:: Credit Help Guide US :: - Glossary

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.

Adjustable-Rate Mortgage (ARM). Mortgage that permits the lender to adjust the interest rate periodically based on movement in a specified index.

Amenity. Feature of real property that enhances its attractiveness and increases the occupant or user's satisfaction, although the feature is not essential to the property's use. Natural amenities include a pleasant or desirable location near water, scenic views of the surrounding area, etc. Manmade amenities include swimming pools, tennis courts, community buildings, and other recreational facilities.

Amortization or Amortize. Gradual reduction of the mortgage debt through periodic payments scheduled over the mortgage term.

Appraisal. Report that states an estimate or opinion of value (such as an estimate of value for a house).

Arm's Length Transaction. Transaction in which the parties involved are entirely independent of each other, deal with each other as strangers, and have no reason for collusion.

Balance Transfers. The process of moving an outstanding balance from one credit card to another. This is usually done to obtain a lower interest rate on the outstanding balance. Transfer are sometimes subjected to a Balance Transfer Fee.

Balloon Payments. Balloon payment loans are structured in a way where there are monthly payments for a specific period of time and then one final, large (or "balloon") payment for the remainder. These are often used by individuals who have money tied up in investments and just need a loan for two to three years, or for those purchasing investment properties, where they are likely to resell the home in two to three years before the balloon payments hit.

Bankruptcy. A legal maneuver allowing consumers or businesses to discharge all debts and liabilities. See more on Bankruptcy.

Bankruptcy - Chapter 7. A consumer bankruptcy filing that liquidates all non-exempt assets to pay off creditors. See more on Bankruptcy.

Bankruptcy - Chapter 12. Bankruptcy filing reserved for working ranches, farms, etc. See more on Bankruptcy.

Bankruptcy - 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 eamer" plan. See more on Bankruptcy.

Bankruptcy - 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. See more on Bankruptcy.

Beacon Score. 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. See more on Bankruptcy.

Binder Insurance. Written evidence of temporary hazard or title coverage that runs for a limited time and must be replaced by a permanent policy.

Borrower. Mortgagor who receives funds in the form of a loan with the obligation of repaying the loan in full with interest, if applicable.

Broker. Individual employed on a fee or commission basis as agent to bring parties together and assist in negotiating contracts between them.

Bulletproofing. Insulating yourself from financial adversaries such as creditors, debt collectors, attorneys, etc. Simple techniques include obtaining an unlisted phone number and post office box to more advanced maneuvers such as use of family trusts, corporations, etc.

Call Option. Provision in the mortgage that gives the lender the right to call the loan due and payable at the end of a specified period for whatever reason.

Capital. Money and/or property comprising the wealth owned/used by a person or business enterprise. Accumulated wealth of a person or business. Also the net worth of a business represented by the amount that its assets exceed liabilities.

Cardholder. An individual to whom a credit card is issued. Typically, this consumer is also responsible for payment of all charges made to that card. Business or corporate cards are an exception to this rule, as the amount spent on these type of cards tend to be expensed by the individual's business.

Capital Expenditures. Cost of an improvement made to extend the useful life of a property or to add to its value.

Charge-off. A creditors action taken on an uncollectible account. Alternative term used: Written Off To Bad Debt Expense. This action normally results in negative information lines on a credit report that can stay for at least 7 years.

Capital Expenditures. Cost of an improvement made to extend the useful life of a property or to add to its value.

Closing. Conclusion of a transaction. In real estate, closing includes the delivery of a deed, financial adjustments, the signing of notes, and the disbursement of funds necessary to the sale or loan transaction.

Closing Costs. Money paid by borrowers and sellers to close a mortgage loan. This normally includes an origination fee, discount points, title insurance, survey, attorney's fee, and such prepaid items as taxes and insurance escrow payments.

Closing Statement. Financial disclosure giving an account of all funds received and expected at closing, including the escrow deposits for taxes, hazard insurance, and mortgage insurance for the escrow accounts.

Condominium. Real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.

Convertible ARM. Adjustable-rate mortgage that includes an option for the mortgagor to change the mortgage to a fixed-rate mortgage in the early years of the mortgage term.

Credit Bureaus. Also called consumer reporting agency. An agency which collects and sells information about the creditworthiness of individuals. A credit reporting agency does not make any decisions about whether a specific person should be extended credit or not. However, it does collect information that it considers relevant to a person's credit habits and history, and uses this information to assign a credit score to indicate how creditworthy a person is. When a prospective creditor approaches a credit reporting agency to inquire about a particular person, they are sold a credit report which contains all the information relevant to the person and the credit score calculated by the agency (some creditors might have an ongoing subscription to credit bureau). The prospective creditor then uses that information to decide whether to extend the applicant the desired credit or not. See more in Credit Bureaus.

Credit Card. Any card that may be used repeatedly to borrow money or buy products and services on credit. Issued by banks, savings and loans, retail stores, and other businesses. These are also sometimes referred to as "revolving lines of credit," since you can continue to pull from your balance and pay it back.

Credit Counseling. Counseling designed to help consumers develop their money management skills, especially in the sense of responsible credit use, debt management and consolidation. See more in Credit Counseling Agencies.

Credit Dispute. Discrepancy in the accuracy of a particular piece of credit related information that a consumer may have in regard to data on a credit report.

Credit History. A record of an individual's or company's past borrowing and repaying behavior. It will list personal or corporate information, credit lines currently in the person's or company's name, and risk factors like late payments or a recent bankruptcy. See more in Credit History.

Credit Monitoring. Services designed to notify consumers of any changes to their credit reports. Such services can be used to help prevent credit fraud, however, you can also closely monitor your own records.

Credit Rating. A published ranking, based on detailed financial analysis by a credit bureau, of one's financial history, specifically as it relates to one's ability to meet debt obligations. The highest rating is usually "AAA" and the lowest is a "D." Lenders use this information to decide whether to approve a loan or extend credit.

Credit Score. A measure of credit risk calculated from a credit report using a standardized formula. Factors that can damage a credit score include late payments, absence of credit references, and unfavorable credit card use. Lenders may use a credit score to determine whether to provide a loan and what rate to charge. Examples include the Beacon Score and FICO Score.

Creditor. Companies or individuals that extend financing to consumers. A creditor can be a mortgage company willing to finance a house, a bank willing to finance an automobile, or a major national creditor willing to extend credit through the issuance of a credit card/charge account such as Visa, MasterCard, American Express or Discover.

Credit Report. A consumer credit report is any communication, written, verbal or otherwise, that provides information for the purpose of determining an individual’s credit status.

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.

Department of Housing and Urban Development (HUD). A governmental entity responsible for the implementation and administration of housing and urban development programs. HUD was established by the Housing and Urban Development Act of 1965 to supersede the Housing and Home Finance Agency.

Direct Deposit. A term used to mean your paycheck will be directly depositing in your bank's checking, savings or a mixture of both accounts. This is usually set-up through your employer. All they need is your bank's Routing Number and Account Number(s)

Discharge. The release of a borrower from the obligation to repay his or her loan.

Discount. In loan originations, the amount withheld from loan proceeds by a lender.The purpose of a discount is to adjust the yield upward, either in lieu of interest or in addition to interest. The rate or amount of the discount depends on money market conditions, the credit of the borrower, and the rate or terms of the Note.

Dispute Credit Report. The process of acting upon an inaccuracy, omission or error that a consumer finds on his or her credit report.

Encumbrances. Any claim against a property that may diminish its value.

Equal Credit Opportunity Act (ECOA). Federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Escrow Agent. Person or organization with fiduciary responsibility to both the buyer and seller (or lender and borrower) to see that the terms of the purchase/sale (or loan) are carried out. Also known as an escrow company and escrow depository.

Escrow Deposit Account. Trust account that holds funds allocated for the monthly payment of real estate taxes, hazard insurance, mortgage insurance, lease payments, and other items. Also known as an impound account in some areas.

Escrow Payment. Portion of a mortgagor's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as impounds or reserves in some states.

Fair Market Value. Portion of a mortgagor's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as impounds or reserves in some states.

Fannie Mae. Commonly used term for the Federal National Mortgage Association (FNMA).

Federal National Mortgage Association (FNMA). Tax-paying corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by FHA or guaranteed by VA as well as conventional home mortgages. Also known as Fannie Mae.

Federal Trade Commission (FTC). Federal agency whose purpose is to encourage free enterprise and prevent restraint of trade and monopolies. This agency helps enforce many of the credit and consumer protection laws.

Federal Housing Administration (FHA). A federal agency within the Department of Housing and Urban Development (HUD) that provides mortgage insurance for residential mortgages made by private lenders and sets standards for construction and underwriting. FHA does not lend money, nor does it plan or construct housing.

Fellowships. Essentially the same thing as scholarships, but usually directed to graduate or doctorate studies. Please see scholarships.

FICO. Fair Isaac Credit Organization. Company that developed a numeric system of credit scoring used by many lenders and bureaus.

Fiduciary. One who acts in a capacity of a trust and confidence for another.

First Mortgage. Mortgage that is the primary lien against a property. Being in the primary lien means that if a house is seized by creditors, the lender in the first lien gets the proceeds first.

Fixed-Rate Mortgage. Mortgage that provides for only one interest rate for the entire term of the mortgage. If the interest rate changes because of enforcement of the due-on-sale provision, the mortgage is still considered a fixed-rate mortgage.

Forbearance. When dealing with student loans this is an option that allows you to defer your loan payments, but during this postponement of payments the loan balance still accrues interest. Most student loans that allow forbearance only do so for a specified period of time.

Foreclosure. Legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction, with the proceeds of the sale being applied to the mortgage debt.

Generally Accepted Accounting Principles (GAAP). Accounting practices that are in widespread use because of convention and tradition, and those that are specifically mandated by recognized rule-making authorities.

Ginnie Mae. Commonly used term for the Government National Mortgage Association (GNMA).

Government National Mortgage Association. Created in 1968 by an amendment to Title III of the National Housing Act, this federal government corporation is a constituent part of the Department of Housing and Urban Development. Among other governmental functions, it guarantees securities backed by mortgages that are insured or guaranteed by other government agencies (such as FHA and VA).

Government Sponsored Enterprise (GSE). A privatized institution that is backed by the federal government (a "quasi-governmental" agency). Fannie Mae (formally the Federal National Mortgage Association) and Freddie Mac (formally the Federal Home Loan Mortgage Corporation) were chartered by Congress to create a secondary mortgage market to assure the availability of mortgage credit throughout America. Both GSEs are profit-making shareholder-owned corporations. The GSE Charter Acts and the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 require the GSEs to extend the benefits of the secondary mortgage market to a broad range of Americans, including those traditionally underserved by the credit markets.

Home Equity Line of Credit (HELOC) . A revolving line of credit based on the equity in the mortgagor's house. The property is the security for the loan, which is usable for any purpose.

HELOC Margin. The margin is the amount that your lender can tack on to the prime interest rate, to determine the actual interest rate you'll pay after any introductory discounts expire.

Homestead Exemption. A state or local tax break that exempts a certain amount of the value of property upon which a property tax is based.

Identity Fraud or Theft. Using anothers personal identification related information to gain cash, goods or services.

Identity Theft Protection. Credit monitoring service that notifies the consumer when there is any changes to his credit report.

Impound. Portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as escrows or reserves in some states.

Interchange Fees. Fees paid by merchant-acquiring banks to cardholder-issuing banks are in place to cover the cost to convert a charge on a cardholder's card to a cash deposit at the merchant business checking account, including cost factors like billing services, credit and fraud risk, profit, etc.

Lease. Written document containing the conditions under which the possession and use of real and/or personal property are given by the owner to another for a stated period and for a stated consideration. Known as escrows or reserves in some states.

Liability Insurance. Insurance coverage that offers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party.

Lien. 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.

Loan to Value. The ratio of the loan amount to the appraised price or the purchase price. For example, if a loan amount is $80,000.00 and the purchase price and the appraised value is $100,000.00, the LTV is 80%. (LTV = $80,000 /$100,000).

Merchant Disputes. Merchant disputes arise when consumers are not satisfied with the goods or services that are obtained by credit card.

Mortgage. Collectively, the security instrument, the Note, the title evidence, and all other documents and papers that evidence the debt to purchase a home.

Mortgagee. Lender in a mortgage transaction.

Mortgagor. Borrower or owner in a mortgage transaction who pledges property as a security for a debt.

Negative information. 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. Favorite point of leverage utilized by collection agencies attempting to passively blackmail consumers.

Net Income. Your income, paycheck or revenue minus all expenses or costs (rent, heat, groceries, leisure spending, car payments, debt payments, etc.).

NSF. Not-Sufficient Funds or Overdrawn Fee. This is when a consumer overdraws a bank account by either writing a bad check or withdrawing more than the balance of the account. Banks will thus charge an NSF fee (or overdraft fee).

Origination Fees. Fees charged by a lender to prepare loan documents, make credit checks, inspect, and sometimes appraise a property. The fees are usually computed as a percentage of the face value of the mortgage.

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.

Overdrawn Fee. Also called Not-Sufficient Funds or NSF Fee. This is when a consumer overdraws a bank account by either writing a bad check or withdrawing more than the balance of the account. Banks will thus charge an NSF fee (or overdraft fee).

Pawn Loan. Also called colateral loan. A loan that invoves borrowing an amount of money while leaving an article as security for repayment of the loan.

Perkins Loans. The Perkins loan is a low-interest loan for both undergraduate and graduate students with exceptional financial need. The school is the lender and the loan is made mostly with government funds with a portion contributed by the school. The loan is thus repaid to the school.

PLUS Loans. PLUS stands for "Parent Loans for Undergraduate Students." These are loans for parents or legal guardians of a dependent student enrolled at least half-time in an eligible program. The borrowing parent owes interest on the loan as soon as the loan is made. Repayment of the loan begins when the final loan disbursement is issued.

Prepayment Penalty. Charge a mortgagor may be required to pay during the early years of a mortgage if he/she pays it in full or pays large sums to reduce the unpaid balance.

Real Estate Owned (REO). Property a lender acquires as the result of foreclosure.

RESPA. Real Estate Settlement Procedures Act, a federal law that requires lenders to provide home mortgage borrowers with information of known or estimated settlement costs.

Revolving Debt. Debt that once payments are made still allows you to spend against. Credit cards and HELOCs fall into this category. As you make payments against recent purchases and free up your balance, you can then spend against that newly available balance.

Scholarships. Forms of financial aid for undergraduate, graduate and doctorate education that help students pay for their education. Unlike student loans, scholarships and fellowships do not have to be repaid.

Second Mortgage. Mortgage that has rights secondary to the first mortgage, i.e., the proceeds from a foreclosure sale must pay the first mortgage before any funds can go to repay the second mortgage.

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. In 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 Credit Card. A credit card (normally Visa or MasterCard) that has a credit limit secured by a cash deposit placed with the issuing bank by the cardholders. A positive recovery step for consumers who have gotten into credit problems, but need a credit card (for such items as a hotel room, rental car, business/travel, etc.).

Secured Loan. Loan that is secured by real property, such as a car loan or home loan. In the event of default the creditor can repossess or foreclose on the property they financed, greatly reducing their chance of total loss exposure.

Settlement Costs. Money paid by borrowers and sellers to effect the closing of a mortgage loan. This normally includes an origination fee, discount points, title insurance, survey, attorney's fee, and such prepaid items as taxes and insurance escrow payments.

Stafford Loans. Federal educational loans for undergraduate and graduate students. The interest for these loans are either subsidized or unsubsidized, and is a variable rate, determined by the Federal government.

Student Loan. A form of financial aid or education loan that must be repaid, with interest. Student loans are taken by the student. These type of loans tend to have low interest rates and do not require credit checks or collateral. Student loans also provide a variety of deferment options and extended repayment terms.

Subsidized. Loans that have the interest paid by another during a specific period. Quite often referred to Stafford Loans and the government paying the interest while the borrower is in school, during grace periods, and during periods of deferment.

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. Evidence of the right to or ownership in property. In the case of real estate, documentary evidence of ownership is the title deed that specifies in whom the legal estate is vested and the history of ownership and transfers. Title may be acquired through purchase, inheritance, devise, gift, or through foreclosure of a mortgage.

Truth-in-Lending Law. Federal law that is part of the Consumer Credit Protection Act, which requires lenders to fully disclose credit terms and conditions, the annual percentage rate, and other charges, in writing. It is intended to assure borrowers are given meaningful information with respect to the cost of credit to help them make better comparisons between competing financial institutions.

Uncollectible. Term used by creditors to describe an account that has gone past a certain period of time without payment.

Underwriting. Analysis of risk and the matching of it to an appropriate rate and term. Underwriting involves an analysis of the property, as revealed in the appraisal report, as acceptable and adequate security for the loan and of the borrower's ability and probable willingness to repay the loan.

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 Loan. Loan that has no collateral covering that the creditor can seize if the borrower defaults. 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.

Unsubsidized. Loans that cannot have the interest paid by another during a specific period. In terms of student loans these may or may not be Stafford Loans. Unsubsidized loans are often easier for prospective students to obtain.

Verification of Employment (VOE). Documentation of a mortgage applicant's work history and/or occupation that is intended to assist with the lender's credit investigation and decision process. Many lending institutions ask potential borrowers to sign employment verification forms and then under the applicant's signature, make direct inquires to employers about the applicant.

Veterans Administration (VA). Independent agency of the federal government created in 1930. The Servicemen's Readjustment Act of 1944 authorized the agency to administer a variety of benefit programs designed to facilitate the adjustment of returning veterans to civilian life. The VA home loan guaranty program is designed to encourage lenders to offer long-term, low-downpayment mortgages to eligible veterans by guaranteeing the lender against loss.

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.