Glossary
A
Asset – Any kind of property, or investment or else the like with a cash value and having an owner can be defined with this notion.
Assumption – In financial terms assumption takes place when a buyer willing to take a mortgage also agrees to take over all the expenditures on the payment and so on. It is convenient and beneficial for a buyer as long as he or she can save money by doing so.
Average Daily Balance – represents a special financial method that helps to calculate and reflect all the financial charges taking into consideration payments and any purchases. If you add the outstanding balance on each day in the billing period and then divide that total by the number of days, you will get what is called average daily balance.
B
Bad Credit – It is in broad understanding a poor credit rating and the name commonly is given to the following cases – exceeding card limits, late payments, bankruptcy and so on. It is very frequent among the banks and other borrowers to refuse to an applicant with a bad credit as the latter is considered not creditworthy.
Balance – The term means total sum of owned money taking into consideration all the payments, purchases, payday loans, balances that were due last month as well as the charges like fees and interest. It differs from the monthly payment.
Balance Transfer is usually done with the aim to lower the interest rate payments. Basically, it is a transfer of a debt (balance) from one credit card to another accompanied by the number of procedures and can be offered to certain credit card applications.
Bankruptcy – The term indicates a person’s legal declaration of inability for repayment of the debts that he or she has. Bankruptcy is a very serious matter and should be fallen back upon only in the hopeless situation as it is fraught with a lot of unfavorable consequences for the person. It will be reflected in your credit history and will make your credit rating look very poor. It will literally ban you from any possibility to take any credit for the period of next 10 years (this is how long the fact of bankruptcy will stay in a credit report). Besides, you cannot file bankruptcy for the following loans – Federal student loans, Federal tax debt and child support. Generally, among the number of bankruptcy agreements there are two most frequently preferred – Chapter 7 and Chapter 13.
Beacon Score – Under this term is understood a very important for creditors indicator. They consider it either negative or positive depending on the prevalence of the according entries. So, late payments will hardly raise your score and, consequently, chances for a credit, while timely ones definitely will do both.
Billing Cycle – represents a period (25-30 days generally) between the dates of statement for the goods sold or services provided.
Buydown – it is a nonrecurring payment that is made by a borrower (and maybe by some third party) with the aim to reduce the total amount of payment and interest rate.
C
Chapter 7 – Charter 7 agreement presupposes that all the debts’ resolution is dealt with by the court. This means that the court sells all the assets and property possessed by the filer (e.g. houses, cars, furnishings, jewelry and etc. with certain value) in order to pay off the debts. There is also such a variation of the agreement known as reaffirmation. It is a payment plan agreed with the court but in this case a person chooses to repay himself. If to take a car loan reaffirmation as an example, the court leaves the right to keep a car after a person, who is going to make repayments according to a new repayment plan and under new terms. However, Charter 7 is no applicable in the following cases – student loans, court fines or personal injury caused by driving drunk or under the influence of drugs, also debts due to taxes, as well as child support and alimony. Charter 7 is registered in a credit report and stays there for the next 10 years.
Chapter 13 – This agreement differs from the previous in a way that allows a filer to keep the property. However, a person should be able to prove the presence of a permanent income source and will be obliged to give away half of the income monthly to creditors. Also, filers are allowed to keep assets under the condition that debts against them will be repaid in due time set by the court. As well as Charter 7, Charter 13 agreement is registered in a credit report and stays there for 10 years as well. Still, it is a more beneficial option as long as future creditors are more favorable to clients having had Charter 13 earlier on in their credit history than to the ones with Charter 7.
Closed-end Credit – the term basically can refer to any loan, the amount and all the financial charges of which should be repaid in full and in due time. Generally, the majority of real estate and automobile loans can be referred to as closed-end credits.
Collateral (or security) – the terms indicates the property that is pledged against a loan in order to secure it. In case of default payment it becomes possession of a creditor.
Conditionalities – The lender has got a right to lay out additional demands apart from repayment before granting a loan. An example of such conditionalities can be ‘structural adjustment’ policies.
Cosigner – the term means a person who is involved in the process of signing for a loan and by doing so takes certain liabilities concerning it.
Credit – the term means a person’s engagement to repay later the amount of money that he borrows at the moment for personal needs. It can also serve in the meaning of a right to postpone debt repayment.
Creditworthiness – a measure based on a borrower’s past history and record and prospective ability for repayment according to which creditors decide on gaining or refusing a loan.
Credit Card – a broad notion that can refer to anything like a card, a coupon book, etc. presupposed to be used frequently in order to pay for goods and services on credit as well as to borrow money.
Credit History – is a complete record of all person’s borrowings and debts.
Credit Scoring System – It is a special statistical system that takes into consideration creditworthiness and other different characteristics related to it all given in numerical scores. Its aim is to provide appropriate information according to which the decision whether to grant a loan or not is made.
D
Debt service – represents periodical repayment of part of the debt sum and interest in accordance to the repayment plan set by the creditor.
Default – the term means that a person is unable to meet the terms of the agreement with a creditor.
Discharge – the term is used in cases when by the decision of a court all your debts are erased. It is not the same as “charge off” or “write off” as long as these terms refer to accountancy and do not presuppose anything of the above mentioned.
Discount – this is an amount that is subtracted from regular price of a good or a service for customers with cash (not with credit cards).
F
Finance Charge – the terms is used to define the total amount of all the borrower’s expenditures concerning the credit.
Fixed Rate – this term means that interest rate is unchangeable throughout all the repayment period. Such approach in finance charge is referred as traditional and is practiced broadly.
G
Graduated Payment – presupposes that closer to the end of repayment period the payments increase progressively. This refer to close-end credits especially and negative amortization is a frequent feature of such loans.
L
Liability – this term defines a person’s legal responsibility for debt repayment.
Lien – this is a legal notice that a creditor has the right to attach to the property that you owe showing that you are not meeting your credit obligations. According to this notice you no longer can have full control over your property – i.e. you cannot sell it before you repay to the creditor. It is a pretty bad thing, and moreover, it is also bad for the “title” as there will be few volunteers to buy the property with such a history.
N
Negative Amortization – this happens in case when the repayments made on a regular basis are smaller than they were agreed on and therefore are not enough for a loan amortization. As a result interest that is left unpaid is added to the principal loan therefore making the debt bigger. This may lead to rescheduling the debt repayment plan.
O
Open-end Credit – other names are a charge account or revolving credit. This is a credit line that can be gained in the framework of some limit, however, can be repeated after part of the credit is amortized.
Open-end Lease – it is also known as finance lease and means a type of lease that presupposes additional payment that covers the difference in value of property after its return.
Overdraft Checking Account – with such an account a person is able to write checks and withdraw money (including finance charge) for the sum more than actually indicated in the balance.
P
Payday loan – is an unsecured type of loan that is given to a person against the next paycheck. The amount of such a loan is generally up to $500 for a period of a fortnight under pretty high interest rate.
Points – represent scores, each of which is equal to one percent of the amount of a loan. They represent financial charges that a borrower is obliged to pay for a loan apart from the interest every month.
Principal – It is a capital loan amount.
R
Renegotiable Rate – represents a type of variable rate that presupposes that during the term of the note interest rate can be changed. Therefore, there might be a need in periodic refinancing for the loan be become amortized.
Reschedule – means changed repayment plan and revised differently, frequently with prolonged repayment periods and even with all new loans added.
S
Security Interest – means the right of a creditor to take possession of all or a part of the property that was offered as security.
Seller’s Points – represent a considerable sum of money paid by the seller to the creditors of a buyer. Either creditors ask for it or it is done on the seller’s own accord. The most frequent sphere where seller’s points are used is real estate. One point can be estimated as 1% of an amount of a loan.
Service Charge – it is generally a part of financial charges that are paid in such cases as the fee for triggering an overdraft checking account into use.
Statement – This is a bill that is provided to a credit card holder with all the information about the activities on the account. Basically, the following transactions are reflected in it – outstanding balance, payments, credits, purchases, finance charges and so on.
Statement Date – this is the date when a card holder gets the statement with all financial charges included.
Surcharge – credit card holders who use their credit cards instead of cash used to be imposed with the extra charge until recently.
V
Variable Rate – means fluctuating interest rate that changes during the life of a loan. The opposite concept is fixed rate where interest does not change on the whole period. Variable rate almost always depends on the fluctuations of the market interest rates. That is why changes in the repayment plan are frequent. However, most of the time certain limits of interest rate variation are set.