Glossary of Terms
Credit Glossary
It's hard enough trying to stay on top of your credit let alone learn the industry lingo. We've compiled a glossary of industry terms to help you stay ahead of the curve when dealing with your credit, auto loans, home loans, debt, and savings.
- Acceleration
- The right of the lender to demand the immediate repayment of the mortgage loan balance upon the default of the borrower, or the failure to meet other pre-agreed conditions.
- Account Condition
- Indicates the present state of the account, but does not indicate the payment history of the account that led to the current state. (i.e. open, paid, charge off, repossession, settled, foreclosed, etc).
- Account number
- The unique number assigned by a creditor to identify your account with them.
- Accounts in Good Standing
- Credit items that have a positive status and should reflect favorably on your creditworthiness.
- Additional principal payment
- Extra money included with a loan payment to pay off the amount owed faster. This practice reduces the total amount of interest paid.
- Adjustable-Rate Mortgage (ARM)
- A mortgage loan subject to changes in interest rates. When rates change, ARM monthly payments increase or decrease at intervals determined by the lender. The change in monthly payment amount, however, is usually subject to a cap (see "Cap"). Also known as: Renegotiable Rate Mortgage, Variable Rate Mortgage or Canadian Rollover Mortgage. ARMs are often referred to in terms of the period for which the interest rate remains fixed, such as 3/1, 5/1, 7/1 and 10/1 ARMs - meaning the interest rate is fixed for 3-year, 5-year, 7-year or 10-year periods, respectively, but may adjust annually after that. ARMs such as these are often referred to as "hybrid ARMs."
- Adjusted balance
- Subtract from the beginning balance any payments made during that month, multiply by the monthly interest rate, then add the computed finance charges.
- Adjusted Basis
- The cost of a property plus the value of any capital expenditures for improvements to the property, minus any depreciation taken.
- Adjustment
- Percentage of the debt that is to be repaid to the credit grantors in a Chapter 13 bankruptcy.
- Adjustment Date
- The date the interest rate changes on an adjustable-rate mortgage.
- Adjustment Interval
- For an adjustable-rate mortgage, the time between changes in the interest rate and/or monthly payment; typically 1, 3 or 5 years, depending on the index (see "Index").
- Adjustment Period
- The period elapsing between adjustment dates for an adjustable rate mortgage.
- Affinity card
- A card offered by two organizations, one being a lending institution (card issuer) and the other a non-financial group (ex: non-profit organizations, clubs, educational institutions, etc.). Use of the card entitles holders to special discounts, but more often a percentage of the card's earnings go to the non-financial group.
- Affordability Analysis
- An analysis of a buyer's ability to afford the purchase of a home. Reviews income, liabilities and available funds, and considers the type of mortgage planned, the area where the buyer wants to purchase a home and the likely closing costs.
- AKA
- Also Known As
- Amortization
- Repayment of a mortgage loan through monthly installments of principal and interest. The monthly payment amount is based on a schedule that will allow the borrower to own the property at the end of a specific time period (for example, 15 or 30 years).
- Annual Fee
- A card issuer's charge for use of a credit card each year. Billed directly to the customer's monthly statement.
- Annual membership (or participation) fee
- An amount that is charged annually for having the line of credit available. It is charged regardless of whether or not you use the line.
- Annual Percentage Rate (APR)
- A yearly fixed or variable rate of interest that measures the cost of credit. Lenders are required by law to disclose the APR. The rate is calculated by taking the average compound interest rate over the term of the loan.
- Annual percentage yield (APY)
- Rate calculated over a 365-day period taking into account the effect of compounding interest.
- Annuity
- Fixed payments an individual receives for a lifetime or specified number of years at consistent intervals (e.g., payments from a pension plan or investment).
- Appraisal
- A document that gives an estimate of a property's fair market value. An appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property.
- Appraiser
- A qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.
- Appreciation
- An increase in the value of a property due to a change in market conditions, or for other reasons. The opposite is depreciation.
- Assessment
- A local tax levied against a property for a specific purpose, such as a sewer or street lights.
- Asset
- Anything you own that has value or use.
- Assignment
- The transfer of a mortgage from one person to another.
- Assumable mortgage
- A mortgage that can be transferred from a seller to a buyer. Once the loan is assumed by the buyer, the seller is no longer responsible for repaying it. There may be a fee ("assumption fee") and/or a credit package involved in the transfer of an assumable mortgage.
- Assumption
- The agreement between seller and buyer where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money, since this is an existing mortgage debt, unlike a new mortgage where closing costs and new, probably higher, market-rate interest charges apply.
- Authorization
- Every retailer has a purchase limit; for purchases above the limit, they must seek authorization from the card issuer before they can complete the sale.
- Authorized User
- Someone granted permission by the cardholder to use a credit card account, but who is not responsible for repayment of the debt.
- Average daily balance
- The card issuer tracks your balance day-by-day, adding charges (purchases) and subtracting payments as they occur. To calculate your balance, the issuer takes an average of the daily totals and multiplies this by the monthly interest rate. New purchases may or may not be included, depending on the card program, but cash advances are usually included
