annual fee
A charge by some credit card companies for use of the card and services.
annual percentage rate (APR)
A rate that shows the total cost of credit annually. It includes a percentage of the principal as interest on a loan plus other costs (e.g., points on a mortgage loan, service charges).
Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005
A federal act that subjects Chapter 7 bankruptcy filings to a “means test,” encourages Chapter 13 repayment plans, and requires credit counseling six months prior to bankruptcy filings.
capacity
A person’s ability to repay a loan (judged by earning power and a current financial commitments; also based on record of financial responsibility). A measure of creditworthiness.
capital
The amount of monetary resources a potential buyer and/or loan applicant has available. A measure of creditworthiness.
Chapter 11
The U.S. Bankruptcy Code section allowing companies and corporations to reorganize their debt or rehabilitate and reorganize their financial structure. The goal of Chapter 11 is to propose a plan that is accepted by a vote of the creditors.
Chapter 13
The part of the U.S. Bankruptcy Code allowing an individual to begin debt repayment without forfeiting property. Chapter 13 requires that the debtor maintain a source of income and adhere to a payment schedule set forth by the court.
Chapter 7
Part of the U.S. Bankruptcy Code allowing the liquidation of all of a debtor’s nonexempt assets to pay creditors; i.e., sale of property.
character
A person’s willingness to repay a debt. A character loan is based on the reputation and/or personal credit history of a borrower, rather than collateral. A measure of creditworthiness.
collateral
An asset such as an automobile or a piece of property that a person uses when taking out a loan, promising to give the asset to the lender if loan payments cannot be met.
consolidation loan
A debt management program that replaces multiple unsecured loans with a single loan, often with a lower monthly payment and a longer repayment period.
Consumer Credit Counseling Service
The CCCS is a nonprofit agency that assists people with budgeting, financial management, and payment arrangements to creditors. CCCS agencies operate under the National Foundation for Credit Counseling — the parent organization.
consumer debt
Debt that has been incurred primarily for the purchase of consumer goods.
consumer reporting agencies
CRAs are credit bureaus that collect and sell information about consumers to creditors, employers, and businesses. They are regulated by the Fair Credit Reporting Act (FCRA) and also by state laws. The three major CRAs are Experian, Equifax, and Trans Union.
credit
The borrowing capacity of an individual or company. A transaction in which a borrower (or debtor) receives goods, services, or cash and agrees to repay the lender at a future date, usually with certain costs.
credit card
A plastic card with a magnetic stripe on one side that can be used to purchase goods and services. The issuing company records the purchases, bills the purchaser, receives payment, and subsequently settles the purchaser’s debts with the providers of goods and services. Some credit cards offer cash advances to its holders.
credit rating
A formal evaluation of an individual’s or business’ credit history and capability of repaying obligations by a credit reporting agency. The credit rating is based on the number of outstanding debts and whether debts are being repaid in a timely manner.
credit repair
Process of re-building one’s credit status in order to restore eligibility for secured loans.
credit repair services
Companies that offer to repair the credit of consumers. Consumers are advised to contact the Better Business Bureau for background information on companies offering credit repair services. In some states, these credit repair businesses are regulated.
credit report
Information gathered from businesses and companies with which a person has a financial/business relationship (present or past). These could include department stores, banks, credit card issuers, and mortgage companies. Information on tax liens, bankruptcies, and lawsuits comes from court records. One free annual report can be ordered once every 12 months from each of the three major consumer-reporting agencies.
credit score
Numeric value compiled from information in a credit report using a standardized formula that ranks the risk of default according to the person’s credit history. A score is based on past payment history, the amount of credit available, and other factors.
creditor
The lender or supplier of money, goods, services, or securities; A person or organization which extends credit or lends money to others.
debit card
A card used for purchases that is issued by the consumer’s bank. Funds are deducted from the consumer’s checking account and transferred electronically to the merchant’s bank account when a purchase is made.
debtor
An individual or company that owes debt (money) to another individual or company.
Debtors Anonymous
A 12-step fellowship for debtors trying to recover from money problems and compulsive debt.
depreciation
A loss or decrease in value, especially because of wear or age (e.g., the depreciation of a new auto).
disclosure statement
For credit cards, the reporting of the exact terms and conditions under which credit will be extended prior to applicant signing up for the card.
due date
On a credit card account, the date by which the minimum payment must be received every month, without incurring a late fee or other penalty.
Equal Credit Opportunity Act
The ECOA is a federal law that protects consumers from being refused for credit for any reason other than inability to repay. The ECOA also provides guidelines that credit bureaus must follow and promotes accuracy, privacy of information, and fairness in reporting. The law is summarized on the Federal Trade Commission website at www.ftc.gov/bcp/conline/pubs/credit/ecoa.htm.
Fair Credit Reporting Act
The FCRA is a federal law granting individuals the right to examine their own credit history and enabling them to dispute wrong or incomplete information in their credit records.
finance charge
The cost of credit, including interest paid by a customer or a consumer for a consumer loan. Under the Truth in Lending Act, the finance charge must be disclosed to the customer in writing.
grace period
The time allowed for payment of a debt or loan without penalty.
installment credit
Credit that is granted for purchase of durable goods, on condition of its repayment at regular intervals over a specified period of time until paid in full (e.g., for an automobile or home). The seller retains legal title to goods until the last installment is paid.
installment loan
A loan, extended by a financial institution or retail firm, to be repaid with interest charges in installments over a fixed period of time. Example: student loans.
installment plan
A sum of money due as one of several equal payments for a purchase spread over an agreed period of time.
interest
An amount of money paid for using funds over a period of time, generally an annual percentage rate. Bank interest is both an amount paid to depositors of funds and a finance charge for money that is borrowed. The price that someone pays for the temporary use of someone else’s funds. Interest is also a compensation that someone receives for temporarily giving up the ability to spend money.
liquidation
To sell all of a company’s assets, pay outstanding debts, and distribute the remainder to shareholders, then go out of business.
means test
Under the BAPCPA, a means test is a way to determine if a person can file for a Chapter 7 bankruptcy. Current monthly income is measured against the median income for a similar household in the same state.
minimum payment
On a credit card account or loan, a fixed percentage of the balance due which must be paid each month.
National Foundation for Credit Counseling
The NFCC is the parent organization for more than 100 nonprofit member agencies and 900 local offices that comprise this network. These agencies help consumers establish budgets and negotiate payment plans with creditors.
predatory lending
Fraudulent, unethical, discriminatory, or abusive lending practices designed to exploit vulnerable borrowers and lead to their increased indebtedness (e.g., excessive and disguised fees for home mortgages).
principal
The original sum borrowed.
reloadable card
An electronic, stored value card that permits a user to increase the value on the card (e.g., prepaid credit card, store cash card). A nonreloadable card has a fixed value stored on it (e.g., disposable phone card).
revolving credit
System of retail credit (e.g., department store or bank credit cards) in which buyers make periodic payments on purchases and service charges. The service charge is based on the outstanding balance; if the buyer pays the entire balance, no service charge accrues.
secured credit card
A credit card that is secured against loss by other assets (often by money placed in a savings account with the credit card company).
secured loan
A loan which is backed by the borrower’s assets, when the borrower’s credit rating is not strong enough to justify an unsecured loan (not backed by the borrower’s assets). The assets may be forfeited to the lender if the borrower fails to make the necessary payments.
three C’s of credit
Creditworthiness is measured by three factors, sometimes called the three C’s of credit — character, collateral, and capacity (see definitions above).

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