Glossary of Credit Terms

Charge-off

A declaration by a lender, generally for tax purposes, that an amount of debt is unlikely to be collected, which can happen when a person becomes severely delinquent in repaying a debt. The lender reports to the consumer reporting agencies that it has taken a loss, but the borrower is still responsible for paying back the debt. Also known as a “write-off.”

Collection

Attempted recovery of a past-due credit obligation by a lender’s collection department or a separate collection agency.

Consumer Reporting Agency (CRA)

An organization that assembles or evaluates consumer credit information, or other information on consumers for the purpose of preparing and furnishing consumer reports to third parties. The three largest CRAs, often also referred to as credit bureaus, in the U.S. are Equifax, Experian and TransUnion.

Credit account

A specific lending arrangement between a creditor and borrower that provides the borrower with a loan or a revolving instrument such as a credit card, with an obligation to repay the creditor. Sometimes referred to as a credit obligation.

Credit file

The credit records at a consumer reporting agency regarding a given individual. The file may include: the person’s name, address, Social Security Number, credit history, inquiries, collection records, and public record bankruptcy filings.

Credit history

A record of a person’s credit accounts and activities, including how the person has repaid credit obligations in the past.

Credit limit

The amount of credit that a financial institution extends to a borrower. Credit limit also refers to the maximum amount a credit card company will allow someone to borrow on a single card. Credit limits are usually determined based on the applicant’s FICO® Score and information contained in their credit application.

Credit obligation

See credit account.

Credit report

A detailed report of an individual’s credit history as stored in an individual’s credit file, prepared by a consumer reporting agency and used by a lender when making credit decisions. Most credit reports include: the person’s name, address, credit history, inquiries, collection records, and public record bankruptcy filings.

Credit risk

The likelihood that individuals will not pay their credit obligations as agreed. Borrowers who are more likely to pay as agreed pose less risk to creditors and lenders.

Credit score

See What is a credit score?

Default

When a debtor (or borrower) is unable or unwilling to meet the legal obligation of debt repayment. Usually an account is considered in “default” after being delinquent for several consecutive 30-day billing cycles.

Delinquent

A failure to deliver even the minimum payment on a loan or debt payment on or before the time agreed. Because most lenders have monthly payment cycles, they usually refer to such accounts as 30, 60, 90 or 120 days delinquent.

Equal Credit Opportunity Act (ECOA)

Federal legislation that prohibits discrimination in credit. The ECOA originally was enacted in 1974 as Title VII of the Consumer Credit Protection Act.

Fair Credit Reporting Act (FCRA)

Federal legislation that promotes the accuracy, confidentiality and proper use of information in the files at each “consumer reporting agency”. The FCRA was enacted in 1970.

FICO®

See What is FICO?

FICO® Industry Score

A type of FICO® Score offered by all three U.S. consumer reporting agencies —Equifax, Experian and TransUnion—that ranges from 250 to 900 and is used by some lenders to address specific types of lending products, such as auto loans or credit cards.

FICO® Scores

See What are FICO® Scores?

FICO® Score NG

A type of FICO® Score offered by all three U.S. consumer reporting agencies—Equifax, Experian and TransUnion—that ranges from 150 to 950 and is used by some lenders.

Inquiry

See What is a credit "inquiry"?

Installment debt

Debt to be paid back at regular intervals over a specified period. Examples of installment debt include most mortgages and auto loans. Sometimes referred to as an “installment account” or an “installment loan.”

Permissible purpose

The Fair Credit Reporting Act (FCRA) prohibits a consumer reporting agency from furnishing an individual’s consumer report unless there is a permissible purpose. Permissible purposes include: credit or insurance transactions, employment purposes, and account review. The consumer reporting agency may also furnish a consumer report if a consumer gives his or her consent.

Revolving credit/debt

A line of credit that the borrower can repeatedly use and pay back without having to reapply every time credit is used. Bank credit cards are the most common type of revolving credit account. Other types include department store cards and travel charge cards.

Score factors

See What are score factors?

Scoring model

A mathematical formula or statistical algorithm used to predict certain behaviors of prospective borrowers or existing customers relative to other people. A scoring model calculates scores based on data such as information on a consumer’s credit report that has proven to be predictive of specific consumer behaviors.

Utilization

The proportion of the balance owed on revolving accounts divided by the available credit limit(s). Utilization is an input used in determining a person’s credit score. Typically, it is the amount of outstanding balances on all credit cards divided by the sum of their credit limits, and it’s expressed as a percentage.

FICO is a registered trademark of Fair Isaac Corporation in the United States and other countries.

Redwood Credit Union and Fair Isaac are not credit repair organizations as defined under federal or state law, including the Credit Repair Organizations Act. Redwood Credit Union and Fair Isaac do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit record, credit history or credit rating.

FICO® Score and associated educational content are provided solely for your own non-commercial personal review, use and benefit.