Glossary of Credit Terms

Adverse action notice: A notice sent by a lender after denying a consumer's request for credit based on information in the consumer's credit report.
Application scoring: The use of a statistical model to objectively evaluate and "score" credit applications and credit bureau data in order to assess likely future performance. Scores help businesses make decisions such as whether to accept or decline the application.
Bankruptcy: A proceeding in U.S. Bankruptcy Court that may legally release a person from repaying debts owed, or reduce the amount owed over a few years. Credit reports normally include bankruptcies for up to 10 years.
Balance: The amount owed on a credit obligation.
Charge-off: The balance on a credit obligation that a lender writes off their balance sheet as a bad debt. Also known as "write-off."
Collection: Attempted recovery of a past-due credit obligation by a collection department or agency.
Consumer credit file: A credit bureau record on a given individual. It may include: consumer name, address, Social Security number, credit history, inquiries, collection records, and public records such as bankruptcy filings and tax liens.
Credit account: The relationship with a lender to repay a specific installment or open revolving amount with a financial institution. Sometimes referred to as a 'credit obligation'.
Credit bureau: A credit reporting agency that is a clearinghouse for information on the credit rating of individuals or firms. Is often called a "credit repository," or "consumer reporting agency". The three largest credit bureaus in the U.S. are Equifax, Experian and TransUnion.
Credit bureau risk score: A type of credit score based solely on data stored at the major credit bureaus. It offers a snapshot of a consumer's credit risk at a particular point in time, and rates the likelihood that the consumer will repay debts as agreed. FICO^® Scores are credit bureau risk scores.
Credit history: A record of how a consumer has repaid credit obligations in the past.
Credit limit: The maximum amount that a consumer may purchase on an open revolving account as established by the lender.
Credit obligation: An agreement by which a person is legally bound to pay back borrowed money or used credit. Sometimes referred to as a 'credit account'.
Credit report: Information communicated by a credit reporting agency that bears on a consumer's credit standing. Most credit reports include: consumer name, address, credit history, inquiries, collection records, and any public records such as bankruptcy filings and tax liens.
Credit risk: The likelihood that an individual will pay his or her credit obligations as agreed. Borrowers who are more likely to pay as agreed pose less risk to creditors and lenders.
Credit score: This term is often used to refer to credit bureau risk scores. It broadly refers to a number generated by a statistical model which is used to objectively evaluate information that pertains to making a credit decision. FICO^® Scores are credit scores.
Credit Score Disclosure notice: This is one of two types of disclosures designed to increase transparency in the lending process. These notices are sent when a consumer applies for credit and include a credit score, the range of the score, the name of the credit reporting agency that furnished the information, and a comparison of the score against national statistics.
Default: A failure to make a loan or debt payment when due. Usually an account is considered to be "in default" after being delinquent for several consecutive 30-day billing cycles.
Delinquent: A failure to deliver even the minimum payment on a loan or debt payment on or before the time agreed. Accounts are often referred to as 30, 60, 90 or 120 days delinquent because most lenders have monthly payment cycles.
Equal Credit Opportunity Act (ECOA): Federal legislation that prohibits discrimination in credit. The ECOA originally was enacted in 1974 as Title VII of the Consumer Credit Protection Act.
Fair Credit Reporting Act (FCRA): Federal legislation that promotes the accuracy, confidentiality and proper use of information in the files of every "consumer reporting agency". The FCRA was enacted in 1970.
FICO^® Scores: Credit bureau risk scores produced from models developed by FICO are commonly known as FICO^® Scores. FICO^® Scores are used by lenders and others to assess the credit risk of prospective borrowers or existing customers, to help make credit and marketing decisions. These scores are derived solely from the proven predictive information available on credit bureau reports.
Inquiry: An item on a consumer's credit report that shows that someone with a "permissible purpose" (under FCRA rules) has previously requested a copy of the consumer's report. Fair Isaac credit bureau risk scores take into account only inquiries resulting from a consumer's application for credit.
Installment debt: Debt to be paid at regular times over a specified period. Examples of installment debt include most mortgage and auto loans. Sometimes referred to as an 'installment account'.
Late payment: A delinquent payment; a failure to deliver a loan or debt payment on or before the time agreed.
Revolving debt: Debt owed on an account that the borrower can repeatedly use and pay back without having to reapply every time credit is used. Credit cards are the most common type of revolving account. Sometimes referred to as a "revolving account' and often includes credit cards and department or travel charge cards.
Risk-based pricing: The practice of setting credit terms, such as interest rate or credit limit, based on a consumer's credit history is referred to as risk-based pricing. Creditors that engage in risk-based pricing generally offer more favorable terms to consumers with good credit histories and less favorable terms to consumers with poor credit histories.
Risk-based pricing notice: A disclosure notice that informs a lender's customers that they may have received non-preferred credit terms. One of two types of disclosures designed to increase transparency in the lending process.
Score: See "credit score".
Scoring model: A statistical formula used to estimate future performance of prospective borrowers and existing customers. A scoring model calculates scores based on data such as information on a consumer's credit report that is proven to be predictive of future credit risk.
Utilization: The proportion of the balance owed on revolving accounts divided by the available credit limit(s). This ratio may be calculated for individual revolving accounts as well as across all revolving accounts.
Write-off: The balance on a credit obligation that a lender writes off their balance sheet as a bad debt. Also known as "charge-off."