Credit Fundamentals
A promise to repay borrowed money later, usually with added cost.
What is credit?
The maximum dollar amount a cardholder may charge on an account.
What is a credit limit?
Money provided to a borrower that must be paid back, usually with interest.
What is a loan?
The upfront cash paid at purchase that reduces the amount borrowed.
What is a down payment?
A very short-term loan typically due on the borrower’s next payday and often carrying extremely high fees and rates.
What is a payday loan?
The original amount borrowed on a loan or the unpaid balance that accrues interest.
What is principal?
The smallest required monthly amount that prevents an account from being delinquent.
What is the minimum payment?
A loan repaid by scheduled payments that reduce both interest and principal over time.
What is an amortized loan?
A long-term loan used to purchase property, like a house.
What is a mortgage?
A checkout option that splits a purchase into scheduled payments, often marketed with short-term, low-or-zero interest.
What is Buy Now, Pay Later?
The yearly percentage cost of borrowing that includes interest and certain fees.
What is APR (annual percentage rate)?
The standardized table on a card disclosure that lists APRs, fees, and key terms.
What is the Schumer Box?
Debt backed by an asset that can be taken if payments are missed.
What is secured debt?
A loan for a vehicle that is repaid in set periodic payments.
What is an auto loan?
A numerical measure banks use to measure trustworthiness and how likely someone is to repay borrowed money.
What is a credit score?
The difference between what you own and what you owe.
What is net worth?
The billing-window timeframe after which interest is charged if the balance isn’t paid in full.
What is a grace period?
A loan whose stated interest percentage can change with market rates during the term.
What is a variable-rate loan?
A mortgage with an unchanging interest rate for the life of the loan.
What is a fixed-rate mortgage?
Debt that is not backed by an asset and depends on the borrower’s creditworthiness.
What is unsecured debt?
A type of loan that lets you borrow repeatedly up to a limit.
What is revolving credit?
A card feature where one person is added to another’s account to build history without being legally responsible for payments.
What is an authorized user?
A detailed table that shows each periodic payment and how much applies to interest versus principal.
What is an amortization schedule?
A mortgage that begins with a set rate that may later adjust up or down based on an index.
What is an adjustable-rate mortgage (ARM)?
A credit product that is linked to the amount of money in your bank account and requires a refundable cash deposit as collateral.
What is a secured credit card?