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Financial-Pep-Talk_No_BorderThe Financial PEP Talk podcast series from Pioneer Services is a quick, easy way to learn more about your finances. Choose from a variety of topics in audio and video format.



Ever get frustrated by all of the acronyms and terms used in banking and lending? Financial terms are an alphabet soup of acronyms and industry jargon that can often be confusing. We’ve compiled some of the basic terms so you’ll be in the know next time you work with a bank, lender or other financial services provider.

Algorithm: A mathematical model used in credit scoring to compare data in a person’s report and predict his or her likelihood of repaying his or her debts. The higher the credit score, the better.

Annual Percentage Rate (APR): A calculation that defines the total cost of a loan or line of credit, including all interest and fees. This will often be higher than the interest rate because it includes the fees.

Bankruptcy:  A legal proceeding designed to help people in severe financial difficulty get a fresh start by relieving them of some of their current debts, but at the cost of reduced access to credit for the length of the bankruptcy due to their inability to pay off previous debts on time and in full. A consequence of bankruptcies is that they usually stay on a credit report for 7 to 10 years, depending on the type.

Charge-off: An unpaid portion of a bill that a lender has accepted will never be paid and has been recorded on the books as a bad debt. It is a serious negative item on a credit report.

Collection: A creditor’s attempt to recover a past-due payment by turning the account over to a collection department or company. Having a debt in collection is a serious negative item on a credit report.

Credit bureau: A credit-reporting agency that is a clearinghouse for information on the credit rating of individuals or companies. It is often called a “credit repository” or “consumer reporting agency.” The three largest are Equifax, Experian and TransUnion.

Credit history: A record of a person’s use of credit over time.

Credit limit: The most that can be charged on a credit card or a credit line.

Credit report: A document containing financial information about a person focusing on his or her history of paying obligations. It includes current balances on outstanding debts, the individual’s amount of available credit, public records such as bankruptcies and inquiries about credit from various companies.

Credit risk: The measure of a person’s creditworthiness. People who are more likely to repay their debts on time are considered less of a risk by lenders and will be charged lower interest rates for borrowing money. Those with a history of failing to pay debt on time are considered a higher risk and are charged more for borrowing money.

Debt-to-income ratio: The amount of money a person has in outstanding debt compared to the amount of income a person has. The higher a person’s debt ratio, the more risky the individual appears to potential lenders. Anything below 40 percent is considered positive by most lenders.

Debt Cycle: A condition or situation borrowers can find themselves in when they continue to borrow more money than they are able to repay, thus increasing their debt. “Breaking the debt cycle” is a common reference in describing financial strategies to pay off seemingly endless debt.

Default: A designation on a credit report that indicates a person has not paid a debt. Accounts usually are listed as being in default after several reports of delinquency. Defaults are very serious and are considered as negatives on a credit report.

Delinquent: A designation on a credit report that means a person hasn’t made the minimum payment on a debt on time. On credit reports, delinquencies are usually shown as being 30, 60, 90 or 120 days delinquent. Delinquencies are a seriously negative item on a credit report.

FICO score: The most commonly used credit score. The name comes from the Fair Isaac Corporation, which developed the scoring model, and is used to predict the likelihood that a person will pay his or her debts.

Grace Period: Typically describes the time you have before a credit card company starts charging you interest on your new purchases. Not every card offers one, some cards do but have restrictions, and the length of the grace period varies. This information will be listed in the disclosure when you first received your card.

Hard inquiry: An item on a person’s credit report that indicates that someone has asked for a copy of the individual’s report. Hard inquiries are requests that result from a person applying for credit, and are included in the formula for determining a person’s credit score.

Installment credit: A type of credit in which the monthly payment is the same every month and the time period to repay the loan is fixed, such as a basic loan.

Interest rate: The fee charged by a lender for the use of the borrowed money and that is expressed as a percentage of the total amount borrowed. The interest rate is dependent upon many factors, including rates charged by the Federal Reserve Board and the past credit history of the borrower.

Judgment: A decision from a judge on a civil action or lawsuit that is usually an amount of money a person is required to pay to satisfy a debt or a penalty.

Lien: A legal claim placed on a person’s property, such as a car or a house, as security for a debt. Example: A contractor may place a lien on a house after they did work and didn’t get paid, and the property cannot be sold without the lien being paid first.

Public record: Information on your credit report that has been obtained from court records, such as bankruptcies, judgments and liens.

Rate shopping: Applying for credit with several lenders to find the best interest rate, usually for a mortgage or a car loan. This will show up on a credit report but, if done within a short period of time (such as two weeks), it should have little impact on a credit score.

Revolving credit: A type of credit line that does not have a fixed number of payments or payoff date, such as a credit card.

Soft inquiry: An item on a person’s credit report that indicates that someone has asked for a copy of his or her report. Soft inquiries can be from current creditors reviewing the file, prospective creditors who want to send out an offer (such as a pre-approved credit card) or a person’s own review of their file. They are not included in the formula for determining a person’s credit score.

Trade line: An account listed on a credit report. Each separate account is a different trade line.

Unsecured Loan: A loan that is not backed by collateral, sometimes called a “signature” or “note” loan.