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Basic Credit
Vocabulary Terms
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Different Types of Credit
Credit card: a payment card issued to users
(cardholders) to enable the cardholder to pay a
merchant for goods and services, based on the
cardholder's promise to the card issuer (usually a
bank) to pay them for the amounts so paid plus
other agreed charges.
Installment plan: Debt to be paid at regular times
over a specified period. Examples of installment
debt include most mortgage and auto loans.
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Different Types of Credit
Layaway: a system of paying a deposit to secure
an item for later purchase.
Revolving debt: Debt owed on an account that the
borrower can repeatedly use and pay back without
having to reapply every time credit is used. Credit
cards are the most common type of revolving
account.
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Different Types of Credit
• Line of Credit: credit source extended to a government,
business or individual by a bank or other financial
institution. A line of credit may take several forms, such
as overdraft protection, demand loan, special purpose,
export packing credit, term loan, discounting, purchase
of commercial bills, traditional revolving credit card
account, etc. It is effectively a source of funds that can
readily be tapped at the borrower's discretion. Interest
is paid only on money actually withdrawn.
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Laws Related to Credit
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.
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Laws Related to Credit
Fair Credit Reporting Act(FCRA): Federal
legislation that promotes the accuracy,
confidentiality and proper use of
information in the files of every "consumer
reporting agency". The FCRA was enacted
in 1970.
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Obtaining Credit
Credit score: This term is often used to
refer to credit bureau risk scores. It
broadly refers to a number generated by a
statistical model which is used to
objectively evaluate information that
pertains to making a credit decision.
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Obtaining Credit
Credit obligation: An agreement by which
a person is legally bound to pay back
borrowed money or used credit.
Interest: the cost of a loan paid by the
borrower.
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The 2 “sides” of Credit
• Borrower: the consumer or business
requesting a loan or line of credit.
• Lender: the financial institution (bank,
store, finance office) making a loan to a
consumer or business.
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