A Basic Guide to Financial Terms Related to Credit
Here are some basic terms to know, especially when building or rebuilding your credit score.
APR: Total cost of the loan on an annual basis, including interest charges, annual fees, points, and other finance charges.
Asset: Anything of monetary value, commercial or exchange value that is owned by a person or entity.
ATM Card: A card used in an ATM (at banks or stores) for cash withdrawals, funds, transfers, and other banking services.
Balance Transfers: The movement of the balance of one credit card account to another credit card account. The debtor should be aware of processing time, late fees if the former account is not paid on time, alternative interest rates and terms if the debtor does not qualify for those advertised, requirements to maintain advertised rates, and any transfer fees.
Cash Advance: a cash withdrawal from a credit card account. Such advances are NOT given a grace period. Instead, interest begins accruing the day the advance is made.
Charge Card: A card that requires the balance be paid in full each month.
Credit Card: A credit card allows you to make partial or monthly payments for purchases, but charges interest on the amount owed. You can also pay your balance in full to avoid interest payments. Banks and other card issuers set interest rates and fees.
Credit History: The record of an individual’s credit-related activities, including credit accounts (opening date, late payments, limit, balance, type of account). Sometimes used interchangeably with “credit report.”
Credit Report: The accumulation of an individual’s credit-related information, including their credit history, public record information, and credit inquiries. Accounts remain on the report for 7 years; Inquiries for 2 years; Most bankruptcies for 10 years. Also called credit record or credit history.
Creditor: Individual or entity that lends money to another individual or entity.
Debit Card: A card whose funds are withdrawn directly from the cardholder’s checking account.
Debtor: Individual or entity that borrows money from another individual or entity.
Gas or Oil Card: A credit card used at a specific gas station or chain of stations. E.g. Chevron.
Grace Period: The period of time, generally 20-25 days, from the billing date of the previous credit card bill to the due date of the current bill, when payment can be made in full without being charged interest. Some cards do not offer a grace period. Others only have a grace period if there was no outstanding balance on the account at the start of the billing cycle. Generally, there is no grace period for cash advances.
Interest: A fee (usually expressed as a percentage of the balance) charged by the creditor for the privilege of borrowing money on credit.
OAC: On Approved Credit. Most premium offers (best rates) specifying OAC require a superb credit score to qualify.
Points: Lender fees based on the regular interest payments. Each point equals one percent of the loan amount and is paid at the beginning of the loan.
Principal: The balance of a loan currently owed to the creditor.
Retail Card: A credit card used at a specific retail store or chain of stores. E.g. Sears.
Secured Debt: Debt that identifies specific assets that can be taken over by the creditor in case of default by the debtor. E.g. Car Loans, Mortgages, Title Loans.
Unsecured Debt: Debt that does not identify specific assets that can be taken over by the creditor in case of default by the debtor.
With the basics covered, you are now prepared to handle your credit with expert care!
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