If you are reading this, it means you are willing to gain some knowledge about credit but the jargon of the credit is obstructing you. You have landed up on right place that will help you fight your problem and learn about credit. You can also ask Your Personal Financial Mentor about the technical terms you are not aware of, as he will provide you an in-depth knowledge of these terminologies. Listed below are the major terms related to credit with their simple definitions. This might prove to be of great help for novice users.
Credit is a form of debt. When a person purchases goods or services in his name or in the name of a company without making payment for the purchase at that time but ensuring to clear the debt at a later date, he is said to have taken a credit.
- Credit history
It is a report that contains details of all your past borrowing, repayment deals and provides information about missing payments. It is also referred to as credit history and describes credit worthiness of the account’s bearer. This report is used by credit lending companies for evaluating credit risk associated with the client.
- Credit scores
It is a score based on statistical analysis of the credit report. It is used in scoring models employed by companies for assessing credit risk.
- Credit risk
Credit risk is the risk of loss if the debtor fails to make the repayment, i.e. he or she fails to fulfill the promises made regarding payment of the debt.
- Credit dispute
Credit dispute refers to any kind of erroneous entry in credit reports. It is necessary to report the error and rectify it, because failing the same may hamper your credit scores.
- Credit note
Credit note or credit memo is a document made out by a creditor for debtor. It is either of an amount equal to or less than payment in previous invoice. It is issued for the products or services which were intended to be received by a buyer but he didn’t or returned back. It may be issued for damaged goods also. With respect to previous invoice, it reduces the amount to be paid by buyer.
- Unsecured credit
When credit is lent to a borrower only on the basis of a verbal commitment that involves no supplementary security; it is termed as Unsecured Credit. It is referred to as unsecured because there is no guarantee that the debtor will make repayment; and in case he fails to fulfill his promise, investor suffers a loss.
- Credit card
It is a plastic card that renders you power to purchase without paying at that moment. The card holder gets a credit card issued that can be used for online shopping and telephonic ordering of products or services and even for withdrawal of cash. At the time of purchase, the user signs a receipt bearing card and user details that are consent for making the card issuing company afterwards. This is because that company paid the merchant for your purchase.
APR stands for Annual Percentage Rate which is the rate of interest charged on unbalanced payment of credit card bill, after the tenure of interest free period is over. It includes all basic charges like fee for the card, collection charges etc. But optional charges like credit insurance and late payment penalties are excluded. Typically, APR is greater than the interest rates on other credit forms like installment loans, etc.