Credit Industry Glossary
Let’s break down in REGULAR language how to understand common terms and concepts within the Credit and Financial industries. If you want further explanation or can’t find what you are looking for here, please feel free to Contact
Application Scoring is how lenders and businesses evaluate your credit-worthiness and ability to make timely payments in the future. Using your credit score and other information from your credit bureau file, they assess whether to offer financing, etc to an applicant.
Bankruptcy is a legal process where the Court will use your property and assets to pay creditors and eliminate outstanding debt, when you have not been able to otherwise resolve the debt. Credit reports normally include a bankruptcy for up to 10 years.
Charge-Offs are when the creditor has not yet been repaid but no longer attempts to collect on the debt. Charge-Off’s remain on your credit report for 7 years (after reported) and can negatively affect your score.
Attempted recovery of a past-due credit obligation by a collection department or agency.
Consumer Credit File
Your Consumer Credit File is the record that a credit bureau holds for an individual. Includes all names, addresses, Social Security numbers, credit history (collections, late payments, inquiries) and any other public records (like bankruptcy defined above) associated with that individual.
A Credit Bureau is a private, for-profit, NON-GOVERNMENTAL agency that maintains information about an individual’s credit history and scores each person according to a range between 300 and 850. That score is heavily influential to lenders when they evaluate whether to offer credit. Also referred to as “consumer reporting agency” or “credit repository”. The three largest (and main) credit bureaus in the U.S. are Equifax, Experian and TransUnion.
Credit Bureau Risk Score
A type of credit score based solely on data stored at the major credit bureaus. It offers a snapshot of a consumer’s credit risk at a particular point in time, and rates the likelihood that the consumer will repay debts as agreed.
Credit History is a complete record of how an individual has used credit in the past, as reported to credit bureaus. It reflects late payments, charge-off’s and more.
A Credit Obligation is a legal agreement between an individual and a lender for borrowing money or credit.
A Credit Report is a report that a credit bureau holds for an individual. Includes all names, addresses, Social Security numbers, credit history (collections, late payments, inquiries) and any other public records (like bankruptcy defined above) associated with that individual.
Credit Risk is the strength of your ability to pay for current and future debt. What lenders are trying to assess about an individual applying for credit/borrowing money. It is largely based on all of the information that makes up your credit score. Borrowers with a lower credit risk are offered more credit.
Your Credit Score is a score generated by a credit bureau reflecting your history of using credit (the higher the score, the “better” you’ve used credit in your finances). It is meant to indicate your credit risk and it is used by lenders on whether to offer you credit. Scores range from 300 to 850.
Debt Validation is the process of having a creditor/collection agency prove that they have the legal right to collect that debt from that individual.
A failure to make a loan or debt payment when due. Usually an account is considered to be “in default” after being delinquent for several consecutive 30-day billing cycles.
Delinquent is when an individual fails to pay ON-TIME for a loan or debt (usually due in 30-day cycles).
Equal Credit Opportunity Act (ECOA)
The Equal Credit Opportunity Act is a Federal law (enacted in 1974) designed to give everyone an equal opportunity to obtain credit by prohibiting lenders from discriminating based on your race, color, religion, sex, marital status or age.
Fair Credit Reporting Act (FCRA)
The Fair Credit Reporting Act (FCRA) is a Federal law (enacted in 1970) regulating any credit agency/bureau to collect and maintain only accurate and verified credit information, and provide reasonable access to your credit file.
A FICO® Score is a type of credit score (from a company called the Fair Isaac Corporation) that is used by most lenders. A FICO score is based upon information maintained by the credit bureaus.
An Inquiry is when an institution seeks credit report information from the credit bureaus because an individual is applying for credit. These are “hard” inquiries and result in a lowering of your credit score. Hard inquiries continue to negatively affect your credit score for 2 years. Too many hard inquiries are seen as a negative indication of your credit risk.
An Installment Debt is a scheduled, periodic payments for a debt owed arranged between the lender and the individual. Examples included most mortgages and auto loans.
Insurance Score (Credit-Based)
An Insurance Score (Credit-Based) is a score based upon data from an individual’s credit report. In nearly all states, insurance companies often use this score to determine if they will offer an auto or homeowner’s insurance policy and how much that policy will cost.
A Judgment is when a court legally validates that an unpaid debt is due to a creditor. Once recognized by the court, this may result in various ways to collect the debt, including collecting some amount from each paycheck of the debtor (garnishment), liens upon your property/assets, etc. Judgments appear on your credit report and remain for 7 years. They can negatively affect your credit score.
A Late payment is also known as Delinquent. See definition above.
A Lien is a legal right over a property or asset that, if the debt is not paid, the property or asset will be sold to collect the amount owed. Liens appear on your credit report and remain for 7 years. They can negatively affect your credit score.
Revolving Debt is a debt where you have control over how much you borrow and pay fees on, up to a pre-established limit. Most commonly found with credit cards and Home Equity Lines of Credit.