Annual fee – Credit card issuers often (but not always) require you to pay a special charge once a year for the use of their service, usually between $15 and $55.
Annual Percentage Rate (APR) – A measure of how much interest credit will cost you, expressed as an annual percentage.
Capacity – Factor in determining creditworthiness. Capacity is assessed by weighing a borrower’s earning ability and the likelihood of continuing income against the amount of debt the borrower carries at the time the application for credit is made. While capacity may be considered in a credit decision, the credit report does not contain information about earning ability or the likelihood of continuing income.
Co-signer – Person who pledges in writing as part of a credit contract to repay the debt if the borrower fails to do so. The account displays on both the borrower’s and the co-signer’s credit reports.
Credit Limit/Line of Credit – In open-end credit, the maximum amount a borrower can draw upon or the maximum that an account can show as outstanding.
Credit Report – Confidential report on a consumer’s payment habits as reported by their creditors to a consumer credit reporting agency. The agency provides the information to credit grantors who have a permissible purpose under the law to review the report.
Credit Scoring – Tool used by credit grantors to provide an objective means of determining risks in granting credit. Credit scoring increases efficiency and timely response in the credit granting process. Credit scoring criteria is set by the credit grantor.
Creditworthiness – The ability of a consumer to receive favorable consideration and approval for the use of credit from an establishment to which they applied.
Delinquent – Accounts classified into categories according to the time past due. Common classifications are 30, 60, 90 and 120 days past due. Special classifications also include charge-off, repossession, transferred, etc.
Equal Credit Opportunity Act (ECOA) – Federal law, which prohibits creditors from discriminating against credit applicants on the basis of sex, marital status, race, color, religion, age, and/or receipt of public assistance.
Finance Charge – Amount of interest. Finance charges are usually included in the monthly payment total.
Fixed Rate – An annual percentage rate that does not change.
Grace Period – The time period you have to pay a bill in full and avoid interest charges.
Guarantor – Person responsible for paying a bill.
Installment Credit – Credit accounts in which the debt is divided into amounts to be paid successively at specified intervals.
Involuntary Bankruptcy – A petition filed by certain credit grantors to have a debtor judged bankrupt. If the bankruptcy is granted, it is known as an involuntary bankruptcy.
Liability amount – Amount for which you are legally obligated to a creditor.
Lien – Legal document used to create a security interest in another’s property. A lien is often given as a security for the payment of a debt. A lien can be placed against a consumer for failure to pay the city, county, state or federal government money that is owed. It means that the consumer’s property is being used as collateral during repayment of the money that is owed.
Line of Credit – In open-end credit, the maximum amount a borrower can draw upon or the maximum that an account can show as outstanding.
Potentially Negative Items – Any potentially negative credit items or public records that may have an effect on your creditworthiness as viewed by creditors.
Public Record Data – Included as part of the credit report, this information is limited to tax liens, lawsuits and judgments that relate to the consumer’s debt obligations.
Repossession – A creditor’s taking possession of property pledged as collateral on a loan contract on which a borrower has fallen significantly behind in payments.
Revolving Account – Credit automatically available up to a predetermined maximum limit so long as a customer makes regular payments.
Risk Scoring Models – A numerical determination of a consumer’s creditworthiness. Tool used by credit grantors to predict future payment behavior of a consumer.
Secured Credit – Loan for which some form of acceptable collateral, such as a house or automobile has been pledged.
Service Credit – Agreements with service providers. You receive goods, such as electricity, and services, such as apartment rental and health club memberships, with the agreement that you will pay for them each month. Your contract may require payments for a specific number of months, even if you stop the service.
Third-Party Collectors – Collectors who are under contract to collect debts for a credit department or credit company; collection agency.
Transaction fees – Fees charged for certain use of your credit line – for example, to get a cash advance from an ATM.
Truth in Lending Act – Title I of the Consumer Protection Act. Requires that most categories of lenders disclose the annual interest rate, the total dollar cost and other terms of loans and credit sales.
Unsecured Credit – Credit for which no collateral has been pledged. Loans made under this arrangement are sometimes called signature loans; in other words, a loan is granted based only on the customer’s words, through signing an agreement that the loan amount will be paid.
Variable Rate – An annual percentage rate that may change over time as the prime lending rate varies or according to your contract with the lender.
Verification – Verifying whether data in a credit report is correct or not. Initiated by consumers when they question some information in their file. Credit reporting agencies will accept authentic documentation from the consumer that will help in the verification.
Victim Statement – A statement that can be added to a consumer’s credit report to alert credit grantors that a consumer’s identification has been used fraudulently to obtain credit. The statement requests the credit grantor to contact the consumer by telephone before issuing credit. It remains on file for 7 years unless the consumer requests that it be removed.
Wage assignment – A signed agreement by a buyer or borrower, permitting a creditor to collect a certain portion of the debtor’s wages from an employer in the event of default.
TASK: read the definitions and choose 15 terms. Write a sentence that shows that you understand the term by using it in the correct context of economics and yourself.