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D
Data Furnisher:
Any company that provides credit information to credit reporting agencies.
Date of Purchase:
Also known as date of transaction, the day a purchase is made on a credit card account. Some issuers will charge interest from the date of purchase, even if they do not receive the transaction slip until several days later.
Date of Posting:
On a credit card account, the day the transaction slip is listed to the account by the credit card company. Depending on processing time, this may be anywhere from the same day as the purchase to a week or more after. Some card issuers charge interest from the date of posting, others from the date of purchase.
Dealer Charges:
When buying a car, the cost for extras, such as rust proofing, extended warranties, etc.
Dealer Prep Charge:
A fee some auto dealers impose on buyers for the cost of preparing a vehicle for sale. This charge often translates into pure profit for the dealer. When buying a car, this is a fee you should always negotiate down or eliminate altogether.
Debit Card:
A plastic card that acts like a credit card, but takes money directly out of a financial account to cover the purchase. This type of account is not normally reported on credit reports. Debit card purchases requiring the use of a Personal Identification Number (PIN) are called “on-line” purchases because the money is taken immediately from the account. Purchases made without a PIN are called “off-line” transactions and may be posted to the account up to a couple of days later.
Debt:
Money owed to creditors.
Debt Capacity:
The amount of debt you can afford based on your income and the amount of money you already owe. Lenders have different standards for acceptable debt capacity.
Debt to Income Ratio:
A comparison of an individual’s total monthly debt payments in relation to their monthly income, expressed as a percentage. This figure is obtained by dividing the total monthly debt payments due by the gross (pre-tax) monthly income of the individual and then moving the decimal point two spaces to the right. For mortgages, most lenders allow up to 36% of income to go toward the mortgage (principal, income, taxes and insurance) and other debt payments. With the FHA, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.
Debt Service:
The total monthly payments on all loans, or total amount outstanding on all debts held by a consumer. Specifically for the purpose of qualifying for a mortgage, debt service is the sum of the monthly payments on all accounts with outstanding balances, excluding any accounts with less than ten month’s worth of payments left on the loan.
Deed:
A legal document used to convey title to real property from one party to another.
Deed-in-lieu:
To avoid foreclosure, a deed is given to the lender to fulfill the obligation to repay the debt; this process doesn't allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure.
Deed of Trust:
A legal document used to convey title to real property from one party to another. A disinterested third party (the trustee) holds the title until the debt is paid. The trustee has the power to sell the property to satisfy the debt if the borrower defaults.
Default:
Failure to meet the terms of a loan or credit card; failure to do something required by contract or law. In the case of a home loan, default may include missing a payment as well as failure to pay real estate taxes, failure to keep the house in reasonable condition, or failure to keep adequate homeowner’s insurance. Also, the inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms.
Deficiency Judgment:
A sum awarded to the lender by a court when a person defaults on an auto loan or mortgage, and the sale of the property does not cover the balance plus legal collection costs. A deficiency judgment may be awarded to cover that balance.
Deferred Interest:
Interest that accrues on a current balance, but is added to the end of the loan term, instead of paying it with the current payment.
Delinquency:
A late payment on an account. This is the most common negative item on a credit report. Also, the failure of a borrower to make timely mortgage payments under a loan agreement.
Demand Letter:
A letter sent to a business or person requesting settlement of a dispute.
Depreciation:
A decline in property value.
Direct Financing:
When purchasing a car, borrowing the money from an outside lending institution instead of going through the dealership.
Discount Point:
A fee the lender charges a borrower in order to get a lower interest rate. One point is equal to one percent of the loan amount, converted into currency. Generally, for each point you pay your interest rate is reduced by approximately one-quarter percent for a 30-year mortgage.
Discover:
Discover Financial Services, a business unit of Morgan Stanley Dean Whitter, operates the Discover credit card services. Discover issues cards directly to the consumer, and while the card is considered a major national bankcard, it is not accepted overseas.
Discretionary Expenses:
Non-essential expenses. While they may be tough to cut out of a budget, these are expenses that ideally are not necessary to survival. Heat in winter in the Northeast is not a discretionary expense. Cable television is.
Discretionary Income:
Money left over after essential bills have been paid.
Disposition Fee:
A monetary sum charged at the end of a lease for the privilege of giving back the leased vehicle.
Down Payment:
The amount of money a buyer pays towards the purchase price. The remainder, or balance, is financed.
Due on Sale Clause:
A common stipulation that allows the lender to accelerate a mortgage loan when the borrower sells or transfers title to the property.
Dumpster Divers:
Individuals who sort through trash to find credit card receipts and other personal information that can be used to commit credit fraud.
E
Early Termination Charge:
Specifically for leases, a fee paid by the lessee if they return the car before the lease is up.
Earnest Money:
A deposit paid by a potential homebuyer to show they are serious about purchasing a particular property; Money put down by a potential buyer to show that he or she is serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal.
Effective Interest:
The amount of interest a borrower actually pays. Because certain fees may not be required to be included in the Annual Percentage Rate, the effective rate may be higher than the stated rate. In addition, credit cards may offer different interest rates for different balances. If this is the case, the effective interest rate describes the actual interest rate the consumer is paying on the total outstanding balance. It may be listed on the statement as the Effective Annual Percentage Rate, Annual Percentage Rate for this billing period, or a variation of that.
EEM: Energy Efficient Mortgage:
An FHA program that helps homebuyers save money on utility bills by enabling them to finance the cost of adding energy efficiency features to a new or existing home as part of the home purchase.
Equal Credit Opportunity Act (ECOA):
A federal law enacted in 1974 strictly prohibiting discrimination in the extension of credit using any factor relating to age, race, color, natural origin, gender, marital status, religion, or the receipt of public aid. The law also requires creditors to inform consumers of the acceptance or declination of an application for credit within 30 days of the application date.
Equifax:
One of three major national credit reporting agencies.
Equity:
The difference between a home's fair market value and the unpaid balance on the mortgage loan. Equity usually increases as the mortgage is paid down.
Equity Loan:
A secured loan based on the net value of an investment such as a home, stocks, or artwork.
Escrow account:
A separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, and mortgage insurance.
Escrow Payment:
The part of the mortgage loan that is used to pay for monthly taxes and/or insurance. Also known as reserves, escrow is normally held separately from money meant for principal and interest. Some lenders will charge a premium of a quarter percent or more to borrowers who want to avoid escrow and pay those items themselves.
Excess Wear Charge:
Limits that are imposed on the buyer for wear and tear of the car during a lease term.
Expense:
An item or service on which a consumer spends money.
Experian:
Formally TRW, one of three major national credit reporting agencies.
Extended Warranty:
A legally binding guarantee that covers certain car repairs or problems after the manufacturer or dealer's warranty expires.
F
Fair Credit Billing Act:
A federal law, part of the Truth-In-Lending Act, giving the consumer the right to dispute credit card charges under certain circumstances. Procedures for doing so, described on the credit card billing statement, are strict.
Fair Credit Reporting Act (FCRA):
A federal law regulating the disclosure of a consumer's credit report by the credit report agencies and also sets up procedures for correcting mistakes on a person's credit report. This is the primary law that governs credit bureaus.
Fair Debt Collection Practices Act:
A federal law regulating the activities of those who regularly collect debts from others, or collection agencies. Creditors who collect their own debts are not subject to the rules contained in this law, though some state laws are similar to the federal law.
Fair Housing Law:
Title VII of the Civil Rights Act, which prohibits discrimination on the basis of race, religion, national origin, race, sex, familial status, or handicap in residential housing.
Fair Market Value:
A fair price for a home or automobile based on similar sales of similar size and quality.
Fannie Mae:
The Federal National Mortgage Association. Established in 1938 by Congress, it is now a private company and is the largest investor in home loans. It does not lend money directly to homeowners, but instead buys loans on the secondary market, allowing lenders to free up funds to loan to new borrowers. Because it purchases so many mortgages, Fannie Mae underwriting guidelines are the standard used for conforming loans. This agency also sets the loan amount limits for conventional loans.
Farmer’s Home Administration (FmHA):
An agency of the U.S. Department of Agriculture which guarantees, insures, and makes loans to farmers and people in rural areas.
Federal Home Loan Mortgage Corporation:
See Freddie Mac.
Federal Housing Administration (FHA):
A division of the Department of Housing and Urban Development (HUD) that insures residential loans. It does not lend money directly. To obtain an FHA loan, a consumer contacts a direct-endorsement lender.
Fee Simple Ownership:
Ownership of the home and the land it sits on, as opposed to owning the home but not the land, as in land-lease situation.
FICO score:
A credit score developed by the Fair, Isaac Company that is used by credit reporting companies and creditors to help assess risk.
Finance Charge:
Interest and other fees associated with borrowing. In some cases, the finance charge must be expressed as an APR.
Financial Plan:
A plan that will help you reach your financial objectives, such as paying for college, retirement, etc. One study found that on incomes of $10,000--$100,000, consumers who reported having a written financial plan had twice as much money in savings and investments as those without a plan.
Financial Statement:
A comprehensive list of a person's assets, income, and debts.
First Mortgage:
A first position lien on a property. When the owner sells or refinances the property, the first lienholder is the first to be paid off. In the case where than one mortgage is held, it is not necessarily the largest loan, but instead is the first one recorded. [more information:
Mortgage Products]
Fixed Interest Rate:
A permanent interest rate that is not scheduled to change over the life of a loan. With a fixed rate credit card, however, the issuer may change the terms at any time as long as it provides ten days advance written notice. In most states, the new terms may apply to outstanding balances as well as new purchases.
Fixed-Rate Mortgage:
A mortgage where the interest rate is fixed over the life of the loan.
Flood insurance:
Insurance that protects homeowners against losses from a flood; if a home is located in a flood plain, the lender will require flood insurance before approving a loan.
Forced Liquidation:
Receiving lower than market value on an asset, primarily used by the IRS to satisfy a tax lien.
Foreclosure:
Repossession of real or personal property by a lender. A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.
Foreign purchase:
A charge levied by some Visa and MasterCard issuers, usually 1- 4% of the purchase amount, for purchases made in foreign countries. American Express charges 2%. Not all card issuers impose this charge, so it is helpful to shop around if you spend lots of time overseas.
Freddie Mac:
The Federal Home Loan Mortgage Corporation. Overseen the Department of Housing and Urban Development (HUD), it purchases loans (primarily FHA and VA) and sells securities backed by those loans.
Freezing Debt:
Stopping the accrual of interest on a debt, as part of a repayment plan.
Frequent Flier Card:
Also known as airmile cards, A co-branded credit card offered by an airline. Typically, the cardholder will earn one frequent flier mile for every dollar charged on the card. A mile is estimated to be worth about two cents.
G
Gap Insurance:
Insurance sold to auto lease customers to cover the cost of the car should it be stolen or destroyed.
Ginnie Mae:
The Government National Mortgage Association. A division of the Department of Housing and Urban Development (HUD), the agency pools FHA and VA loans and issues federally guaranteed pass through certificates to investors. It guarantees investors payment of their investments in the event the borrower defaults on the loan.
Gold Card:
A credit card that typically offers a larger line of credit than a standard card. Most card companies also offer additional benefits on gold cards that may include protection for lost or stolen purchases, Collision Damage Waiver coverage for rental cars, and emergency lost card replacement.
Good Faith Estimate:
A written estimate of closing costs provided by a broker or lender. Under federal law, this document is required within three days of receiving an application. Because it is an estimate, your actual costs may be different at closing.
Grace Period:
An amount of time given by a creditor to repay the debt in full to avoid incurring additional interest or penalties. If a grace period is offered, you only avoid finance charges if you start the billing period with a zero balance, then pay the entire balance off in full. Otherwise, interest usually starts immediately.
Graduated Payments Mortgages:
Mortgage payments that start lower but gradually increase. These programs make it possible for some consumers to qualify for a mortgage if their income is currently insufficient for a traditional mortgage, but is expected to increase as the mortgage payments increase.
Grantee:
A person receiving or acquiring title. In a real estate sale, the grantee is usually the buyer.
Grantor:
A person transferring or giving up title. In a real estate sale, the seller is usually the grantor.
H
Hazard Insurance:
A policy that protects homeowner’s against fire and other hazards; also known as homeowner’s insurance. In some cases, lenders will also require flood insurance.
HELP:
Homebuyer Education Learning Program; an educational program from the FHA that counsels people about the homebuying process; HELP covers topics like budgeting, finding a home, getting a loan, and home maintenance; in most cases, completion of the program may entitle the homebuyer to a reduced initial FHA mortgage insurance premium-from 2.25% to 1.75% of the home purchase price.
High Balance:
This is a term to describe the largest balance ever reached on an account, as reported by the lender. Not all lenders report this information.
Home Equity:
The difference between the appraised value and any other unpaid mortgages or liens on a home.
Home Equity Loan:
A loan given based on the amount of value a homeowner has in their property, normally at a fixed rate, payment, and in terms of 5 to 15 years.
Home Equity Line of Credit (HELOC):
A loan that allows a borrower to borrow against the value of their home, up to a specified credit limit. Repayment terms and interest may vary. [more information: Mortgage Products]
Home Inspection:
An examination of the structure and mechanical systems to determine a home's safety that makes the potential homebuyer aware of any repairs that may be needed. This is normally not a mortgage requirement, but it's often a great idea for new home buyers.
Home Warranty:
Offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance. The coverage extends over a specific time period and does not cover the home's structure.
Homeowner's Insurance:
An insurance policy that combines protection against damage to a dwelling and its contents with protection against claims of negligence or inappropriate action that result in someone's injury or property damage.
Housing Counseling Agency
Governmental agency that provides counseling and assistance to individuals on a variety of issues including loan default, fair housing, and homebuying.
HUD:
The U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all Americans. HUD addresses housing needs, improves and develops American communities, and enforces fair housing laws.
HUD1 Statement:
A "settlement sheet" that itemizes all closing costs. It must be given to the borrower at or before closing.
HVAC:
Heating, Ventilation and Air Conditioning; a home's heating and cooling system.
I
Identity Theft:
Stealing personal information of other people to obtain credit and make purchases in their name. Identity theft is one of the fastest-growing crimes. [more information: Preventing Identity Theft]
Index:
A common, published national or regional interest rate lenders use to determine the interest rate the borrower will pay. Examples of common indices are: the prime rate; discount rate; one, three, and five-year treasury rates; and the COFI (the “cost of funds” index which is based on the 11th District members of the Federal Home Loan Bank of San Francisco).
Indexed Rate:
The figure comprising the index plus the rate. For example, if an adjustable rate is stated as prime + 2% and prime is 8%, the indexed rate is 10%.
Inflation:
The devaluation of money based on an excess number of dollars in circulation.
In-file Credit Report:
A credit report used by potential credit grantors containing information from one or more of the three major credit bureaus. It is used to evaluate potential borrowers.
Inquiry:
An entry on a credit report that indicates a company or individual has reviewed a consumer's credit report. Promotional inquiries for prescreened credit offers or inquiries that result from requesting your own credit report do not appear on reports supplied to lenders or other outside companies, and therefore do not affect your credit.
Installment Credit:
Credit extended for a fixed amount with a fixed repayment term.
Installment Loan:
A loan for a fixed amount of money, with a fixed repayment term.
Insurance:
Protection against a specific loss over a period of time that is secured by the payment of a regularly scheduled premium.
Interest:
An amount of money charged by a lender for the use of the lender's money.
Interest Rate:
The amount of interest charged on a monthly loan payment, expressed as a percentage.
Invoice Price:
The manufacturer's initial cost to the dealer, this sum does not often include the dealer's final cost.
Issuing Financial Institution:
An institution that issues credit cards to consumers.
J
Joint Account:
A borrowing situation where two or more people agree to be legally responsible for the repayment of the loan. Divorce (including a court-ordered divorce decree) does not release responsibility of repaying a joint account.
Judgment:
A final court ruling resolving key questions in a lawsuit and determining the rights and obligations of the opposing parties. In consumer credit cases, this usually results in the consumer being ordered to repay a debt. With a judgment in hand, the lender can take steps to recover their money including the garnishment of wages, bank accounts, or other assets depending on state law.
Jumbo Mortgage:
A mortgage where the loan amount exceeds the current conventional loan limits as set by FannieMae and FreddieMac, currently $333,700. Interest rates for jumbo mortgages are generally higher than interest rates for conventional mortgages. The underwriting guidelines also differ. [more information: Mortgage Products, Financial Planning]
L
Late Fee:
A charge levied by lenders if payment is not received within a certain time period. On an FHA or VA mortgage, a late fee of 4% of the monthly payment is charged if payment is not made within 15 days of the due date. On a credit card, the non-regulated late fee may be as high as $35 if the payment is one day late.
Late Payment:
Money paid on an account after the due date. After 30 days, the account can be reported to a credit reporting agency and may appear on your credit report.
Lease:
A two to five year agreement that allows a lessee to drive a car during the term of the lease. The lessee may be responsible for all types of car repairs and maintenance during the term, but they do not own the car.
Lease-Like Loan:
A type of auto loan that combines the features of a lease and a conventional auto loan, normally offered by credit unions. Features of the loan often include no down payment or security deposit, a higher mileage allowance, and payments that are as much as 30% lower than a conventional loan.
Lease Purchase:
A financing option that assists low- to moderate-income homebuyers in purchasing a home by allowing them to lease a home with an option to buy in the future. The rent payment is made up of the monthly rental payment plus an additional amount that is often credited to an account for use as a down payment.
Lessee:
A person who signs the lease for the car.
Lessor:
The person or company who grants the lease.
Liabilities:
Money owed to others, such as mortgages, credit cards, etc.
Lien:
A claim on property for payment of a debt. Also, the legal claim against property that must be satisfied when it is sold.
Lifetime Cap:
The maximum interest rate that an adjustable-rate mortgage can reach during the term of the loan
Loan:
Borrowed money that is usually repaid with interest.
Loan Fraud:
A civil or criminal infraction caused when a borrower purposely gives incorrect information on a loan application
Loan Servicer:
A company that collects payments and escrows, and distributes escrows, on behalf of a lender.
Loan-to-Value (LTV):
The ratio of the amount of a home loan to the appraised value of the home. For example, a person seeking an $80,000 loan on a $100,000 home would have an LTV of 80%. Loans with LTV’s that exceed eighty percent typically require mortgage insurance.
Lock, or Lock in:
A lender’s guarantee that it will make a mortgage at agreed-upon terms if the loan is completed within a certain period of time. Sometimes there is a fee involved to lock in a loan. When a lender provides a lock, it commits the funds for that loan. Therefore, a borrower who changes his mind about a locked-in loan may be required to pay certain costs for cancellation.
Loss Mitigation:
A process employed by lenders in an effort to avoid foreclosure. Lenders will to mitigate their losses by providing assistance to a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan.
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