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| Need to know-credit score terms |
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This glossary covers need to know words and phrases commonly used in the “credit scoring” industry. |
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ALGORITHM: A complex mathematical model. In credit scoring, it is used to compare data in millions of credit reports and predict a person’s likelihood to repay debts. |
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BANKRUPTCY: A legal proceeding designed to help people in financial problems obtain a fresh start by relieving them of paying their current debts. |
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CHARGE-OFF: An unpaid part of a bill that a lender has accepted will never be paid. |
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COLLECTION:A creditor’s attempt to recover past due payments by turning the account over to a collection agency. |
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CREDIT BUREAU: A credit reporting agency that is a clearing house for information on the credit ratings of individuals or business. The three largest and most known are Experian, Transunion and Equifax. |
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CREDIT HISTORY: A record of a person’s or business use over the past. |
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CREDIT LIMIT: The most that can be charged on any type of credit card or credit line. Put in place by the lender. |
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| CREDIT REPORT: A document containing financial information about a person or business focusing on the history of paying obligations, such as mortgages, auto payments, credit cards and utilities. It may also include current balances on outstanding obligations, amount of available credit, public records and hard inquiries from various companies. |
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| CREDIT RISK: The measure of a person’s creditworthiness. People who pay on time are better “risks” by lenders. The less risk also gets the less interest rates compared to higher risks people and higher interest rates. |
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DEBT RATIO: The amount of money a person has to outstanding debt, compared to the amount of credit available on all of the credit cards and lines of credit an individual has. The higher the debt ratio the more risk a potential lender sees. |
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DEFAULT: A designation on a credit reports that indicates a person has not paid a debt that was owed. |
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DELINQUENT: A designation on a credit that a person has not made the minimum payment on an account on time. These are usually shown as 30, 60, 90, 120, day’s delinquent by the lenders. |
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FICO SCORE: The most commonly used credit sore. The name comes from “Fair Isaac Corporation” which developed the scoring model. This is used to predict the likelihood of a person to pay their debts. How the score completely works is one of the best kept secrets of modern time. |
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HARD INQUIRIES: An item on a person’s credit report that shows that someone has asked for a copy of the individual’s credit report. These are only when the person asks or applies for credit. They are included in the formulas for determining a person’s credit score. |
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| TRADE LINE: Any and all accounts listed on a person’s credit report. Each separate account is a different trade line. |
