Basic Credit Terminology
Posted on 29. Oct, 2009 by admin in General
If you are in debt or about to get a credit card or loan, you will need to know some of the basic terminology that the credit business uses. Knowing the terms could give you ideas for how to reduce credit card debt. Here is a basic glossary of some commonly used terms:
Bankruptcy-The state of being insolvent. There are two types of bankruptcy- reorganization and liquidation.
Collateral-Real property offered to guarantee repayment on a loan.
Collector-An agent hired by a creditor to collect on a debt.
Cosigner-A person who enters into a credit agreement with another person.
Credit Bureau-An agency where lenders inquire as to a person’s creditworthiness.
Creditor-An entity which is owed money.
Debtor- A person who owes money.
Debt/income ration-A way to gauge financial security- it’s monthly debt divided by monthly income.
Default-Failure to make payments.
Discharge-Writing off of a debt.
Down payment-Cash payment made when someone purchases property.
Equity-the difference between what’s owed and what a property is worth.
Foreclosure-A forced sale of property to pay a debt.
Grace period-Time during which you don’t have to make payments on a debt.
Guarantor-A person who makes a promise to pay a debt.
Interest-Commission paid to a creditor in return for the extension of a loan.
Lien-The right to hold or take and sell the property owned by a debtor as payment for a debt.
Loan consolidation-Combining a number of debts into a single payment. It’s usually done to get more favorable terms or lower payments.
Principal- Money owed as a debt, and interest is calculated based on this.
Repossession-When a creditor takes property that has been offered as collateral on a loan.
Secured debt-A debt where a creditor has a lien (such as a car or home loan).
Unsecured debt-Debt that is not tied to a property item (such as credit card debt).
This is by no means a complete dictionary of credit terms, but it should provide you with a bit of an understanding on how credit works. You should learn there terms so you can talk to your creditor and become debt free a lot sooner.