Credit, debt and financing all have their own language. Here is a brief glossary.

The world of finance, like any other in the business world, has its own terms. While most of them are commonly used and will be familiar to the reader, some may not. For that reason, we have compiled a short glossary that outlines the meanings of some of the most commonly used terms in the financial world.

Adjustable Interest Rate - As the name suggests, this would be what a borrower would encounter when taking out a loan that came with an interest rate that could increase or decrease over time. Many credit cards feature an adjustable interest rate, usually tied to some well known financial index, such as the Prime Rate or the London Inter Bank Offering Rate (LIBOR.)

Annual Percentage Rate - The interest rate on a credit card or loan, expressed in terms of a rate per twelve months. Abbreviated as APR.

Bankruptcy - The act of declaring that one cannot pay one’s bills. This is a formal proceeding conducted in court. By doing so, the debtor may be relieved of having to pay some or all of his or her debts. Due to the passage of a recent Federal law, it is much more difficult, complicated and expensive to file for personal bankruptcy now.

Credit Bureau - Usually used to describe three companies - Experian, Trans Union and Equifax, which keep track of the financial transactions of Americans in order to compile them into a credit report. These reports are used by potential lenders to evaluate whether or not a borrower is a good risk for a loan. 

Credit Card - A plastic card, usually issued by a bank or retailer, that allows a consumer to make purchases by signing his or her name. The buyer can then pay the bill later. These cards usually have a spending limit imposed by the card’s issuer, depending upon the overall credit rating of the card’s holder. Bills not paid in full will accrue interest.

Credit Report - The actual document prepared by the credit bureau which shows a consumer’s financial history, including debts paid, debts not paid, and bankruptcy filings, if any. These reports will often include the credit score.

Credit Score - Also known as a FICO Score, this is a three digit number, ranging from 300 to 850, that represents, in a nutshell, a consumer’s overall credit worthiness. Borrowers with scores of 620 or better are usually considered good risks for a loan. Those with lower scores will probably have to pay less than ideal subprime rates.

Debit Card - Similar to a credit card, but with no “pay later” provision. At the time of the sale, the money is deducted directly from the buyer’s bank account. A convenient way to make a purchase, as it involves no cash.

These are but a few of the most commonly used terms in the financial world. We will continue our glossary of financial terms in part two of this article.

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