Credit Glossary

The yearly cost of borrowing money, shown as a percentage. APR includes the interest rate plus any fees the lender charges. A lower APR means the loan costs you less over time. Your credit score directly affects the APR lenders offer you.

A person added to someone else's credit card account who can make purchases but is not legally responsible for the debt. The account's full history, including its age and payment record, appears on the authorized user's credit report. This is a common way to build credit quickly.

Moving debt from one credit card to another, usually to get a lower or 0% introductory interest rate. A balance transfer can also lower your credit utilization if the new card has a higher limit. Most transfers charge a fee, usually 3-5% of the balance.

A legal process that lets people or businesses seek relief from debts they cannot repay. Chapter 7 bankruptcy discharges most debts within a few months but stays on your credit report for 10 years. Chapter 13 sets up a repayment plan over 3-5 years and stays on your report for 7 years. Bankruptcy hurts your credit badly at first, but it does not stop you from rebuilding.

A form of bankruptcy that lets you keep your assets while you repay debts through a court-approved 3-5 year plan. Chapter 13 stays on your credit report for 7 years from the filing date, shorter than Chapter 7.

A form of bankruptcy that sells off any non-exempt assets to pay creditors and discharges the remaining eligible debts. The process usually takes 3-6 months. A Chapter 7 bankruptcy stays on your credit report for 10 years from the filing date.

When a creditor writes off a debt as a loss, usually after 120-180 days of non-payment. A charge-off does not erase the debt. You still legally owe it. The creditor usually sells the account to a collection agency. A charge-off is one of the most damaging items on a credit report and stays for 7 years.

A debt a creditor has sold or handed off to a collection agency after the original account went seriously delinquent. The collection shows up as a separate negative item on your credit report, on top of the original charge-off. You can pay a collection, settle it, or in some cases negotiate to have it removed.

A federal agency that regulates financial products and services, handles consumer complaints, and enforces laws like the FCRA and FDCPA. If someone violates your dispute rights, a complaint to the CFPB is a strong way to escalate the problem. Website: consumerfinance.gov

A loan designed to help people build credit history. Unlike a regular loan, the lender holds the money in a savings account while you make monthly payments. Once you pay off the loan, you get the money. The lender reports every payment to the credit bureaus, which builds your installment payment history.

A private company that collects, keeps, and sells consumer credit information. The three major credit bureaus in the United States are Equifax, Experian, and TransUnion. The FCRA regulates them, but they are for-profit businesses that sell your data to lenders.

Help from nonprofit groups (and some for-profit companies) with managing debt, building a budget, and understanding credit. Nonprofit counselors accredited by the NFCC are generally trustworthy. Be wary of for-profit "credit repair" companies that promise to erase negative information.

The full record of your credit history that a credit bureau holds. Your credit file includes personal information, account history, public records (like bankruptcy), inquiries, and collections. A credit report is a formatted view of what is in your credit file.

A security measure that blocks access to your credit file so no one can open new accounts in your name. Also called a security freeze. It is free to place and lift, and it does not affect your credit score. Useful if you have been through identity theft or want to guard against fraud.

A request to view your credit report. Hard inquiries (from credit applications) lower your score a little for a short time. Soft inquiries (checking your own credit, pre-approvals, employer checks) do not affect your score at all.

The most you can borrow on a revolving account, such as a credit card. Your credit limit directly affects your credit utilization ratio. A higher limit lowers your utilization and can help your score, as long as you do not spend more.

One of the five FICO score factors, worth 10% of your score. It reflects whether you have experience with different types of credit: revolving accounts (credit cards) and installment accounts (loans). Having both types shows lenders you can handle more than one kind of credit.

A detailed document from a credit bureau that shows your credit history. It lists personal information, all open and closed accounts, payment history, hard inquiries, public records, and collection accounts. You have the right to one free report from each bureau every year at AnnualCreditReport.com.

A three-digit number that sums up how likely you are to repay, based on your credit history. The most common model is the FICO Score, which runs from 300-850. A higher score tells lenders you are a lower risk, which usually means better interest rates and terms. Each bureau calculates its own score for you.

The percentage of your available revolving credit you are using. Scoring models look at it both per card (individual utilization) and across all cards (aggregate utilization). Utilization makes up 30% of your FICO score. Under 10% is best; over 30% starts to hurt your score a lot.

A structured repayment program run through nonprofit credit counseling agencies. You make one monthly payment to the agency, and it pays your creditors under negotiated terms (often lower interest rates). DMPs usually take 3-5 years, and your credit report shows that you are enrolled in a repayment plan.

Negotiating with creditors to pay less than the full balance you owe, usually as one lump sum. The account then shows as "settled" or "settled for less than full amount" on your credit report, which is a negative mark. Debt settlement companies often charge high fees and can leave you worse off.

Your right under the Fair Debt Collection Practices Act (FDCPA) to make a debt collector prove a debt is valid and that it has the legal right to collect it. Ask in writing within 30 days of receiving the collector's validation notice for the strongest protection: the collector must pause collection until it mails you proof. You can still ask after 30 days, but without the pause.

A payment that is past its due date. Credit reports sort delinquencies by how late they are: 30-day, 60-day, 90-day, and 120+ day. Each step does more damage to your credit score. Lenders do not report a payment as late until it is 30 days past due.

In bankruptcy, the legal cancellation of a qualifying debt. Creditors can no longer collect a discharged debt. Not every debt can be discharged: student loans, child support, alimony, and certain tax debts usually survive bankruptcy.

One of the three major U.S. credit bureaus, founded in 1899 and based in Atlanta, GA. Equifax keeps credit files on hundreds of millions of consumers. Like the other bureaus, it is a private, for-profit company that the FCRA regulates.

One of the three major U.S. credit bureaus, based in Dublin, Ireland, and the largest credit bureau in the world by revenue. Experian also offers consumer credit monitoring products, including Experian Boost, which lets you add utility and phone payments to your credit file.

A free service from Experian that lets you add on-time utility, phone, and streaming service payments to your Experian credit file. It can help people with thin files raise their Experian-based scores. It only affects your Experian file, not Equifax or TransUnion.

Federal law passed in 1970 (with major updates in 2003) that governs how credit bureaus collect, keep, and share consumer credit information. The FCRA gives you the right to see your credit file, dispute errors, have outdated information removed, and sue for damages when someone violates your rights.

Federal law that limits what debt collectors can do when collecting consumer debts. It bans harassment, false statements, and unfair practices. It gives you the right to request debt validation and to tell collectors to stop contacting you. A collector who breaks it can owe you statutory damages.

The most widely used credit scoring model, created by the Fair Isaac Corporation. FICO scores run from 300 to 850, and lenders use them in over 90% of U.S. lending decisions. There are more than 60 versions of the FICO model, each tuned for a specific industry such as mortgage, auto, or credit card lending.

The legal process a lender uses to take a home when the borrower stops making mortgage payments. A foreclosure stays on your credit report for 7 years and does serious damage to your score. Rebuilding after a foreclosure looks a lot like rebuilding after bankruptcy.

A notice on your credit file that tells lenders to take extra steps to verify your identity before opening new credit in your name. An initial fraud alert lasts 1 year; you place one when you suspect fraud. An extended fraud alert lasts 7 years and requires an identity theft report.

A letter you send a creditor asking it to remove a negative mark from your credit report as a favor. Unlike a dispute letter, a goodwill letter admits the item was accurate and asks the creditor to use its discretion. It works best for an isolated late payment or two on an otherwise clean history.

A credit check that happens when you formally apply for new credit. It requires your permission. It lowers your score a little for a short time (usually 3-10 points) and stays on your report for 2 years, though it affects your score less after 12 months. Scoring models usually count several hard inquiries for the same loan type within 14-45 days as one.

When someone uses your personal information without permission to open accounts, make purchases, or commit fraud in your name. Signs on your credit report include accounts you did not open, hard inquiries you did not authorize, and addresses you do not recognize. File a report at IdentityTheft.gov to get federal documentation.

A loan with a fixed amount, a fixed repayment schedule, and a set end date. Auto loans, mortgages, student loans, and personal loans are all installment credit. The account closes once you pay it off. Having installment credit in your credit mix can help your FICO score.

The percentage of a loan balance a lender charges as interest over a set period. For credit cards, it is usually shown as a yearly rate (APR). Your credit score is the single biggest factor in the interest rate lenders offer you.

A credit account that two or more people share, with each person fully responsible for the whole debt. The account and its full payment history appear on every joint holder's credit report. If one person fails to pay, everyone's credit takes the hit.

A payment that does not arrive by the due date. Lenders usually do not tell the credit bureaus until a payment is 30 days past due. A 30-day late payment can drop a credit score by 60-110 points. The damage grows at the 60, 90, and 120+ day marks.

Any company or person that extends credit or lends money to a borrower. Common lenders include banks, credit unions, mortgage companies, auto finance companies, and credit card issuers. Lenders use credit scores and reports to judge risk before they lend.

A flexible revolving loan that lets you borrow up to a set limit, repay it, and borrow again. A personal line of credit works like a credit card, but you usually draw on it with checks or bank transfers. A home equity line of credit (HELOC) uses your home as collateral.

The lowest amount a credit card issuer requires to keep your account in good standing. Paying only the minimum means most of your payment goes to interest, not principal. For your credit score, paying just the minimum is fine. What matters is that you pay on time and keep your balance low.

A credit reporting error in which two people's credit information gets combined into one file. It often affects people with similar names or Social Security Numbers. A mixed file can put someone else's negative accounts on your report, and you have the right to dispute them under the FCRA.

A long-term loan used to buy real estate, with the property as collateral. A mortgage is usually the largest debt a consumer takes on. Credit scores have an outsized effect on mortgage rates: a 100-point score difference can mean tens of thousands of dollars in interest over a 30-year loan.

The largest nonprofit financial counseling organization in the U.S., with member agencies in all 50 states. NFCC-affiliated counselors are certified and offer free or low-cost credit and debt counseling. A trustworthy resource for anyone facing serious debt or credit problems.

A negotiation tactic: you offer to pay a collection in full or for a settled amount. In return, the collection agency removes the account from your credit report. The law does not guarantee it, and collectors do not have to agree. Always get any pay-for-delete agreement in writing before you send payment.

The biggest factor in your FICO score, worth 35% of the calculation. It tracks whether you have paid your accounts on time, how late any missed payments were, and how recent they are. A clean payment history is the foundation of excellent credit.

A lender's early signal that you may qualify for a loan or credit card, usually based on a soft inquiry. Pre-approval does not guarantee final approval, which usually requires a hard inquiry and full underwriting. People often use the terms pre-qualification and pre-approval to mean the same thing.

The person who opened a credit account and is legally responsible for it. If the account has authorized users, the primary holder still owes every charge, no matter who made it.

Applying to several lenders for the same type of loan (mortgage, auto) in a short period to find the best rate. FICO treats several hard inquiries for the same loan type within a 14-45 day window as one inquiry, so rate shopping does not multiply the hit to your score.

An illegal practice in which a debt collector resets the start date of the 7-year credit reporting period on a debt, making it look newer than it is. The 7-year clock always runs from the original delinquency date, not from the date a new collector bought the debt. Re-aging violates the FCRA.

A type of credit with no fixed number of payments. You can borrow up to a limit, repay it (all or part), and borrow again. Credit cards and lines of credit are revolving accounts. The balance changes month to month as you spend and pay.

FICO scores run from 300 to 850. The tiers are: Poor (300-579), Fair (580-669), Good (670-739), Very Good (740-799), and Exceptional (800-850). Your tier affects your interest rates, your odds of approval, and the terms lenders offer you.

A credit card that requires a cash deposit as collateral. The deposit usually equals your credit limit. For credit reporting, secured cards work exactly like regular credit cards: the issuer reports payments and balances to the bureaus. One of the best tools for building or rebuilding credit history.

See Credit Freeze. A block on your credit file that stops lenders from pulling it to open new accounts. Free to place and lift. Does not affect your credit score.

A credit check that does not affect your credit score. Soft inquiries happen when you check your own credit, when a lender pre-screens you for offers, or when an employer runs a background check. Unlike hard inquiries, soft inquiries are visible only to you on your credit report, not to lenders.

The last day of your credit card billing cycle, when the issuer generates your monthly statement. Most issuers also report your balance to the credit bureaus on this date. Paying your balance down before the closing date lowers the utilization the bureaus see, which can help your score sooner.

The time limit for a creditor or debt collector to sue you over a debt. It varies by state and debt type, usually 3 to 6 years. After it expires, the debt is "time-barred" and the collector cannot win a lawsuit against you. Note: this is separate from the 7-year credit reporting period.

A credit file with very little history, usually fewer than 3-5 accounts or less than 6 months of reported activity. People with thin files often cannot get a traditional FICO score. Secured cards, credit-builder loans, and becoming an authorized user are the main tools for building up a thin file.

Industry term for any account on a credit report. Each credit card, loan, mortgage, or line of credit is a tradeline. Positive tradelines (open, aged accounts in good standing) are the building blocks of a strong credit file.

One of the three major U.S. credit bureaus, founded in 1968 and based in Chicago, IL. It started as a railroad car leasing company and later moved into consumer data. It is known as the bureau auto lenders use most often.

The process a lender uses to review a loan application. Underwriting looks at your credit score, income, debt-to-income ratio, job history, and assets. Your credit score is the first filter: a low score may keep the application from reaching full underwriting.

Credit extended without collateral. Most credit cards and personal loans are unsecured: the lender has no specific asset to claim if you default. Because there is no collateral, unsecured credit usually takes a higher credit score to qualify and may carry higher interest rates than secured credit.

A credit scoring model that Equifax, Experian, and TransUnion created together in 2006. It also runs from 300-850. Free credit monitoring apps (like Credit Karma) often show it. Lenders use it less often than FICO for real lending decisions, especially mortgages, where most lenders still use FICO.