Credit & Debt Terms

A 0% intro APR is a promotional interest rate of zero, offered when a credit card account is opened and lasting a stated period. Regulation Z calls it an introductory rate, requires the word "intro" in the advertising, and sets a six-month floor on how short the promotion can be.

A 401(k) loan lets a participant borrow from their own workplace plan balance and repay it with interest into that same account. Because it is a loan rather than a distribution, nothing is taxed: unless it defaults or is offset when you leave, which are two legally different events with different consequences.

Amortization is the process of retiring a debt through scheduled payments, each of which pays the interest accrued since the last one and applies the remainder to the balance. The payment stays level and the split inside it does not, which is why an early payment on a long-dated loan is mostly interest and a late one is mostly principal.

The annual percentage rate is the regulated measure of what credit costs, expressed as a yearly rate that relates what the borrower receives to what the borrower pays. What it folds in beyond interest depends on the kind of credit, which is why comparing APRs is sound advice on a mortgage and incomplete advice on a credit card.

An authorized user is someone the account holder permits to use a credit card account without being contractually liable for the balance. Because the user has actual authority, their charges are never "unauthorized use," so the $50 liability cap never applies and the account holder owes every dollar.

An auto loan is an installment loan used to buy a vehicle and secured by that vehicle, so the lender's lien is recorded against the title and non-payment can end in repossession. It is the one common consumer loan where the collateral reliably loses value faster than the balance falls.

A balance transfer moves what you owe on one credit card onto another, usually to take advantage of a temporary low or zero promotional rate. It is a new extension of credit on the receiving card rather than a payment by you, it normally carries an upfront fee, and federal rules set a floor under how long the promotion has to last.

Bankruptcy is a federal court process that reorders or erases what you owe, under title 11 of the United States Code. It is not one procedure but several, and for individuals the two that matter are Chapter 7, which liquidates, and Chapter 13, which reorganizes.

Buy now, pay later is point-of-sale financing that splits a purchase into a short series of payments, classically four, with no interest if paid on time. Whether it carries the protections that come with other consumer credit turns on how the individual plan is structured.

A cash advance is credit drawn from a credit card as cash or its equivalent rather than as a purchase. It normally carries its own higher interest rate, a fee charged upfront, and no grace period, so interest generally starts on the day of the transaction.

Chapter 7 bankruptcy is the liquidation chapter of the Bankruptcy Code. A trustee is appointed to sell any property no exemption protects, most remaining unsecured debt is discharged within months, and eligibility is screened by an income-based means test.

Chapter 13 bankruptcy is the reorganization chapter available to an individual with regular income. The debtor keeps their property and performs a court-approved plan lasting three or five years, and it is the only chapter with a stay that protects the people who cosigned.

A charge-off is a creditor's own accounting decision to reclassify a debt as a loss on its books. It changes the creditor's ledger rather than the borrower's obligation, so it cancels neither the debt, nor any lien behind it, nor the right to sell the account or sue on it.

A cosigner is someone who takes on liability for another person's debt without getting anything in return. Federal law requires most consumer lenders to hand a cosigner a specific written notice first, and the notice says plainly that the creditor can collect from the cosigner without trying the borrower first.

A credit builder loan reverses the usual order of a loan. The lender holds the money in a locked account, the borrower makes the payments first, and the funds are released only as the loan is repaid. The point is the reported payment record rather than the cash.

A credit bureau is a company that collects information about consumers from lenders and other sources and sells it to businesses with a permitted reason to see it. Federal law calls it a consumer reporting agency, defines it by what it does rather than by name, and therefore reaches far more companies than the three most people can list.

A credit card is a device that lets you draw repeatedly on a revolving line of credit, up to a limit, and repay it over time. Federal law defines it broadly enough to cover things that are not cards, because the rules attach to the account rather than to the plastic.

A credit card grace period is the window in which purchases from the last billing cycle can be repaid without any interest, and it exists only while the statement balance is paid in full. Federal law does not require a card to offer one; it requires the card to disclose if it does not.

Credit card rewards are the cash back, points or miles an issuer credits for using a card. A rewards balance is a liability of the program rather than money you hold, which is why its value can be reduced, and why the four documented ways a program fails all involve what happens between earning and redeeming.

Credit counseling is a service in which a counselor reviews a household's income, expenses and debts and sets out the options, one of which may be a debt management plan. The federal regime that approves these agencies sits in the Bankruptcy Code, and that approval is narrower than it looks.

A credit dispute is a notice to a credit bureau that an item in your file is inaccurate or incomplete. It starts a statutory clock: the bureau has 30 days to reinvestigate, and anything it finds wrong or cannot verify has to be deleted or corrected.

A credit freeze restricts a credit bureau from releasing your credit report, so a lender that cannot pull your file will not open an account in your name. It is free, it never expires on its own, and it comes with ten statutory exceptions that decide how much protection it actually buys.

Credit history is the accumulated record of how you have borrowed and repaid over time, which is the raw material a credit report documents and a credit score summarizes. The version of the problem most people never hear about is having too little of it to be measured at all.

A credit limit is the maximum balance a card issuer will let an account carry. Federal law does not set the number, but it does govern how an issuer must arrive at it, and it gives cardholders an opt-in right that decides what happens when a transaction would push the balance past it.

Credit monitoring is a service that watches your credit file and tells you when it changes. It detects rather than prevents, it is a commercial product almost everywhere, and the one place federal law requires it free is for active duty service members.

A credit report is the file a consumer reporting agency keeps on how you have handled borrowed money. The Fair Credit Reporting Act calls it a "consumer report" and defines it far more broadly than credit, which is why the same rules cover tenant screening, insurance, and employment files.

A credit score is a three-digit number, most commonly on the FICO® Score scale of 300 to 850, that summarizes how reliably you've handled borrowed money. Lenders use it to price loans, and landlords, insurers, and utilities often check it too, which makes it one of the most consequential numbers attached to your name.

Credit utilization is the share of your available revolving credit that you are currently using, calculated as reported balances divided by credit limits. Because it is recomputed from each month's reported balances rather than built up over years, it is the fastest-moving input to a credit score.

The debt avalanche is a payoff method that orders debts by interest rate, highest first, and directs every spare dollar at one of them while paying only the minimum on the rest. Given a fixed total monthly payment it minimizes total interest by construction, and its practical weakness is that the rates it orders by can move.

Debt collection is the business of pursuing payment on a debt that is already past due, usually by a company that is not the original creditor. Which federal rules apply turns on who is calling rather than on what they say, and the same script from two different callers can carry very different obligations.

A debt collector is a person the Fair Debt Collection Practices Act regulates, defined at 15 USC 1692a(6) by two independent tests and narrowed by six exclusions. Whether a caller meets that definition decides which federal rules bind them, so it is usually the first question worth answering.

Debt consolidation is the act of taking on one new obligation to pay off several existing ones, so that many payments become a single payment. It is a category rather than a product, it moves debt rather than reducing it, and the only honest way to judge an offer is total cost against total cost.

A debt consolidation loan is an unsecured installment loan taken out for one purpose, paying off existing balances. Mechanically it is a personal loan, and what is distinctive about it is how the amount is set, who receives the money, and what happens to the accounts it clears.

A debt management plan is an arrangement administered by a credit counseling agency in which you make one monthly payment to the agency and it distributes the money to your creditors on concessions they have agreed to. It is not new credit and it does not reduce the principal.

Debt settlement is an arrangement in which a creditor accepts less than the full balance to close an account. It reduces what is owed, unlike consolidation, and it carries two costs people underestimate: the damage done while the account is deliberately left unpaid, and tax on the forgiven amount.

The debt snowball is a payoff method that orders debts by balance, smallest first, and directs every spare dollar at one of them while paying only the minimum on the rest. The name describes the mechanic: each cleared balance releases its payment into the next target, so the amount attacking one debt grows as accounts close.

A debt-to-income ratio is your required monthly debt payments divided by your gross monthly income. Lenders use it to judge capacity to take on more debt, and because it runs on income before tax it flatters affordability.

Delinquency is the state of owing a payment that has passed its contractual due date. The clearest federal definition treats it as a period of time rather than an event, which is why paying part of what is behind does not end it.

A Direct Subsidized Loan is a federal student loan for undergraduates with demonstrated financial need on which the government pays the interest while the student is enrolled at least half-time, during the six-month grace period, and during qualifying deferments. It is the cheapest federal borrowing available to an undergraduate.

A Direct Unsubsidized Loan is a federal student loan on which the borrower owes the interest from the day it is disbursed, including while enrolled. It is not need-based, which makes it the federal loan almost every student can get, and since 1 July 2026 it is the only federal loan available to most graduate students.

An extended repayment plan is a federal student loan plan that stretches repayment over as much as 25 or 30 years to lower the monthly payment. It is the only plan on the legacy federal menu with a minimum balance requirement, and it is available only for Direct Loans made before July 1, 2026.

The Fair Debt Collection Practices Act is the 1977 federal statute that regulates how debt collectors may pursue consumer debts. It bans three broad categories of conduct, restricts where a collector may sue, and is implemented by the Consumer Financial Protection Bureau's Regulation F.

A federal student loan is a loan made directly by the United States government under the William D. Ford Federal Direct Loan Program. What distinguishes it from private borrowing is not the interest rate but a set of statutory borrower rights, and since 1 July 2026 which rights apply depends on when the loan was made.

A FICO® Score is a credit score produced by Fair Isaac Corporation, the model most American lenders use. Base FICO Scores run from 300 to 850, and you have several of them at once because each credit bureau runs the model against its own copy of your file.

Foreclosure is the legal process by which a lender enforces its lien on real property when the loan is not paid, ending in a forced sale. Almost every rule that governs it is state law, but one federal rule sets a floor on how soon it can start.

A fraud alert is a statement placed in your credit file that tells any lender pulling it to verify who is applying before opening credit in your name. Unlike most identity-theft remedies it is available before anything has happened to you, and what it obliges a lender to do depends on which of the three alerts you placed.

A free credit report is a copy of your credit file that a consumer reporting agency must give you without charge. Federal law creates several separate entitlements to one, and the once-a-year version is the floor rather than the whole of it.

A graduated repayment plan is a federal student loan plan whose payments start low and rise in steps over the term, on the assumption that the borrower's income will rise with them. It is available only for Direct Loans made before July 1, 2026.

A hard inquiry is the record left when a lender pulls your credit report because you applied for credit. It is the kind of inquiry that can move a score, and Fair Isaac says one additional inquiry takes less than five points off a FICO Score for most people.

A home equity line of credit is a revolving credit plan secured by your home, with a limit you draw against as needed and a variable rate tied to a public index. Federal law gives it its own regime, and the most important thing in that regime is the gap between what a lender may do to your credit limit and what it may do to a balance you already owe.

A home equity loan advances a lump sum secured by a home you already own, repaid on a fixed amortizing schedule, and usually recorded as a junior lien behind the existing mortgage. It carries a three-day right to cancel that a purchase mortgage does not, and none of the protections written for home equity lines of credit apply to it.

Identity theft is the use of someone else's personal information to obtain credit, goods, services or benefits. Federal law gives a victim a specific set of remedies rather than a general right to complain, and nearly all of the strong ones depend on one document: an identity theft report.

Income-Based Repayment is the federal student loan plan that sets the monthly payment from the borrower's income and family size and cancels the remainder after 20 or 25 years. Of the four legacy income-driven plans it is the only one still open to new enrollment and the only one to survive the 2028 wind-down, alongside the newer Repayment Assistance Plan.

Income-Contingent Repayment is the oldest federal income-driven repayment plan, and the phrase also names the broader statutory category the plan sits in. The plan is closed to new enrollment and ends on July 1, 2028, with one live exception that makes it the only income-driven route for a particular group of parent borrowers.

Income-driven repayment is the family of federal student loan plans that set the monthly payment from the borrower's income and family size rather than from the balance, and cancel whatever is left at the end of a fixed term. The family is in the middle of a statutory wind-down from five plans to two.

An installment loan is credit advanced as a fixed sum and repaid in scheduled payments over a set term, so the balance can only fall. It is a market label covering everything from a car loan to a mortgage, and its legal identity is Regulation Z's closed-end credit.

Interest is the price paid for the use of money, expressed as a rate per year and applied to a balance over time. It is one mechanism seen from two sides: what a lender earns is what a borrower pays.

A late payment is a required payment that reaches the creditor after its due date. On a credit card the consequences arrive on a schedule rather than all at once, and the two consequences people most often treat as one, the fee and the mark on the credit report, are about a month apart.

Leverage in investing means holding more exposure than the money committed, with the difference borrowed. It multiplies the percentage result in both directions, but it does not treat the two directions equally, because a large enough loss ends the position instead of reversing later.

Loan default is the legal status a credit agreement declares when the borrower breaks it. Individual statutes define it for particular products, but for consumer credit generally the agreement supplies the definition, and its signature consequence is acceleration, meaning the whole balance becomes due at once.

A loan-to-value ratio is the loan balance divided by the value of the property or vehicle securing it, expressed as a percentage. It is the lender's measure of how much of the collateral it has advanced, and the argument is almost never about the loan amount but about which value goes in the denominator.

A margin account is a brokerage account in which the firm lends the investor money to buy securities, using the account itself as collateral. It increases what can be bought and it magnifies losses, and three of its consequences are set by the lender rather than chosen by the borrower.

A minimum payment is the smallest amount a lender will accept in a given period to keep an account current. On a credit card it is set by the issuer's own formula, and federal law responds not by regulating its size but by forcing the statement to show what paying it would cost.

A mortgage is a loan to buy real estate or to borrow against real estate you already own, secured by the property itself. Two documents create it, and the security is what makes default a foreclosure rather than an ordinary collections matter.

A mortgage preapproval is a letter from a lender saying it is generally willing to lend up to a stated amount on stated assumptions. It is not a loan offer, and the word on the letter tells you very little, because lenders use preapproval and prequalification to mean different things.

A parent PLUS loan is a federal Direct PLUS Loan made to a parent to pay for a dependent undergraduate's education. The parent is the borrower, the debt is the parent's alone, and it is the one federal student loan with essentially no income-driven repayment option of its own.

Pay As You Earn is a federal student loan repayment plan that charges 10 percent of discretionary income and cancels the balance after 240 payments. It is closed to new enrollment, and it ends for everyone on July 1, 2028, so the live question for the borrowers still on it is what to move to.

A payday loan is a small, short-term, high-cost loan due in a single payment around the borrower's next payday, secured not by property but by the lender's authority to take payment from the borrower's bank account. Federal rules reach it as a "covered loan" defined by a 45-day repayment horizon.

Payment history is the record of whether you have paid your credit obligations as agreed, and Fair Isaac calls it the largest single input to a FICO Score at 35 percent. It is a monthly snapshot of each account's status rather than a log of individual payments, which is why paying a few days late usually leaves no trace.

A personal loan is a fixed sum of money borrowed without collateral and repaid in equal installments over a set term. "Personal loan" is a market label rather than a legal category. In federal law it is closed-end credit, and that classification explains most of what makes it behave differently from a credit card.

A private student loan is a consumer credit contract made by a bank, credit union or other lender to pay for education, underwritten on the borrower's or a cosigner's credit. Its terms come from the contract and from the Truth in Lending Act rather than from the Higher Education Act.

Refinancing is taking out a new loan to pay off an existing one, on different terms. It is a new loan rather than an amendment to the old one, which is why it has its own closing costs, its own clock, and in some cases a three-day right to cancel that the original loan never had.

Revolving credit is an arrangement in which you may borrow repeatedly up to a limit, and the credit you repay becomes available to borrow again. That replenishing feature is what the word "revolving" names, and it is the single element that separates this kind of credit from a loan.

A secured credit card is a real credit card whose approval rests on a refundable security deposit, usually equal to the credit limit. The deposit is collateral rather than a prepayment, so the account can still carry a balance and charge interest while the deposit sits untouched.

A secured debt is one the lender can enforce against a specific asset, because the loan agreement gave it a lien on that asset. The lien is the whole difference, and it is also the thing that survives when the debt behind it is wiped out in bankruptcy.

Simple interest is interest calculated on the original principal only, with no interest charged on interest. The same phrase also names a lending structure, in which interest accrues on the balance you actually owe from day to day rather than being computed in advance and written into the note.

A soft inquiry is a look at your credit report that was not an application for credit, and it does not affect your scores. The reason a lender cannot see the promotional ones is not industry convention but a specific provision of the Fair Credit Reporting Act.

A standard repayment plan is a federal student loan plan that charges a fixed monthly payment large enough to clear the balance by the end of a set term. Three different plans share that name, and which one a borrower is on decides whether the payments count toward Public Service Loan Forgiveness.

The statute of limitations on a debt is the period, set by state law, within which a creditor may sue to collect it. When it expires the debt does not disappear: it becomes time-barred, which stops a debt collector from suing or threatening to sue, and stops very little else.

Student loan refinancing is taking out a new private loan to pay off existing student loans, usually to get a lower interest rate. Where the loans being paid off are federal, the transaction is a one-way door: every federal right on that debt ends permanently and no mechanism exists to get it back.

Unsecured debt is money owed with no collateral behind it, so the lender's only remedy is against you rather than against a thing. That is why the path runs through a lawsuit, and why federal law caps how much of a paycheck a judgment can reach.

VantageScore is a credit scoring model built by a joint venture of the three nationwide credit bureaus. Since version 3.0 its scores run 300 to 850, the same range as a base FICO Score, which is why a free score from an app is so often mistaken for the number a lender will use.