Credit Card Debt Dictionary

Below is a dictionary of the most common terms revolving around credit cards and credit card debt. Click on each part to get the definitions of the basic credit card terminology.

A global financial services company founded in 1850 best known for its credit card and traveler's check businesses, the American Express Corporation started issuing charge cards for members following the success of the Diner's Club with an emphasis upon wealthier consumers who wished for greater convenience while traveling. Unlike the more common revolving lines of credit in popular usage around the United States, American Express cards required the entirety of their balances to be paid at the end of the month until the advent of the Optima accounts (currently known as American Express Blue) in 1987.

Although the intricacies of amortization can seem dizzying, the term technically refers to simply the lowering of the base amount of money owed, which is better known as the principal. Whenever borrowers pay interest upon the loans or credit card debt accounts, they are paying interest upon the principal. If they owe one thousand dollars and have a three percent Annual Percentage Rate of interest, the interest would amount to thirty dollars per year. After a payment of fifty dollars, the principal of the loan would go down by twenty dollars, which is to say the amount that was paid (fifty dollars) minus the interest that was owed (thirty dollars). The amortization would then be twenty dollars. The rate of amortization refers to purely the speed in which a borrower pays down the principal – and thus lowers the amount that is owed. Despite a common misconception, it does NOT refer to how much money is being paid through interest, merely the reduction in the total debt load.

The Annual Percentage Rate (or APR) represents the rate of interest borrowers will owe when they carry a balance on their credit cards, get a cash advance or transfer another credit card's balance. As the name states, this rate of interest applies to a credit account for one year, after which time it may be readjusted (increased, in the great majority of circumstance). The Annual Percentage Rate is generally calculated each month by adding a fixed percentage of the outstanding credit balance to the total amount owed. With all types of credit agreements, be they credit cards or auto loans, it is required that the Annual Percentage Rates are made known to the consumer at they time of signing and afterward during all official billing statements.

There are two primary forms of the Annual Percentage Rate to watch out for – the nominal Annual Percentage Rate (APR) or the effective APR. The effective APR is the actual percentage rate of interest that borrowers can expect to pay over the course of the year, when all fees and all compounded interest are taken into account. Whenever borrowers want to know how much they are going to genuinely end up paying, they should ask the loan officers or lender representatives for the effective Annual Percentage Rate. The nominal Annual Percentage Rate is a bit more tricky to explain and requires an illustration. If the borrowers' nominal APR has been set at twelve percent and the terms of their lending agreement demands interest payments each month, this means that the borrowers pay an interest rate of one percent each month.

However, in such a case, the effective APR that borrowers monetize will actually end up being considerably more than twelve percent over the course of the year, because they will end up paying interest upon the interest interest. Moreover, in order to take out the loan and maintain the costs of financing, many borrowers will likely also find themselves charged a potentially sizable amount of fees – this is especially true with refinanced mortgages of credit card debt consolidation home equity loans – and this will also impact the true nature of the Annual Percentage Rate. In other words, whenever an APR is quoted during loan consultations, always make sure to ask for the effective APR to get the real cost over time.

The legal representatives of a collection agency may be granted a court ordered attachment in order to try and reclaim past due payments owed upon a credit card debt or other unsecured loan. This allows the collector to seize a borrower's funds that are being held elsewhere, usually a personal checking or savings account. Attachments may also be assigned to certain financial assets or liquid property, according to various local statutes.

Credit card companies promote themselves and entice consumers with balance transfer opportunities offered at low introductory interest rates. Two, one and even zero percent Annual Percentage Rates are common for the first year. A balance transfer shifts debt from one credit card account to another with the purpose of escaping high interest charges for accounts with lower rates. It is important to note that these low rates are only temporary and shall increase, almost always within the first year following the balance transfer. (recent government legislation has ensured that introductory Annual Percentage Rates for credit card debt balance transfers must last for at least the initial twelve months)

A legal process in which an individual or organization declares the inability to repay outstanding debts. The two types consumers may apply for – known as personal bankruptcy – are Chapter Seven and Chapter Thirteen. Though bankruptcy petitions in the United States of America are always filed with the federal Bankruptcy Court (a branch of the United States District Courts), the details of a case's outcome will usually be determined by state laws, particularly with concern to property exemptions and gross household income in relation to the state's mean earnings.

See attachment

The name given to the three digit score credit score generated by the Equifax credit bureau along the lines of the Fair Isaacs (FICO) credit score utilized by the competing TransUnion and Experian credit reporting agencies.

Credit card holders often have the option to borrow cash against their current balance, so long as the cash advance comes within the credit limits of the account. This quick and easy method of obtaining money comes at a great cost to the borrower, however. The interest rate for a cash advance is substantially higher than the relative Annual Percentage Rate for ordinary purchasing charges. Typically, the cash advance also carries a fee (to be assessed upon the credit card debt account at the time of withdrawal) that could be as much as two to four percent of the amount advanced.

Under the Chapter Seven bankruptcy filing, in exchange for the elimination of all relevant credit card debt balances and unsecured loans, a debtor agrees to forfeit non exempt property and assets to a court appointed trustee who will be charged with the liquidation of said assets for eventual repayment of creditors in a roughly equivalent fashion. If, as happens in many cases, a debtor filing for Chapter Seven bankruptcy protection has no property that would not be considered exempt from seizure, nothing would be turned over to the trustee: the determination depends greatly upon the individual household's estate as well as the state of residence in which they will be filing their declaration. Although secured debts may be discharged, the creditor's collateral rights remain intact. The overwhelming majority of consumer bankruptcy filings in the United States – ninety eight percent, as of 2009 – are for Chapter Seven bankruptcy.

The Chapter Thirteen bankruptcy filing is allowed only to those legal residents of the United States of America with a demonstrable gross annual income allowing for the reasonable repayment of secured and unsecured debts that do not exceed specified limits. The terms of the Chapter Thirteen bankruptcy filing do not involve property liquidation; instead, a court appointed trustee manages a portion of the debtor's income for the purpose of repaying creditors. A variety of factors influence the amount of the income which will be given over to the trustee's administration as well as the duration of the repayment plan (almost always between three and five years) including the debtor's past earnings, the average living expenses for households within the debtor's state of residence and the total debt sum.

When a debt has been delinquent for some period of time (usually six months), a creditor will charge off or discharge the account for purposes of an eventual credit applied to the corporate taxes. In other words, the lenders will officially declare the loan or credit card debt unlikely to ever achieve compensation in hopes that the Internal Revenue Service applies the amount of the debt as a corporate loss to offset any profits that would otherwise be taxed according to the normal IRS structure.

In the case of secured debt (most commonly, around the United States, home mortgage loans or automobile loans), a borrower consigns the forfeiture of specific property – known as collateral – as a guarantee against default. A creditor has the right to claim ownership of collateral property if the account associated with the debt is unpaid, typically through repossession or foreclosure.

Compound interest refers to the continually accruing monetary penalties that are assessed upon credit card debt accounts or other revolving lines of credit. By some degree, compound interest is the least understood aspect of consumer finance and the leading factor escalating the average American credit card debt bill. The mathematics behind compound interest have an unending momentum behind them. If borrowers owe their bank or creditor a dollar, say, and agree to an Annual Percentage Rate of ten percent per year, they would end up owing one dollar and ten cents at the end of the year (if no other payments were made). Continuing the same Annual Percentage Rate, they would owe one dollar and twenty one cents at the end of the next year. The third year, based upon these terms, the borrower would owe somewhere around one dollar and thirty two cents, plus some fractional change. In this way, interest charges could keep compounding until the borrowers debts' are impossibly large.

An approach to resolving debts often considered (and well advertised) as an alternative to bankruptcy that nonetheless has even worse effects upon credit reports and credit scores than Chapter Seven bankruptcy protection. Consumer Credit Counseling services offer advice and strategies for resolving credit card debt problems and work with lender representatives to devise a repayment plan, popularly known as a Debt Management Plan (DMP).

A compendium of federally legislated statutes protecting consumer credit rights. The Consumer Credit Protection Act was initiated in 1968 alongside the Truth In Lending Act, and amendments over the following years integrated six more sub-chapters further defining, promoting and regulating credit policy and consumer rights. These additional acts include Restrictions on Garnishment, the Credit Repair Organizations Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act and the Electronic Funds Transfer Act.

Also referred to as a credit reporting agency, a credit bureau collects and records credit information such as borrowing, payment history, and all related data pertaining to individuals who may wish to at some point apply for a debt. The information is used for a variety of purposes, chiefly to assist lenders in assessing an individual's creditworthiness. The files maintained by credit bureaus are a matter of public record and a copy shall be sent upon request to any individual who requests their own information. The credit reports are most often accessed by potential lenders, employers, landlords or anyone else who may consider a person's credit history to be a important factor in an upcoming decision.

As the latest amendment to the Truth in Lending Act, the Credit CARD Act is a federally legislated compilation of sweeping credit card reforms implemented in 2009. The act promotes consumer credit rights by setting regulations and standards upon many credit card policies and practices.

A plastic card issued by banks to authorized users for the purpose of purchasing goods and services on credit with a designated limit. The card is also used to transmit information about its transactions between the vendor and the bank.

As a subchapter of the Consumer Credit Protection Act, it marks the legislation of consumer protections against abuses of practice within the credit repair industry.

Often referred to as credit history, a credit report is a record of an individual's borrowing and repayment of debt, reflecting both positive credit patterns as well as defaults, late payments and bankruptcy. Credit reports play a decisive role in determining credit scores and a lender's assessment of creditworthiness. They are public records and are commonly accessed by potential employers or landlords for screening purposes.

Also known as default risk, it refers to the potential for loss or default that a borrower represents and is a primary consideration to lenders. Credit risk plays a deciding role in determining rate of interest; the greater the risk, the higher the rate.

An assessment of one's ability to borrow and repay debt based upon an evaluation of financial criteria such as credit score, credit history, outstanding debt, income, expenses and liabilities.

If you have accumulated debt to such a degree that payment has become considerably difficult, consumer credit counseling firms offer the option of a debt management plan which may help you get back on track. The credit counseling agency works out a debt relief payment schedule with your creditors and uses a monthly deposit that you make to the agency to pay off the totals.

See debt settlement

A blanket term for programs and services aimed at restructuring, reducing, and repaying present debts including debt consolidation, debt settlement, and credit counseling. Debt relief methods are often regarded as alternatives to bankruptcy.

An approach to debt repayment and reduction wherein the borrower and the creditor agree upon a reduced balance that both agree shall be paid in full. The debt settlement process is available for use only in the case of those debts which are in default. A debtor may initiate debt settlement on their own, hire a lawyer or seek the assistance of debt settlement agencies. Also known as debt negotiation.

The Fair Debt Collection Practices Act gives the consumer the right to dispute or verify a debt collector's claim through debt validation. When a consumer observes the guidelines of the validation process, a collector is legally required to send proof of the debt within five days.

Default occurs when a borrower fails to fulfill an obligation as defined by the terms and conditions of the credit agreement, usually a failure to pay a loan.

The Diners Club, in 1950, was the first non-bank to start handing out cards that guaranteed that their customers were able to pay for a tab at unaffiliated restaurants across the country. When a customer showed their Diners Club card, the participating restaurant billed Diners Club, rather than the customer, for the amount of the check. Diners Club paid the bill immediately to the restaurant—so that the restaurant only had to trust Diners Club to pay the bill, rather than the individual patron—and then turned around and billed the customer for the cost of the food, along with some additional fees and interest for the use of their money. This was a revolutionary idea at the time. American Express issued their own cards in 1958, thus giving rise to the modern credit card.

Represents the percentage of a consumer's gross monthly income allocated for paying debts. There are two kinds of DTI: front-end ratio is the percentage of income that goes toward housing costs (which, for home owners, includes mortgage, interest, insurance and taxes). Back-end ratio consists of the percentage of income used to pay all recurring debts, including front-end expenses plus credit cards, loans, child support and alimony.

Subchapter VI of the Consumer Credit Protection Act implemented 1978 that was designed to identify the rights, responsibilities and liabilities of consumers as well as all other participants involved in the electronic transfer of funds (the majority of which are associated with ATM and debit cards).

Credit card debt is on the rise, and the cardholder overwhelmed by monthly bills has the opportunity to hold the collection agencies at bay and reduce the amount owed to lenders by enrolling in one of the debt elimination programs such as debt settlement and debt consolidation. The representatives specializing in debt elimination help negotiate with your creditors to obtain a significant reduction in debt totals and by combining your debts so that only one monthly payment toward your various credit obligations is needed.

Passed into law in 1974 as subchapter IV of the Consumer Credit Protection Act, it prohibits any and all creditors from discriminating against an applicant on the basis of age, sex, race, religion, color, country of origin or marital status.

The largest of the three major credit bureaus in the United States, Equifax was created in 1898 by Chatanooga, Tennessee brothers Cator, a grocer, and lawyer Guy Woolford. Cator Woolford developed the original credit scoring concept by compiling a list of customers' creditworthy attributes, then sold the listing to other merchants. Today, Equifax has operations in eighteen countries and markets their services in forty five countries.

Bankruptcy law contains provisions excluding or setting limits on certain assets which can or cannot be used for liquidation. State bankruptcy laws involving exemptions differ from state to state.

One of the three major credit bureaus, it was founded in 1980 under the name TRW Information Systems. Experian provides credit reports on individuals as well as businesses. It uses its own unique model for calculating credit scores known as the Beacon Score.

United States federal law enacted in 2003 as an amendment to the Fair Credit Reporting Act, consisting of provisions allowing consumers the right to obtain a free copy of their credit report from one of the three major credit bureaus once every twelve months. The FACTA also contains measures intended to curtail identity theft and improve the use of, as well as consumers' access to, credit information.

Laws drafted into the Consumer Credit Protection Act in 1970 as subchapter III, regulating the manner in which consumer credit information is collected, transmitted and utilized. The act charges credit reporting agencies with certain responsibilities such as the readiness to negotiate with a consumer who disputes a detail of their credit report, it guarantees consumers' right to access their credit report upon request as well as obligates credit bureaus with providing consumers one free copy of their credit report per year.

A set of laws added to the Consumer Credit Protection Act in 1978, it was enacted in response to widespread abuse of debt collection practices. The act identifies and seeks to eliminate unlawful debt collection methods and defines penalties for violations.

Created in 1913, the Federal Reserve is the central U.S. Banking system. It is a network of different branches that work together to manage the nation's supply of money and dictate fiscal policy.

Credit Card debt companies assign fees to many of your accounts' transactions and activities. Some of the most common fees include finance charges, annual fees, an assortment of penalty fees, along with fees for late payment, cash advances and paying your bill by phone. This multitude of fees is responsible for much of the credit card industry's profits, and credit agreements are designed to induce as many of them as possible in the interest of maximizing profitability.

The Fair Isaac Corporation was founded in 1956 by Bill Fair, a mathematician, and engineer Earl Isaac, FICO is most well known and widely used consumer credit scoring system. The very first credit scoring system, it is based on a mathematical formula which involves a consumer's credit activity including payment history, the level of credit being used, types of credit used and recent access to credit files by lenders.

According to U.S. Law, a finance charge is any fee that lenders associate with the cost of extending credit and includes interest charges, service or transaction fees, late fees and balance transfer fees.

A legal process involving loans carrying a lien provision in the conditions of the legal agreement which entitles the lender to repossess the specified property for the purpose of paying the debt balance when the borrower defaults on the loan.

A method of collecting debt payment through a court ordered deduction of a percentage of the debtor's wages. The maximum federal allowable percentage of a person's income that is subject to garnishment is twenty five percent, but laws for wage garnishment vary from state to state, many of them enforcing a lower percentage and even designating exclusions under certain circumstances.

Interest is a percentage of your credit balance that your lenders charge for their services. Credit card companies typically charge famously high rates of interest, but they can vary – anywhere from one to thirty three percent, with the average rate standing at about sixteen percent. Lenders use a number of factors to determine interest rate, including a borrower's credit history. The lower your credit score, the higher the rate will be.

In the case of circumstances related to credit, a judgment is a court ruling based upon the evaluation of evidence that lenders obtain to force debtors to fulfill their contractual obligations. Often used to initiate collection or liquidation proceedings on delinquent credit accounts.

The liability clause in your Cardholder's Agreement includes information dealing the lost or stolen credit cards. If you report the card as lost before a thief uses it, you will not be held responsible for any unauthorized charges. If the card is used before you make the report, you will be liable for, at the most, fifty dollars.

A lien represents a lender's legal claim upon property (usually a home or car) designated as collateral under the terms of the loan contract. In the event of default the specific property carrying a lien can be forced into sale in order to collect payment on the debt.

In terms of chapter seven bankruptcy, liquidation is a court ordered process requiring the selling off of a debtor's assets for the purpose of paying a portion of a debt balance. Certain assets are protected from liquidation in accordance with state bankruptcy laws, which vary according to state. The liquidation process is overseen by a court appointed trustee.

Employees of banks and other financial organizations who have an extensive knowledge of banking and the various types of loans. Their job is to act as representatives between lending institutions and borrowers. A loan officer is trained to assess an applicant's ability and willingness to repay a loan and to find acceptable applicants a loan that best fits their financial needs and circumstances.

When evaluating an home loan applicant's financial information, the loan-to-value ratio is among the deciding factors. The LTV represents the amount of the mortgage as compared to total appraised value of the property. For example, a home loan for $150,000 on a $170,000 property is indicated by a $150,000/$170,000 LTV.

The mid score is determined by taking all three scores as supplied by the credit bureaus and eliminating the highest and lowest score. Mortgage companies typically use mid scores in the home loan qualification and application process.

The smallest possible amount you are required to pay toward your outstanding credit balance is your minimum payment, and is usually two to four percent of the total amount owed, but can be as low as one percent. Not meeting the minimum payment will place your account in default, and incur late charges and the possibility of interest rate increases.

A mortgage professional who functions as a liason between borrowers and lenders, evaluating a borrower's finances and creditworthiness as well as the real estate market to find and propose appropriate home loans.

Instead of declining the transaction, credit card issuers will often allow a purchase that exceeds the cardholder's credit limit and then assign huge fines known as overlimit fees.

As part of the approval process, credit card issuers examine the details of your credit status, particularly your payment history. Credit card applicants with a record of paying their credit obligations sufficiently and on time stand a far better chance of approval and lower interest rates.

A type of debt with a fixed monetary limit whose balance fluctuates from month to month as funds are used and paid back. Credit cards are a common form of revolving debt.

A subchapter of the Consumer Credit Protection Act, this set of laws places limits on the amount of an employee's earnings that many be garnished and prohibits an employer from firing a worker because of a garnishment for any one debt, but does not bar a worker's discharge due to additional garnishments for any subsequent debts.

A loan with a pledge of collateral in the event that the borrower defaults on the account (fails to make payment). Secured loans specify in the loan agreement that specific property may be liquidated or repossessed if its loan becomes delinquent. Home and auto loans are common examples of secured debts.

Expresses the lender's right to reclaim certain properties as described in the borrower's loan agreement. A creditor has a security interest in any article determined to be collateral.

Within American debt relief, the statute of limitations upon a loan will be set by each state legislature as a formal length of time in which a creditor can sue a debtor due to non payment and force a judgment that would garnish wages, attach funds saved in a personal checking or savings account, and even allow household goods to be seized for auction. The average statute of limitations upon unsecured debts lasts anywhere from three to seven years and depends both on the form of the loan as well as the location of the potential law suit.

The term student loans traditionally refers to funds borrowers from public or private resources that are intended to finance the tuition, books, living expenses, and various costs associated with a college or university education. Under the 11 USC 523 part of the United States Bankruptcy Code, borrowers can no longer have student loans covered under the Chapter 7 debt relief declaration unless the filers could prove that the repayment of the loans would be considered an undue hardship.

A lending institution will usually report a delinquency on a borrower's account only after a payment has not been received thirty days following the designated due date. As a result, credit reports reflect official lapses in terms of thirty day, sixty day, and ninety day lates.

Smallest of the three credit reporting agencies in common use around North America – after Equifax and Experian – TransUnion offers their own distinct form of credit reports for individual borrowers. The firm was founded in 1968 as the holding company of the Union Tank Car Company. After the acquisition of the Credit Bureau of Cook County and similar municipal credit bureaus, TransUnion developed its current purpose and currently maintains more than two hundred and fifty branches throughout the United States.

Title I of the Consumer Credit Protection Act requiring full disclosure of the terms and costs that apply to all credit transactions and regulating what kind of language companies use to describe and advertise lending services. A separate provision of the Truth in Lending Act grants consumers a three day period wherein they have the right to cancel certain lending agreements under specific circumstances.

An American corporation founded in 1902 and acquired by Northrup Grunman in 2002. TRW has primarily been involved the with automotive and aerospace industries and helped to develop the Equifax credit bureau.

In the lending industry, an underwriter is a professional or organization responsible for executing and fulfilling the loan approval process. Underwriters base their final decision to accept or reject a loan application upon an evaluation of a potential borrower's credit risk which entails verifying an applicant's financial information, including salary, employment history, as well as reviewing public information such as a credit report. Generally, smaller monetary obligations like credit card debt accounts or loans for used vehicles will not require the use or expense of an underwriter because the potential for loss has been judged insignificant.

Loans that do not have a lien or collateral contingency associated with the contractual terms of agreement are unsecured. Credit card debt lines, retail store charge accounts, and signature loans obtained from a lending institution are the most well known forms of unsecured debt that consumers come across. Technically, student loans – regardless if they have been taken out through public (Stafford loans are the most common) means or borrowed from private companies at noticeably higher interest rates – would be considered unsecured since the lenders cannot repossess the knowledge gained or foreclose upon the degree earned.

Nevertheless, in the common parlance of debt relief doctrine, any financial obligations that would not be eliminated under Chapter 7 bankruptcy protection would be viewed as separate from other unsecured debt totals since the student loans will remain attached to the borrower's name beyond any statute of limitations the states would normally put into place for credit card debt accounts. Funds owed to the state and federal tax authorities or even the totals unpaid for familial support would also fall into this category.

Within the United States, the term usury laws refers to those regulations which forbid interest rates featured by any sort of loans – including revolving lines of credit such as credit card debt – from going over a certain percentage. The top interest rate a financial institution can charge will be set by the local legislature of the borrower's state of residence, and some of the states further disallow lenders from attempting to recover debts if the initial interest rate was above acceptable levels.

A loan applicant's previous record of employment as demonstrated through formal documentation. In most instances, copies of W-2s submitted by the employer to the Internal Revenue Service would provide the work history. However, for small business owners or men and women who have successfully made their living through contract freelance labor, a profit and loss statement for an individual enterprise that has been calculated and approved by a Certified Public Accountant would also suffice. If an unavoidable change of employers was forced by outside circumstances and the applicant shifted laterally or positively within the same industry – and was without a job for less than three months continuously – the work history should still be considered relevant. Less frequently, vocational training or career specific education shall also be put into use as a precursor to work history so long as a relevant job immediately follows.

Typically, a borrower's work history will only have significance to an underwriter for a financial institution overseeing a substantial loan amount such as a home mortgage or new vehicle. Even credit card debt consolidation loans intended to be taken out as second mortgages will still often require indisputable evidence of an unbroken twenty four months work history for the same employer. Many forms of debt relief like settlement negotiation also ask their potential clients to submit verifiable work histories so that the counselors maintain their own professional reputation by avoiding poor risks for regularly billed compensation.

Founded in 1970, Visa provides payment technology services to financial institutions worldwide. Rather than extending credit or issuing credit cards, Visa enables the processing of financial transactions through the use of Visa brand payment products and services.