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CREDIT VOCAB

APR• Annual percentage

rate; the annual rate of interst that is charged for using credit

acceleration clause• A provision in an

installment loan contract that gives the seller the right to declare the whole balance due if the buyer misses even one installment payment

add-on clause• A loan contract

provision that allows purchases to be added to an existing installment loan, with earlier purchases used as security for later ones

Asset• An item of value you

own, including money

Bankruptcy• Legal relief from

repaying certain debts

balloon payment• A final loan payment

that is much larger than the other installments

Capacity• A person’s ability

repay debt from regular income

Capital• A person’s finacial

resources

cash credit• Used to borrow money;

often used to purchase goods and services from sellers who do not give credit. Types of cash crdit include installment loans, single-payment loans, and credit card or check credit limits.

Character• A person’s reputation

for honesty and financial history

closed-end credit• A one-time extension

of credit for a specific amount and period of time

Collateral• Property that is

pledged to guarantee payment of a loan

collection agency• A business that

collects unpaid debt for other companies or organizations

Cosigner• A responsible person

who signs a loan as a co-borrower and thereby agrees to pay the obligation if the primary borrower fails to do so

consumer finance company

• Businesses that specialize in making small or personal loans

Credit• The supplying of

money, goods, services at present in exchange for the promise of future payment

credit counseling• Guidance provided by

trained people who help consumers learn to live within their means

Creditor• A person or business

who supplies money, goods, or services to debtors

credit bureau/ credit reporting agency

• An organization that keeps a running record of the financial and credit transactions of credit users and the credit worthiness of consumers. They sell information to creditors, landlords, insurers, employers, and other businesses.

credit history• A pattern of past

behavior in regard to repaying debt

credit limit • The maximum amount

of credit that a creditor will extend to a borrower

credit rating• A creditor’s evaluation

of a person’s willingness and ability to pay debts as judged by character, capacity, and capital

credit report• A record of a

particular consumer’s use of credit and account payment patterns

credit score• A numerical rating,

based on credit report information, that represents one measure of a person’s level of credit worthiness

debt consolidation loan• A loan that combines

all existing debt into a new loan with a more manageable payment schedule

Default• Failure to fulfill the

obligations of a loan

Delinquent• Overdue

down payment• A portion of a

purchase price paid by cash or check at the time of purchase, reducing the amount borrowed

finance charge• What the consumer

pays for the use of credit, including interest charges and any other fees

grace period• Period of time during

which the balance on a credit card may be paid in full to avoid finance charges

Garnishment• The legal witholding of

a sum from a person’s wages in order to collect a debt

impulse buying• Buying items that are

not really needed

installment credit• A form of credit that

may be used to purchase expensive items like cars or major appliances. With installment credit, the buyer makes payments in equal dollar amounts that include finance charges.

installment loan• A loan where you

borrow a set amount of money and repay it plus finance charges in a series of scheduled payments

Interest• A fee paid for the

opportunity to use someone else’s money over a period of time

Lien• A claim upon property

to satisfy debt

Liabilities• Amount a person

owes, such as unpaid bills, credit card charges, personal loans, and taxes

loan shark• Unlicensed lender who

operates illegally and chargse excessive interest

net worth• The difference

between your assets and your liabilities. Expressed by the formula: assets – liabilities = net worth

open-end credit• Credit that can be

used repeatedly. Sometimes referred to as a line of credit

Principal• The original amount

borrowed

regular charge account• A type of sales credit that

allows customers to purchase goods and services on credit and pay the bill in full in 25-30 days. If you do this, you are not charged interest; however, you may be charged interest if you do not pay the full amount.

Repossession• Taking away property

due to failure to make loan or credit payments

revolving credit• A form of credit in which the

total amount of the bill does not have to be paid each month; however, a finance charge will be figured on the amount not paid. Additional purchases can be made even though money is owed on previous purchases. The lender typically establishes an approved credit limit to represent the maximum amount of credit available. Credit cards are usually revolving credit.

right of rescission• The right, provided by

the Truth in Lending Act, that gives borrowers up to three business days to cancel a loan or other credit transaction for which their home is pledged as security

sales credit• Credit used to

purchase goods and services

single payment loan• A loan where you

borrow an amount of money and repay that amount plus finance charges in one payment

secured credit• Credit that is backed

by a pledge of property

• unsecured loan - Generally, a loan that only requires a signature promising to repay the loan as stated in the contract; not backed by collateral or pledge of valuables