Credit Scoring Glossary
Your comprehensive guide to credit terms and definitions
Understanding credit terminology is the first step to improving your financial literacy. Browse or search for terms below.
A
Account History
A record of your payment behavior on a credit account, including whether payments were made on time, late, or missed entirely. Your account history is a major factor in determining your credit score.
Annual Percentage Rate (APR)
The yearly cost of borrowing money, expressed as a percentage. The APR includes the interest rate plus any additional fees or costs associated with the loan. Example: A credit card with an 18% APR means you’ll pay 18% interest annually on any unpaid balance.
Authorized User
A person who is permitted to use another person’s credit account but is not legally responsible for repaying the debt. Being an authorized user can help build credit history, as the account activity may be reported on your credit report.
B
Bankruptcy
A legal proceeding that helps individuals or businesses eliminate or repay debts under the protection of federal bankruptcy court. Bankruptcy severely damages your credit score and remains on your credit report for 7-10 years, depending on the type.
Balance Transfer
Moving debt from one credit card to another, typically to take advantage of a lower interest rate. Many credit cards offer promotional 0% APR balance transfer periods to help consolidate and pay down debt.
C
Credit Bureau
Also known as: Credit Reporting Agency
A company that collects and maintains consumer credit information and sells it to lenders, creditors, and consumers. The three major credit bureaus in the U.S. are Equifax, Experian, and TransUnion.
Credit Inquiry
Also known as: Credit Pull
A request to view your credit report. Hard inquiries occur when you apply for credit and can temporarily lower your score. Soft inquiries occur when you check your own credit or when companies pre-qualify you for offers and do not affect your score.
Credit Limit
The maximum amount of credit a lender will extend to you on a revolving credit account, such as a credit card. Using too much of your available credit (high credit utilization) can negatively impact your credit score.
Credit Report
A detailed record of your credit history, including your credit accounts, payment history, credit inquiries, and public records such as bankruptcies. Lenders use your credit report to evaluate your creditworthiness.
Credit Score
A three-digit number (typically ranging from 300 to 850) that represents your creditworthiness based on your credit history. The most common scoring model is the FICO Score. A higher score indicates lower credit risk to lenders.
Credit Utilization Ratio
Also known as: Credit Utilization Rate
The percentage of your available credit that you’re currently using. Calculated by dividing your total credit card balances by your total credit limits. Example: If you have $2,000 in balances and $10,000 in total credit limits, your utilization ratio is 20%. Experts recommend keeping this below 30%.
D
Debt-to-Income Ratio (DTI)
A measure of your monthly debt payments compared to your monthly gross income, expressed as a percentage. Lenders use DTI to assess your ability to manage additional debt. Example: If your monthly debts total $1,500 and your monthly income is $5,000, your DTI is 30%.
Default
Failure to repay a loan according to the terms agreed upon in the loan contract. Defaulting on a loan seriously damages your credit and may result in legal action, wage garnishment, or seizure of collateral.
Delinquency
The status of being past due on a payment. Accounts become delinquent when payments are not made by the due date. Delinquencies are reported to credit bureaus and negatively impact your credit score, with severity increasing at 30, 60, and 90+ days late.
Dispute
The process of challenging incorrect or incomplete information on your credit report. Consumers have the right to dispute errors under the Fair Credit Reporting Act (FCRA), and credit bureaus must investigate disputes within 30 days.
E
Equifax
One of the three major credit bureaus in the United States. Equifax collects and maintains credit information on millions of consumers and businesses, providing credit reports and scores to lenders and individuals.
Experian
One of the three major credit bureaus in the United States. Experian gathers and maintains consumer credit information and offers credit monitoring and identity theft protection services.
F
Fair Credit Reporting Act (FCRA)
A federal law that regulates the collection, dissemination, and use of consumer credit information. The FCRA gives consumers rights including access to their credit reports, the ability to dispute errors, and protection against inaccurate information.
FICO Score
The most widely used credit scoring model, developed by the Fair Isaac Corporation. FICO Scores range from 300 to 850 and are calculated based on five factors: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%).
G
Grace Period
The period between the end of a billing cycle and the payment due date during which you can pay your balance in full without incurring interest charges. Most credit cards offer a grace period of 21-25 days, but only if you pay your previous balance in full.
H
Hard Inquiry
Also known as: Hard Pull, Hard Credit Check
A credit check that occurs when you apply for credit, such as a loan or credit card. Hard inquiries are recorded on your credit report and may temporarily lower your credit score by a few points. Multiple hard inquiries in a short period can have a larger negative impact.
I
Identity Theft
The fraudulent use of someone else’s personal information (such as Social Security number, credit card numbers, or bank account details) to open accounts, make purchases, or commit other crimes. Identity theft can severely damage your credit and requires immediate action to resolve.
Installment Loan
A loan that is repaid over time with a set number of scheduled payments. Examples include auto loans, mortgages, and personal loans. Unlike revolving credit, once an installment loan is paid off, the account is closed.
L
Late Payment
A payment made after the due date specified by the creditor. Late payments can result in fees and are reported to credit bureaus once they are 30 days past due, significantly damaging your credit score. The impact increases with payments that are 60, 90, or more days late.
Lien
A legal claim against property (such as a house or car) that secures repayment of a debt. If you don’t repay the debt, the creditor can seize the property. Tax liens are public records that appear on credit reports and negatively affect credit scores.
M
Minimum Payment
The smallest amount you must pay on a credit account by the due date to keep the account in good standing. While making only minimum payments avoids late fees, it results in paying significantly more interest over time and extends the time it takes to pay off debt.
O
Outstanding Balance
Also known as: Current Balance
The total amount of money you owe on a credit account at any given time. This includes purchases, interest charges, fees, and any unpaid amounts from previous billing cycles.
P
Payment History
A record of whether you’ve paid your credit accounts on time. Payment history is the most important factor in your credit score, accounting for 35% of your FICO Score. Even one late payment can significantly impact your score.
Personal Loan
An unsecured installment loan that can be used for various purposes, such as debt consolidation, home improvements, or large purchases. Personal loans typically have fixed interest rates and repayment terms ranging from 1-7 years.
Public Records
Legal or court documents that may appear on your credit report, including bankruptcies, tax liens, and civil judgments. Public records are highly negative items that can remain on your credit report for 7-10 years.
R
Revolving Credit
A type of credit that allows you to borrow up to a certain limit, repay, and borrow again. Credit cards and home equity lines of credit (HELOCs) are examples of revolving credit. You can carry a balance from month to month, but you’ll pay interest on unpaid amounts.
S
Secured Credit Card
A credit card that requires a cash deposit as collateral. The deposit typically becomes your credit limit. Secured cards are often used by people with no credit history or poor credit to build or rebuild their credit score.
Soft Inquiry
Also known as: Soft Pull, Soft Credit Check
A credit check that does not affect your credit score. Soft inquiries occur when you check your own credit, when creditors pre-approve you for offers, or during background checks by employers or landlords.
T
TransUnion
One of the three major credit bureaus in the United States. TransUnion collects and distributes consumer credit information and offers credit monitoring, fraud detection, and identity theft protection services.
Trade Line
An industry term for a credit account listed on your credit report. Each credit card, loan, or other credit account is a separate trade line. The number and type of trade lines you have affects your credit mix, which accounts for 10% of your FICO Score.
U
Unsecured Debt
Debt that is not backed by collateral. Credit cards, personal loans, and medical bills are examples of unsecured debt. Because there’s no collateral, lenders take on more risk, which typically results in higher interest rates compared to secured debt.
V
VantageScore
A credit scoring model developed jointly by the three major credit bureaus as an alternative to FICO. Like FICO, VantageScore ranges from 300 to 850. While less commonly used by lenders than FICO, VantageScore is often provided in free credit monitoring services.
Can’t Find a Term?
If you’re looking for a term that’s not listed here, let us know! We’re constantly expanding our glossary.