Ovation answers some of credit's great mysteries in our Credipedia - Credit 101 section of the learning center. Ever wonder how your score is calculated or what happens when a creditor claims a charge-off against you? Get the answers, decode the terms, grasp the philosophies involved in the credit game here.
Here are some of the basic credit terms you'll need to know and understand.
Inquiry
Inquiries are requests made to obtain information about your credit report and/or credit score. 'Hard' inquiries are made by creditors or potential creditors and can damage your score for up to a year, and then are supposed to simply show on the report for another year after that. 'Soft' inquiries are usually caused by you checking your own report, or by what are considered 'non-creditor entities' such as employers, landlords, credit bureaus, credit monitoring services, etc. A soft inquiry is one that does not affect your score.
Installment account
A type of credit where a consumer signs a contract to repay a fixed amount in equal payments over a specific period of time. Examples include car loans, furniture loans and personal loans.
Interest
The cost of borrowing or lending money, usually a percentage of the amount borrowed or loaned.
Joint Account
Credit accounts held or owned by two or more persons. In the case of a joint account, all parties are held equally responsible and liable for payment under the terms and conditions of the loan contract.
Judgment
The official court decision of an action or suit. This public record may be listed on your credit report in matters of money and debts owed. When a creditor charges-off debt and sells it to a collection agency, sometimes the collection agency will seek a judgment against you in court. If a collection agency receives a judgment against you they sometimes will look to seize assets of yours to repay the debt owed. Each state has varying limits to what someone with a judgment against you may seize under a court ordered writ of execution.
Late Payment
The definition of a Late Payment varies between creditors and the bureaus. Typically for creditors when a payment is made past the defined due date it is considered late. For bureaus, a payment is considered late when it is made 30 days or more after the creditor due date. Bureaus track the severity of late payments as to whether they were made more than 30 days after the due date, more than 60 days past the due date, or more than 90 days past the due date.
Lien
A legal hold or claim of one person on the property of another as security for a debt or charge. The right given by law to satisfy debt. Sometimes a creditor or collection agency will make a claim against property such as real estate or automobiles as a way of securing equity in that property for money owed them. Loans that are 'secured' involve property, called collateral, that, from the outset, hold liens until the debt is paid. 'Unsecured' loans do not typically involve liens on collateralized property. Collection agencies that receive judgments against you may try to lien property that is not 'judgment-proof' in an effort to collect money when you sell that property.
Line of credit
A preauthorize d amount of credit offered to an individual, business or institution that is commonly secured against an asset such as a home (real estate).
Monthly periodic rate
The rate of interest per month, calculated by dividing the annual percentage rate (APR) by 12.
Mortgage
A lien or claim against real property given by the buyer to the lender as security for money borrowed. First Mortgage-or "primary" mortgage-has priority over the claims of subsequent lenders for the same property.
Mortgagee
The one receiving the mortgage (usually a financial institution).
Mortgagor
The one granting a mortgage on his or her property. The borrower.
Open 30-day account
A type of credit where a consumer promises to repay the full balance owed each month. Examples include local businesses, travel and entertainment charge cards.
Past due
When you do not make at least the minimum payment on time, your account is considered past due.
Periodic rate
The interest rate described in relation to a specific amount of time. For example, the monthly periodic rate is the cost of credit per month; the daily periodic rate is the cost of credit per day.
Permissible Purposes
As defined in section 604 of the Fair Credit Reporting Act, only the named reasons for requesting a credit report are deemed "permissible." Requests not meeting these criteria must be denied.
Points
Finance charges paid by the borrower at the beginning of a loan in addition to monthly interest; each point equals one percent of the loan amount.
Prepayment penalty
Charges imposed by some lenders as a penalty for paying off a loan earlier than its original payoff date. Prepayment penalties are common among some of the sub-prime and/or predatory lending loan products.
Prime rate
The interest rate banks charge for loans to their biggest and highest-rated customers. The prime rate changes based on the demand for money and the rate the U.S. Federal Reserve Bank charges to its member banks. It is used as a major economic indicator.
Principal
The outstanding balance of a loan, exclusive of interest and other charges.
Promotional Inquiry
A type of soft inquiry made to your credit report for the purpose of disclosing that a credit report was furnished in connection with a pre-approved offer. If your credit history matches a creditor's criteria, that creditor gets only limited information not your full credit report.
Repossession
Forced, or voluntary surrender of merchandise as a result of the customer's failure to pay as promised. There are several types and descriptions of repossession actions. On a loan secured by collateral such as an automobile or other vehicle, a repossession occurs when a creditor seizes the item securing the loan. If the loan is not brought current, the creditor typically will see the item to pay off the loan or a fraction of the amount owed. If the loan is not satisfied by the sale, a creditor will usually seek a judgment for or hire a collection agency to collect the remaining balance.
Revolving credit
A credit agreement that allows consumers to pay all or part of the outstanding balance on a loan or credit card. As credit is paid off, it becomes available again to use for another purchase or cash advance.
Secured loan
A loan backed by collateral and secured against something tangible such as a home (real estate).
Tax Lien
A claim against assets filed by a taxing authority against property of a person who owes back taxes.
Trade line
A term used in the credit industry for an account listed on your credit report.
Unsecured loan
A loan based on a consumer's promise to pay, without savings or other collateral as a guarantee.
Variable Rate
A variable rate agreement, as distinguished from a fixed rate agreement, calls for an interest rate that may fluctuate over the life of the loan. The rate is often tied to an index that reflects changes in market rates of interest. A fluctuation in the rate causes changes in either the payments or the length of the loan term. Limits are often placed on the degree to which the interest rate or the payments can vary.
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