Credit Report Vocabulary
The last time you probably took a vocabulary class was in high school, but chances are you’ve never taken a vocabulary class on credit reports and credit scores. That’s what we’re here for, as we’ve used this post as an opportunity to either review or teach you some of the credit report terms that you might not be as familiar with (or familiar with at all). You should already know what a FICO score is and what a credit reporting bureau is (i.e. TransUnion, Experian and Equifax), but you might not be as familiar with terms like “APR,” “co-signer” and “third-party collectors.”
Without further ado, here’s what we like to call Credit Report Vocabulary 101:
Credit Report Vocabulary
- APR: APR, or annual percentage rate, is the charge applied to credit card balances that are carried over from month to month. Specifically, APR is the way credit is compounded.
- Bankruptcy: A court proceeding where a consumer may be able to be excused of all debts owed. There are various chapters of bankruptcy, and all of them have a significant negative effect on a consumer’s credit score for several years, usually seven to 10.
- Credit history: This is defined as a consumer’s record of their financial history, such as whether or not they repaid debts as agreed upon in the past.
- Collection: A negative item on a credit report that hurts a credit score, an account goes to collections when it goes past due and a creditor wants to collect the debt that is owed.
- Co-signer: A co-signer is someone who signs with a primary individual on a line of credit. If the individual were to default on the loan, the co-signer is then responsible for it. Co-signers may be necessary when the primary signee doesn’t have good enough credit to get approved for a loan.
- Creditor: If you take out a line of credit, this is who you’re paying back.
- Debtor: This is a consumer who has an open line of credit and owes money to a creditor. It’s likely that you’re a debtor.
- Delinquent: If you fail to meet the minimum payment on a line of credit by the due date, then it will be marked as delinquent. Lenders often have monthly payment cycles, and will mark accounts up to 120 days delinquent. Delinquent payments may also be referred to as “late payments.”
- Debt-to-credit ratio: Also often referred to as a “credit utilization ratio,” this is the total amount of debt a consumer has accrued versus their total credit allotment. For example, if a consumer has just one credit card with a limit of $10,000 and they’ve charged $3,000, then their debt-to-credit ratio is 30 percent.
- Installment debt: Good examples of installment debts are mortgage loans and auto loans, as they have debt to be paid – often in monthly payments – at specific times of the year.
- Over-the-limit fee: If you exceed your credit limit, you’ll be charged with this fee. Bottom line: Don’t exceed your maximum credit limit on credit cards.
- Third-party collections: These are typically agencies that work with creditors to collect debts.