Credit & Financial Glossary
This glossary is your go-to reference for understanding the language of credit, loans, and personal finance. Whether you’re learning how credit scores work, rebuilding your financial profile, or comparing credit tools, this guide helps you make informed, confident decisions.
Account Age
The length of time a credit account has been open. Older accounts usually improve your credit score because they demonstrate consistent management over time.
Account Status
Indicates whether your credit account is current, delinquent, closed, or charged off. Lenders use this to assess your reliability.
Amortization
The process of paying off a loan in regular installments that cover both principal and interest over time.
Annual Fee
A yearly charge by some credit cards for card membership, often tied to rewards or benefits.
Annual Percentage Rate (APR)
The total yearly cost of borrowing money, expressed as a percentage that includes interest and certain fees.
APY (Annual Percentage Yield)
A measure of how much you earn from interest on savings or deposits over a year, accounting for compounding.
Authorized User
A person allowed to use another’s credit account. The account’s history may help the authorized user build their credit.
Balance Transfer
The process of moving debt from one credit card to another, often to take advantage of a lower interest rate.
Bankruptcy
A legal process allowing individuals or businesses to eliminate or repay debts under court protection. It severely affects credit scores and can remain on a report for up to 10 years.
Budget
A spending plan that helps you manage your income, expenses, and savings. Budgeting is a key factor in maintaining good credit health.
Charge-Off
A debt a creditor has deemed unlikely to be collected after missed payments. It remains on your credit report and negatively impacts your score.
Collateral
An asset pledged as security for a loan. If the borrower defaults, the lender can seize the collateral to recover losses.
Collection Account
A debt sent to a collection agency after nonpayment. These accounts can significantly lower credit scores.
Compound Interest
Interest calculated on both the principal and previously earned interest — powerful for savings, costly for debt.
Consumer Reporting Agency
Another term for a credit bureau that compiles and sells credit information to lenders and other institutions.
Cosigner
Someone who agrees to share responsibility for a loan. If the main borrower fails to pay, the cosigner is legally liable.
Credit Bureau
An organization that collects and maintains credit data. The three main U.S. bureaus are Experian, Equifax, and TransUnion.
Credit Builder Loan
A small loan designed to help people establish or rebuild credit. Payments are reported to credit bureaus to build history.
Credit Freeze
A free tool that restricts access to your credit report, preventing new accounts from being opened fraudulently.
Credit History
A record of your borrowing and repayment behavior. It includes open and closed accounts, payment history, and credit inquiries.
Credit Limit
The maximum amount you can borrow on a credit card or line of credit. Exceeding it can harm your credit score.
Credit Mix
Refers to the types of credit you have — revolving (credit cards) and installment (loans). A balanced mix can positively influence your score.
Credit Report
A document summarizing your credit activity and history, compiled by credit bureaus.
Credit Repair
The process of improving credit scores by correcting inaccuracies, reducing debt, and managing accounts responsibly.
Credit Score
A three-digit number (typically 300–850) representing credit risk. The higher the score, the better your chances of loan approval.
Credit Utilization Ratio
The percentage of available credit you’re using. Lower utilization generally leads to higher scores.
Debt Consolidation
Combining multiple debts into one loan or account to simplify payments and potentially reduce interest rates.
Debt Management Plan (DMP)
A structured repayment program managed by a credit counseling agency to help repay unsecured debts.
Debt-to-Income Ratio (DTI)
A key metric comparing monthly debt payments to monthly income. Lenders use it to gauge borrowing capacity.
Default
Failure to make required payments on a loan or credit account, resulting in penalties and negative credit reporting.
Delinquency
A late or missed payment on a credit account. Accounts typically become delinquent after 30 days without payment.
Dispute
A request made to a credit bureau to correct or remove inaccurate or outdated information from a credit report.
Emergency Fund
Money set aside to cover unexpected expenses or income loss, preventing reliance on credit in emergencies.
FCRA (Fair Credit Reporting Act)
A federal law ensuring the accuracy, fairness, and privacy of information in credit reports.
FDCPA (Fair Debt Collection Practices Act)
A federal law that protects consumers from abusive or deceptive debt collection practices.
FICO Score
A widely used credit scoring model developed by the Fair Isaac Corporation.
Grace Period
The time between the end of a billing cycle and the due date when no interest is charged on new purchases if paid in full.
Hard Inquiry
A credit check that occurs when a lender reviews your credit for a new application. It can slightly lower your score temporarily.
Identity Theft
When someone uses your personal or financial information without permission to commit fraud.
Installment Loan
A loan repaid over time with regular, fixed payments, such as auto loans or mortgages.
Late Payment
A payment made after its due date, often resulting in fees and a negative impact on your credit score.
Line of Credit
A flexible borrowing option that allows you to draw funds up to a predetermined limit.
Minimum Payment
The smallest payment required each month on a revolving credit account, such as a credit card.
Negative Item
Any damaging entry on your credit report, including late payments, charge-offs, or collections.
Revolving Credit
A type of credit that renews as you pay down your balance, like a credit card or HELOC.
Secured Credit Card
A credit card backed by a refundable security deposit, designed for those building or rebuilding credit.
Secured Loan
A loan backed by collateral such as a car or savings account.
Soft Inquiry
A credit check that doesn’t affect your score, such as when you check your own report or receive prequalified offers.
Subprime Borrower
A consumer with a lower credit score who is considered a higher lending risk.
Trade Line
An entry on your credit report representing a single account, such as a loan or credit card.
Unsecured Loan
A loan not backed by collateral, granted based on creditworthiness alone.
Utilization Rate
Another term for credit utilization ratio — the amount of credit you’re using versus what’s available.
VantageScore
A credit scoring model developed by the three major credit bureaus as an alternative to FICO.
Variable Interest Rate
An interest rate that changes over time based on market conditions or an index.
Zero Percent APR Offer
A promotional credit card offer that charges no interest for a set period, often used for balance transfers.
Tip: Bookmark this glossary and share it with anyone looking to improve their credit literacy. The more you understand these terms, the easier it becomes to manage, repair, and protect your credit effectively.