Plain-English definitions for every credit repair, business credit, and funding term you will encounter on your journey.
A person who is added to another person's credit card account and can use the card, but is not legally responsible for paying the balance. Being added as an authorized user on an account with a long positive history can boost your credit score.
The yearly cost of borrowing money, expressed as a percentage. Includes interest and fees. A lower APR means you pay less to borrow money.
When a creditor writes off a debt as a loss after you have not paid for 120–180 days. Despite the name, you still owe the debt. A charge-off is a serious negative mark that stays on your credit report for 7 years.
A debt that has been sold or transferred to a collection agency after the original creditor gave up trying to collect it. Collections severely damage your credit score and remain on your report for 7 years from the original delinquency date.
A company that collects and maintains consumer credit information and provides credit reports and scores to lenders. The three major bureaus in the U.S. are Experian, Equifax, and TransUnion.
A credit check that occurs when you apply for new credit (loans, credit cards, mortgages). Hard inquiries can lower your score by a few points and remain on your report for 2 years.
A credit check that does not affect your score. Examples include checking your own credit, pre-approval checks, and employer background checks.
One of the five factors in your FICO score (10% weight). Refers to the variety of credit types you have: credit cards, installment loans, mortgages, auto loans, etc. Having a diverse mix can positively impact your score.
The percentage of your available revolving credit that you are currently using. Calculated by dividing your total credit card balances by your total credit limits. Keeping utilization below 30% (ideally below 10%) is one of the fastest ways to improve your score.
The percentage of your monthly gross income that goes toward debt payments. Lenders use DTI to assess your ability to manage monthly payments. Most lenders prefer a DTI below 43%.
Failure to repay a loan according to the agreed terms. Defaulting on a loan triggers serious consequences including collection activity, lawsuits, wage garnishment, and major credit score damage.
Being late on a debt payment. Accounts are typically reported as delinquent after 30 days past due. Delinquencies stay on your credit report for 7 years.
A unique 9-digit identifier issued by Dun & Bradstreet (D&B) to businesses. Required to build business credit and access certain government contracts. Free to obtain at dnb.com.
A unique 9-digit number assigned by the IRS to identify a business entity for tax purposes. The business equivalent of a Social Security Number. Required to open business bank accounts and build business credit.
One of the three major U.S. credit bureaus. Collects and maintains consumer credit data and provides credit reports and scores to lenders.
One of the three major U.S. credit bureaus. Also operates Experian Business, which tracks business credit profiles separately from personal credit.
A federal law that regulates how credit bureaus collect, use, and share consumer credit information. Gives consumers the right to dispute inaccurate information, access their credit reports for free, and sue for violations.
A federal law that limits what debt collectors can do when trying to collect a debt. Prohibits harassment, false statements, and unfair practices. Gives consumers the right to request debt validation.
The most widely used credit scoring model, created by Fair Isaac Corporation. Scores range from 300–850. The five factors are: payment history (35%), amounts owed (30%), length of credit history (15%), credit mix (10%), and new credit (10%).
The legal process by which a lender takes ownership of a property after the borrower fails to make mortgage payments. A foreclosure stays on your credit report for 7 years and severely damages your score.
A request to a creditor or collection agency to remove a negative item from your credit report as a gesture of goodwill, typically after you have paid the debt. Not guaranteed, but often successful for isolated late payments on otherwise positive accounts.
A loan repaid in fixed monthly payments over a set period. Examples include auto loans, student loans, personal loans, and mortgages. Having installment loans in your credit mix can positively impact your score.
A court order requiring you to pay a debt. Judgments can result in wage garnishment, bank levies, and property liens. As of 2017, civil judgments are no longer included in credit reports from the three major bureaus.
A payment made after the due date. Payments 30+ days late are reported to credit bureaus and can significantly damage your score. A single 30-day late payment can drop your score by 60–110 points.
A legal claim against a property as security for a debt. Tax liens and mechanic's liens can appear on your credit report and affect your ability to sell or refinance the property.
A type of trade credit where the full invoice amount is due within 30 days of the invoice date. Net-30 accounts with vendors that report to business credit bureaus are the foundation of building business credit.
Dun & Bradstreet's business credit score, ranging from 1–100. A score of 80 means you pay on time; a score above 80 means you pay early. Most lenders require a Paydex score of 75+ for business credit approval.
The most important factor in your FICO score (35% weight). Records whether you pay your bills on time. Even one missed payment can significantly damage your score.
A type of credit with a set limit that you can borrow from, repay, and borrow again. Credit cards are the most common form. Your revolving credit utilization is a major factor in your credit score.
A credit card backed by a cash deposit that serves as your credit limit. Used to build or rebuild credit. After 12–18 months of positive use, many issuers upgrade you to an unsecured card and return your deposit.
The time period during which a creditor can sue you to collect a debt. Varies by state and debt type (typically 3–6 years). Note: the statute of limitations is separate from how long a debt appears on your credit report (7 years).
One of the three major U.S. credit bureaus. Collects and maintains consumer credit data and provides credit reports and scores to lenders.
Debt not backed by collateral. Credit cards, medical bills, and personal loans are typically unsecured. If you default, the creditor cannot automatically seize your property but can sue you for the debt.
A credit scoring model created jointly by the three major credit bureaus as an alternative to FICO. Also ranges from 300–850. Some lenders use VantageScore instead of or in addition to FICO.