Glossary useful terms and definitions

Annual Percentage Rate (APR):

The cost of carrying a balance on a loan expressed as an annual percentage. To calculate the amount owed in interest each month divide the APR by 12. For example, if the APR is 18% the monthly rate is 1.5%.

Bad Credit:

A term used to describe a poor credit rating. Common practices that can damage a credit rating include making late payments, skipping payments, exceeding card limits or declaring bankruptcy. "Bad Credit" can result in being denied credit.

Credit History:

Credit history is a record of the way people manage their debts. This information is collected and sold by credit reporting agencies. It includes personal information such as Social Security number, current and prior addresses, and employment information. It also includes the names of credit issuers, current account balances, and the timeliness of payments. Information such as missed or late payments will remain in a credit history for seven years. Bankruptcy will remain for 10 years.

Credit Limit:

The maximum amount that a person may owe on a credit card, including purchases, cash advances, finance charges and fees.

Credit Line:

A revolving amount of credit. Any amount up to the limit on the credit line may be borrowed to make purchases or cash advances. The cost of the purchase, plus interest, is then paid off over a period of time. As the outstanding balance is paid off, credit becomes available again to use for another purchase or cash advance.

Secured Card:

A credit card which is guaranteed by a cash deposit held in a special savings account or certificate of deposit. The credit line on the card is usually equal to the amount of the deposit. If the cardholder defaults on payments, the issuer will apply the deposit toward the outstanding balance. The deposit must remain in the account until the credit line is closed or the issuer determines security is no longer necessary.

Secured Debt:

Debt for which repayment is guaranteed through collateral - property of equal or greater value than the amount of the loan. If the loan is not repaid, the issuer may take possession of the collateral. Collateral may be an asset such as a car or a home or, in the case of a secured credit card, a cash deposit held by the issuer. For example, a mortgage is a secured debt in which the home is collateral. If the person fails to repay the loan, the bank may take the home as payment.

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