Calling this number will stop mail offers that use your credit data from all three credit bureaus. You can also call this number to ask to opt-in again.
Original amount: The original amount owed to a creditor.
Origination Fee. A fee paid to a lender for processing a loan application. It is stated as a percentage of the mortgage amount, or “points.”
Origination: the process of preparing, submitting, and evaluating a loan application; generally includes a credit check, verification of employment, and a property appraisal.
Originator. The lender who makes the loan and whose name is on the loan documents.
Outstanding Balance: Any money you owe on your card.
Overdraft Checking: A line of credit that allows you to write checks or draw funds by means of an EFT card for more than your actual balance, with an interest charge on the overdraft.
Overdraft Loan. See Bounce Loans.
Over-Limit Fee: A fee charged by a creditor when your spending exceeds the credit limit set on your card, usually $10-50.
Paid As Agreed: Old term used on consumer credit bureau reports to describe an account that may have been renegotiated and/or settled for less than the full amount. Many creditors are now flagging these notations as negatives, so it's important that your creditor agrees to delete all information regarding a settled account, not just re-classify the account as "paid as agreed."
Partial Claim: a loss mitigation option offered by the FHA that allows a borrower, with help from a lender, to get an interest-free loan from HUD to bring their mortgage payments up to date.
Payday Loan. (Also called "cash advances," "deferred presentment," "deferred deposits" or "check loans.") Payday loan customers write the lender a post-dated check or sign an authorization for the lender to take money out of an account electronically for a certain amount. The amount on the check equals the amount borrowed plus a fee that is either a percentage of the full amount of the check or a flat dollar amount. The check (or debit agreement) is then held for up to a month, usually until the customer's next payday or receipt of a government check. At the end of the agreed time period, the customer must either pay back the full amount of the check (more than what the lender gave out), allow the check to be cashed, or pay another fee to extend the loan. Most payday borrowers get caught in a debt trap, unable to pay off the loan in the two-week term, and so are compelled to avoid default by paying repeated high fees for no new money.
Payment Option ARM (adjustable rate mortgage). A mortgage that allows a number of different payment options each month, including very minimal payments. The minimum payment option can be less than the interest accruing on the loan, resulting in negative amortization.
Payment Protection Insurance (PPI): An insurance policy that can pay an agreed amount if you're unable to earn because of illness or redundancy. This can therefore help to keep up your payments to the card.
Payment Shock. An unmanageable rise in a consumer's monthly mortgage payment, typically the result of an increase in the interest rate on an ARM loan. For example, a 2% bump in a loan's interest rate can increase the consumer's monthly payment 24%.
Penalty Rate: A higher interest rate applied to your credit card account if you are late making payments.
Periodic Rate: The interest rate you are charged each billing period. For most credit cards, the periodic rate is a monthly rate. You can calculate your card’s periodic rate by dividing the APR by 12. A credit card with an 18% APR has a monthly periodic rate of 1.5%.
Perkins Loans. Low-interest student loans for both undergraduate and graduate students with exceptional financial need.
Permissible Purpose: Specific guidelines regulating when your credit data can be reviewed and by what type of business. These guidelines are part of the FCRA laws.
Person to Person Loan: Usually applied to auto loans; this loan is a request for direct financing for a vehicle rather than a loan through a dealership.
Personal Identification Number (PIN): A unique four-figure number which is provided for your use only, and must use when you spend with your card.
PITI. Principal + Interest + Taxes + Insurance. The total monthly mortgage expense.
PLUS Loans. PLUS loans are student loans offered through both the FFEL and Direct loan programs. Until July 2006, these loans were available only for parents borrowing on behalf of their children. As of July 1, 2006, PLUS loans are also available for graduate and professional students.
PMI: Private Mortgage Insurance; privately-owned companies that offer standard and special affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.
Point: A unit for measuring fees related to a loan; a point equals 1% of a mortgage loan. Some lenders charge “origination points” to cover the expense of making a loan. Some borrowers pay “discount points” to reduce the loan’s interest rate.
Point-of-Sale (POS): A method by which consumers can pay for purchases by having their deposit accounts debited electronically without the use of checks.
Postdated check: A check with a date in the future, a technique utilized to connate a person to make payment after the date written on the check. (Something a consumer should never, ever give to a debt collector.)
Power of Sale Clause. A provision in a mortgage or deed of trust permitting the mortgagee or trustee to sell the property without court authority if the payments are not made.
Pre-Approval Letter: A document from a lender or broker that estimates how much a potential homebuyer could borrow based on current interest rates and a preliminary look at credit history. The letter is a not a binding agreement with a lender. Having a pre-approval letter can make it easier to shop for home and negotiate with sellers. It is better to have a pre-approval letter than an informal pre-qualification letter.
Preapproved: lender commits to lend to a potential borrower; commitment remains as long as the borrower still meets the qualification requirements at the time of purchase.
Predatory Lending. A term for a variety of lending practices that strip wealth or income from borrowers. Predatory loans typically are much more expensive than justified by the risk associated with the loan. Characteristics of predatory loans may include, but are not limited to, excessive or hidden fees, charges for unnecessary products, high interest rates, terms designed to trap borrowers in debt, fraud, and refinances that do not provide any net benefit to the borrower.
Pre-foreclosure sale: allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.
Premium: an amount paid on a regular schedule by a policyholder that maintains insurance coverage.
Prepayment Penalty. A fee charged by a lender if the borrower pays the loan off early. The lender’s rationale for imposing prepayment penalties is to cover the loss of costs advanced by the lender at the time of origination. Mortgage loans with prepayment penalties often include a yield spread premium payment by the lender to the broker.
Prepayment. Paying off all or part of the loan balance before it is due.
Pre-Qualification Letter: A non-binding evaluation of a prospective borrower’s finances to determine how much he or she can borrow and on what terms. A pre-qualification letter is a less formal version of a pre-approval letter.
Pre-qualify: a lender informally determines the maximum amount an individual is eligible to borrow.
Prime rate: The interest rate a bank charges to its best or "prime" customers. Each bank will quote a prime lending rate. The rate given to consumers on their credit cards is often based on the prime rate plus a certain percentage, which represents the lender's assessment of the risk in lending, plus its profit margin.
Principal: The amount of money borrowed with a loan or the amount of money owed, excluding interest.
Private Mortgage Insurance (PMI): A form of insurance that protects the lender by paying the costs of foreclosing on a house if the borrower stops paying the loan. Private mortgage insurance usually is required if the down payment is less than 20% of the sale price.
Processing Fee. A charge imposed by a creditor to process or handle a loan application.
Profit & Loss Statement: A valuable accounting function that shows a reconciliation of all gross income and expenses to offset the same, arriving at a net profit (or loss) figure.
Promotional Inquiry: A type of soft inquiry made by a creditor, lender or insurer in order to send you a pre-approved offer. Only limited credit data is made available for this type of inquiry and it does not harm your credit score.
Purchase Money Mortgage. The mortgage loan obtained to purchase a home.
Purchase Money Security Interest. A lien on property that arises when you agree to allow a lender to take as collateral the property you are purchasing with the loan.
Qualifying Ratios: As calculated by lenders, the percentage of income that is spent on housing debt and combined household debt.
Rate Shopping: Applying for credit with several lenders to find the best interest rate, usually for a mortgage or a car loan. If done within a short period of time, such as two weeks, it should have little impact on a person’s credit score.
Reaffirmation. An agreement in the bankruptcy process to pay back a debt that would otherwise be discharged in bankruptcy. Most reaffirmation agreements are a bad idea.
Re-aging Accounts: A process where a creditor can roll-back an account record with the credit bureaus. This is commonly used when cardholders request that late payment records are removed because they are incorrect or resulting from a special circumstance. However, re-aging can also be used illegally by collections agencies to make a debt account appear much younger than it actually is. Some collections agencies use this tactic to keep an account from expiring from your credit report in order to try to get you to pay the debt.
Reamortization. When a loan is reamortized, your payment is recalculated based on loan terms that are different from the original terms. For example, if you have paid for five years on a ten-year loan, your lender might consider starting the ten-year period again and recalculating your payments. This will lower your payments. Similarly, your arrears may be capitalized (included in the principal) and your loan reamortized to reflect the higher principal balance on which interest is accruing.
Red ink: Term used to describe losses sustained by any financial entity. When individual consumers drown in red ink they may end up filing for bankruptcy; when the U.S. government engages in this financial activity it holds another Treasury note or bond auction.
Redlining. In the mortgage lending context, the practice of denying the extension of credit to residents of a specific geographic area due to their race, ethnicity, age, or sex. See also Reverse Redlining.
Refinancing. The process of paying off current debts by borrowing new money either from an existing creditor or a new creditor.
Refund Anticipation Loan. See Tax Refund Anticipation Loans.
Rehabilitation mortgage: a mortgage that covers the costs of rehabilitating (repairing or Improving) a property; some rehabilitation mortgages - like the FHA's 203(k) - allow a borrower to roll the costs of rehabilitation and home purchase into one mortgage loan.
Reinstatement. The process of remedying a default so that the lender will treat you as if you had never fallen behind.
Renewal. In some states, regulations limit the number of times a single payday loan can be extended or "rolled over." Payday lenders accomplish the same effect with loan renewals, also known as "back-to-back transactions." In a renewal transaction, the borrower pays off an existing payday loan in order to open another one (either immediately or after a cooling-off period). The borrower gets no new money, but pays another fee for the new loan.
Reorganization (Chapter 13 Bankruptcy). This is a bankruptcy process to get relief from debts by making court-supervised payments over a period of time. The alternative is usually liquidation under chapter 7.
Repayment Period: The period of a loan when a borrower is required to make payments. Usually applies to home equity lines of credit. During the repayment period, the borrower cannot take out any more money and must pay down the loan.
Replevin. The legal process in which a creditor seeks to recover personal property on which it claims a lien. Replevin is often threatened, but rarely occur.
Reverse Mortgage. A refinancing option usually available only to older homeowners who have built up substantial equity in their property. In a reverse mortgage, money is drawn based on the value of the property without an immediate repayment obligation, because the lender expects repayment by sale of the property at some point in the future.
Reverse Redlining. The practice of extending unsafe credit to those in certain communities based upon race, ethnicity, sex, or age. See also Redlining.
Revolving charge card (or credit line): Commonly issued by major department stores and major banks, it requires a monthly payment sufficient to amortize the outstanding balance. Example: If consumers pay only the minimum balance on a $10,000 credit card and do not use the card for any additional purchases, it will take over 25 years to amortize/pay off the debt.
Rewards Card: A credit card that rewards spending with points, cash back programs or airline miles. These types of cards usually require that borrowers have good credit and commonly involve an annual fee.
Risk Score: Another term for a credit score. (See Credit Score, FICO Score, Beacon Score and Empirica Score)
Sale/leaseback. An early form of payday lending circumvention, in which a payday lender avoids legal restrictions by claiming the loan they make is payment for an item the borrower owns, but pretends to "sell" to the lender, who then "leases" it back to the borrower for a fee. The "sale" proceeds are the loan, and the fee is the interest. Also commonly used in car title lending.
Scam: Fraudulent plan or scheme designed to separate a consumer from their money without delivering on promised goods, services (training) or value.
Schumer Box: An easy to use chart that explains the rates, fees, terms and conditions of a credit account. Creditors are required to provide this on credit applications by the U.S. Truth in Lending Act and it usually appears on statements and other documents.
Scoring Model: A complex mathematical formula that evaluates financial data to predict a borrower’s future behavior. Developed by the credit bureaus, banks and FICO, there are thousands of slightly different scoring models used to generate credit scores.
Scoring system: A tool used by prospective lenders to grade the creditworthiness of a potential borrower.
Second Mortgage: A loan using a home’s equity as collateral. A first mortgage must be repaid before a second mortgage in a sale.
Secured Credit Cards. A credit card for which the card issuer requires that the card holder place a certain amount of money in a bank account with the card issuer. If the debtor does not repay the credit card, the card issuer can seize the money in the bank account.
Secured creditor: Creditor whose financial position is secured by real property, such as a bank or finance company with a lien on an automobile or a mortgage company secured by the house they financed. hi the event of default the secured creditor can repossess or foreclose on the property they financed, greatly reducing their chance of total loss exposure.
Secured Debt: A loan that requires a piece of property (such as a house or car) to be used as collateral. This collateral provides security for the lender, since the property can be seized and sold if you don’t repay the debt.
Securitization. The process of investing in and providing capital for the creation of mortgage loans. This process brings together a variety of entities to accomplish these goals. Loans are pooled and assigned to a trustee that supervises the servicer of the loans and distributes the monthly returns to the securities holders. The pools of loans are sometimes insured and they are rated by the various bond-rating agencies. An investment firm invites investors to buy certificates or mortgage-backed securities that pay an attractive interest rate over a specific term. Investors are compensated through interest payments that are often guaranteed by bond insurance companies. The borrower’s monthly payments on the loan cover both the return to the investors and a profit to the lender. The risk of loss to the investors is negligible given insurance and recourse agreements between the trustee and the lender. Creating capital flow in this way for subprime lenders only took off following 1994.
Security Interest: The creditor’s ability to take property offered as security.
Security: Something given as a pledge of payment.
Service Charge: Finance charges such as the fee for triggering an overdraft checking account into use, using balance transfer checks, or credit card checks.
Settlement Statement (“the HUD-1”). The Real Estate Settlement Procedures Act requires lenders to give this disclosure at closing, or one day in advance of closing if the consumer requests it. It should be the final statement of settlement costs. The RESPA disclosure focuses on closing costs as a dollar amount.
Settlement: An agreement reached with a creditor to pay a debt for less than the total amount due. Settlements can be noted on your credit report and are not as beneficial to your credit as paying a debt in full.
Short-term credit. Payday lenders and purveyors of overdraft loans, car title loans and refund anticipation loans offer extremely short-term credit, typically a few days to one month, and charge interest rates in the triple digits. The excessive charges far outweigh the risks associated with these loans.
Skip and skip-tracing: Technique used by creditors and collection agencies to find consumers that are suddenly difficult to locate (skips). No magic here, just instant access to enormous databases containing a variety of information that, in most cases, will lead the debt collectors to your new front door.
Social Security Number: Also referred to as a SSN. This unique nine digit number is meant to track your Social Security savings but is also used by creditors, lender, banks, insurers, hospitals, employers and numerous other businesses to identify your accounts. People who do not have a SSN, such as non-US citizens, use a nine digit Individual Taxpayer Identification Number (ITIN) instead.
Soft Inquiry: A type of inquiry that does not harm your credit score. Soft inquires are recorded when a business accesses your credit data for a purpose other than an application for credit. Soft inquiries include your request to see your own credit report and employment-related requests. This type of inquiry is recorded by the credit bureaus but does not usually appear on a credit report purchased by you or a business.
Special Forbearance: a loss mitigation option where the lender arranges a revised repayment plan for the borrower that may include a temporary reduction or suspension of monthly loan payments.
Statement Date: The date that your credit company compiles, totals, prints and issues the statement of that month's outstanding debt; not necessarily the date that you actually receive the statement.
Statement: Your monthly credit card bill that shows what you've spent, what you owe, the minimum you must pay and the latest date you can pay it.
Sub-Prime (Bad Credit): This is a phrase used in the industry to describe customers who are a bad credit risk, but are seen as worth lending to anyway. If you are identified as sub-prime, you’ll start getting offers for loans secured on your property – they know that if you can’t pay, they’ll get their money anyway.
Subprime Borrower: A borrower who does not meet the qualifications for standard credit and loan offers. Usually a subprime borrower has poor credit (a score under 650) due to late payments, collection accounts or public records. Lenders often grade them based on the severity of past credit problems, with categories ranging from “A-” to “D” or lower. Subprime borrowers can qualify for loans and credit, but usually at a higher interest rate or with special terms.
Sweat equity: using labor to build or improve a property as part of the down payment
Table-Funded Transaction. A transaction where the nominal lender is actually originating the loan for another entity whose money is used to fund the loan. The loan will be transferred within a relatively short period of time after the closing to the lender who funded the loan.
Tax Refund Anticipation Loan. A loan to the debtor to be repaid out of the debtor's tax refund. The refund is often then sent directly to the lender. These loans can be very expensive.
Tax Service Fee. The fee charged by a lender for a report about whether the borrower is or has been delinquent on the payment of taxes.
Teaser Rate: A ‘special offer’ low rate, usually written in enormous letters. You will see many offers with “LOW 2.9% APR” in inch-high letters, followed by “for first six months, 21.9% thereafter” in microscopic ones. Teaser offers can sometimes be worth taking, but not if they tie you in for longer than the period of the offer.
Teletrack: A credit reporting system that specifically tracks subprime borrowers or borrowers with no official credit. Data about payday loan payments, rent payments and non-standard lenders is collected to develop accurate risk predictions for borrowers who may not be included in the standard credit reporting system.
Terms: Refers to the agreed upon debt repayment terms with a creditor, such as 48 months or 60 months, etc.
Third-party debt collector: Collection agency or attorney engaged in the business of collecting debts that they did not originate. Usually taking these accounts on a contingency basis, the majority of these collection agencies work on a commission basis. The Fair Debt Collection Practices Act specifically regulates the activities of this type of collection agent.
Title Insurance. Insurance to protect the lender (lender’s policy) or the buyer (buyer’s policy) against loss arising from disputes over ownership or a property.
Title: A document that is evidence of an individual’s ownership of property.
Tradeline: The official term for an account listed on a credit report. Each account’s details (including payment history, balances, limits and dates) are recorded in a separate tradeline.
TransUnion: One of the three national Credit Bureaus that collects and provides consumer financial records. TransUnion operates the TrueCredit, TrueLink and FreeCreditProfile brands.
Truth in Lending Act (TILA). A federal (national) law that requires that most lenders, when they make a loan, provide standard form disclosures of the cost and payment terms of the loan.
Universal Default Clause: A credit card policy that allows a creditor to increase your interest rates if you make a late payment on any account, not just on their account. For example, your rates could increase dramatically on your credit card if you make a late payment on an unrelated loan. Your creditors track your payment history with other accounts by checking your credit report.
Unsecured creditor: Creditor who has no collateral covering their financial exposure. Almost all credit or charge cards fit into this category. The weakest position to be in during tough financial times, unsecured creditors are the largest employers of third-party debt collectors.
Unsecured Debt: A loan on which there is no collateral. Most credit card accounts are unsecured debt.
Usury. The practice of lending money and charging the borrower interest, especially at an exorbitant or illegally high rate. Examples include payday, overdraft, and auto title loans. Payday loans typically carry an annual percentage rate (APR) of over 400%, sometimes exceeding 1000%. Societies and religions throughout history have banned or limited the practice of usury.
Utilization Ratio: The ratio between the credit limits on your accounts and the outstanding balances. This ratio shows lenders how much of your available credit you are using overall.
Variable Rate: A type of adjustable rate loan tied directly to the movement of some other economic index. For example, a variable rate might be prime rate plus 3%; it will adjust as the prime rate does.
Variable Rate: This is an interest rate that is worked out by adding a certain amount to the current base rate. Taking this option will allow your credit card to be affected by changes in national interest rates – a good idea if you think they might go down, and a bad one if they’re on the way up.
Variable-Rate Mortgage. This is a mortgage loan on which the interest rate can change over time. The changes can affect the amount of your monthly payments.
Vito: Name used to describe any individual in the debt collection industry who may use techniques that are not endorsed by the American Collectors Association or deemed legal by the federal government under the Fair Debt Collections Practices Act.
Wage Assignment. An agreement to have wages paid to a person other than yourself. For example, some people assign a portion of their wages to be paid directly to cover a credit union bill.
Wage Garnishment. Garnishment of the debtor's wages from the debtor's employer.
Wage-earner plan: Alternate term used to describe a Chapter 13 bankruptcy. This plan allows consumers to pay off creditors over a period not to exceed five years.
Withdrawal Limit: This is the maximum amount of cash advance that you will be allowed to Withdraw at a cash machine or over the counter in a bank, on any one day.
Yield Spread Premiums (YSP). A fee from a lender to a loan broker paid when the broker arranges a loan where the interest rate on the loan is inflated to an amount higher than the “par” rate. The par rate is the base rate at which the lender will make a loan to borrower on a given day.
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