Glossary of Consumer Terms

The way a payment is applied to the balance between interest and principal. This may change over time. For example, mortgages often apply more of the monthly payment to interest than principal at the beginning of the loan period.

The percentage in interest (and fees if stated in contract) that accrues (builds up) on a loan or credit account annually on top of the principal balance (amount borrowed). Comparing APRs is an important part of shopping for a loan or credit card. 

A document a borrower completes to qualify for a loan, lease, or credit account, containing information such as full name, social security number, contact information, etc. The document may also require a signature granting permission to check credit history. 

Property or money belonging to a person or business which could potentially be sold for profit or used to pay debt. Common examples include: Checking account, savings account, 401K, vehicle, home, land.

Collectors and creditors can only communicate about details of an account with the person or people responsible for the debt, unless a person named on the debt provides permission otherwise. The person with authorization, such as a friend, family member, accountant, etc. would be an authorized third party.

The total amount owed on an account. This might include the borrowed amount (principal) plus interest, and sometimes costs or fees. 

A means for people or businesses to seek relief from unmanageable debt through the legal system. The request goes through a court review. If granted, all or part of the debt might be discharged, allowing the bankrupt party to agree to a consolidated payment plan or to use assets to help pay the debt. Bankruptcy negatively affects credit reports for several years. Details on types of bankruptcy in the US can be found at https://www.uscourts.gov/services-forms/bankruptcy.

A consumer or business opening a line of credit or a loan is also known as a borrower.  

A detailed plan for a particular amount of money categorizing how it will be used. Personal budgets are often broken into monthly expense categories such as housing, utilities, food, transportation, entertainment, etc.

When monthly payments are not made on a loan or credit balance for a certain amount of time, it is eventually closed to future charges and removed from the creditors financial statements. It’s important to note that charge-off does not mean the creditor stops attempting to collect payment due or that the consumer is “off the hook”. Even though it’s charged off, the creditor often moves to a recovery strategy (debt sale and/or collections) to try to recover the financial loss of a charged off account. 

An asset pledged to secure credit. An example of this is mortgages where the property is pledged against the loan. If you don’t repay the loan, the lender forecloses on the collateral (the home), sells it and applies the sale proceeds to the balance of the loan. 

An organization or entity to whom money is owed. A creditor could be a business that lends money (credit card companies, banks, loan companies, etc.), provides goods or services for payment (retail store, healthcare provider, gym, etc.), or owns an account for which payment is owed (non-originating creditor such as debt purchaser).

An organization that tracks and reports the credit history of companies or individuals. By tracking the history, credit bureaus help lenders to understand the credit risk that each borrower represents. There are 3 main consumer credit bureaus in the US: Experian, TransUnion, and Equifax. Late payments may be reported by a creditor to a credit bureau which can negatively affect your credit report. 

Visa, Mastercard, and American Express are 3 of the primary credit card providers in the US. Credit cards may be opened through your bank or directly with the creditor. In the case of retail cards, they may be opened through a retail store. Credit cards have minimum monthly payments, depending on the balance.

The maximum amount you can spend on a line of credit. Depending on your payment history and credit score, your line of credit might go up or down while your account is open. You will be notified if your credit limit changes. Going over your credit limit reflects negatively on your credit report, hurts your credit score, and can cause you not to be able to continue using your credit line or credit card.

A report listing a history of your open and closed credit accounts and showing if the payments were made on time, most recently reported account balances, and more. Federal law allows you to check each of your 3 major credit reports (Experian, TransUnion, and Equifax) once per year at AnnualCreditReport.com. Checking your credit reports annually can help you monitor for any errors or fraud.

A score used to rate your “creditworthiness,” based on how timely you have paid your accounts in the past, and how likely you may be to pay or pay on time for future accounts. Having a high credit score can help you qualify for lower interest rates, qualify for a mortgage or apartment lease, and more. A low credit score can cause you to have trouble opening new loans or lines of credit. Credit scores are not set in stone. They can get better or worse depending on a variety of factors. Learn more on AnnualCreditReport.com

A method of paying in real-time with funds directly from your checking account. Unlike a credit card which is “buy now, pay later,” paying with a debit card is “buy now, pay now.” Think of it as plastic cash. If you use the card with insufficient funds in your checking account, the bank may decline the purchase or may charge a fee and the negative balance becomes a debt.

Payment owed for money borrowed or goods/services received. Having some debt is common and not necessarily a bad thing, as long as it is paid on time and isn’t too much debt compared to your income and other expenses. Debt should always be paid on time so that it does not become delinquent or defaulted. 

Businesses that purchase outstanding accounts from creditors. For charged off accounts, debt sales help creditors recover some of the losses that occur from non-payment of accounts. Debt buyers often partner with a network of collectors (collection agencies and collection law firms) or they may have in-house collections.

When payments have not been made as agreed, the contract agreement is broken by the consumer and the account status changes. For example, a previously agreed upon payment plan may no longer be honored by the creditor, the account may be reported to the credit bureaus, or other negative consequences for the consumer if the account is in default status. 

Deficiency is the balance remaining on a secured credit account after the collateral has been repossessed, resold and the revenue from the sale applied to the balance. 

For example, if a car loan is not repaid, the car can be repossessed and resold. The money received for the sale of the car is deducted from the balance owed. Any remaining balance is a deficiency balance. 

$10,000 Loan Balance 

$5,000 Repossession 

$5,000 Deficiency Balance

When payment is late or not made before the grace period, the account may enter into this status. It still may not be considered defaulted until there is nonpayment for a more extended period of time.

On a charged-off account that has gone to a collector, payments made directly to the creditor and bypassing the collector are referred to as direct payments. Some consumers prefer to pay creditors directly.

Keep in mind this can sometimes cause a short delay before the payment information is forwarded to and received by the collector and the balance is reconciled to reflect the payment. 

Debts consolidated into a bankruptcy payment plan may be fully or partially discharged, which often means a loss to the creditor(s). The consumer no longer owes the creditor for a discharged account unless the consumer defaults on the bankruptcy agreement causing the bankruptcy order to be dismissed.

In bankruptcy, dismissal can happen if you default on your agreed payments, leaving all or part of the original debt still owed and the bankruptcy order no longer valid. 

On accounts where a judgment has been received, execution refers to a legal order directing law enforcement to take possession of an asset such as funds from a bank account or other property. The asset is used to repay a debt.

Garnishment is when the court allows a creditor to claim rights to a portion of a person’s income for repayment of a debt. Wages (employment income) and tax returns are common types of garnishments. Laws allowing or restricting garnishments vary by state.

When you borrow a set amount of money and agree to pay it back in portions over time (usually monthly payments), you are paying the loan in installments. 

Money owed in addition to the original borrowed amount. It accumulates at a certain rate over time based on the contract terms of an account. 

The result of legal action sometimes taken by creditors against consumers or businesses to pursue legally enforceable means of payment for a debt (such as garnishments, liens, and executions).

Types of creditors that allow people to borrow money in the form of loans or lines of credit. Not all creditors are lenders, but many types of consumer debt do originate from lenders (such as banks, credit card companies, and loan or finance companies).

A legal claim to property, sometimes used by creditors as a means of legal enforcement for payment of a debt. If a creditor places a lien on the home property deed of a consumer, for example, the consumer may have to pay the debt in order to have the lien removed. A house cannot be sold with an outstanding lien on the property.

An account such as a credit card account that allows consumers to borrow up to a certain amount of money and pay it back later (usually with interest added) based on the terms of the contract. There is usually a minimum monthly payment but some promotional contracts delay repayment obligations for a certain period of time. 

A large payment at one time. If you decide to pay your balance in full, you might pay one or two lump sums rather than many smaller payments over time.

A loan for purchasing real estate.

The original company to whom a bill was owed. 

The status of a fully paid debt with no remaining money owed. 

A written payment plan established between a creditor (or a collector on behalf of a creditor) and consumer specifying how much will be paid by what dates to resolve a debt. If you have a payment agreement in place and need to discuss a deviation from the agreement, you should contact your collector or creditor as soon as possible. 

On a debt, this is the original amount of money owed excluding any interest or fees that have contributed to the total balance.

Sensitive, personal data hidden from account information. Full original account numbers, bank account numbers on check copies, and full social security numbers are all examples of sensitive personal data that may be redacted. This is often done by “blacking out” every digit except the last 4.

Property that was taken back by the creditor due to nonpayment of borrowed money. For example, if you purchase a vehicle with an installment loan and fail to pay, then that vehicle may be repossessed or ‘repoed’.

If a debt is Satisfied in Full rather than Paid in Full, the creditor agreed to repayment at a reduced amount instead of the full balance. This may not reflect on taxes or credit reports the same way as Paid in Full.

A written payment plan for a debt made between a consumer and creditor (or a collector on behalf of a creditor) for a reduced balance that will lead to resolution of the debt as Satisfied in Full.

Debts have timeframes for how much time can pass before it’s too late for a creditor to file a lawsuit for pursuing a judgment. Statutes of limitation (SOL) differ by state, type of debt, and ongoing changes in legislation. SOLs are completely separate from credit reporting limitations (how long a debt can stay on your credit report), though the two are often confused.

Documentation provided to a consumer to show that a debt is valid and owed. Includes details such as consumer name, original creditor (and current creditor if applicable), balance, account number, account open date, judgment information (if there was a judgment entered), etc.