Your credit report is a useful document, but only if you understand it

In part one of this glossary of credit terms, we covered a few basic things you should know about the terminology of the financial industry. Below are some more things you may wish to know so that you don’t feel lost when you look over a copy of your credit report.

• Credit risk - Someone who is deemed not to be worthy of receiving a loan or credit, usually through a past history of either not paying bills on time or not paying them in full. As opposed to credit worthy, which would be someone in good standing.
• Debt to credit ratio - The amount of debt a person is currently using when compared to their maximum limit. How much credit you have available to you is important to lenders, but they pay even more attention to how much of that limit you are actually using. In this case, less is more. It’s good to have a lot, but even better not to use too much of it. 
• Default - An indication on a credit report that a debt has not been paid as agreed. If you simply stop paying on that big screen TV that you bought on an installment loan last year, you are in default. 

• Delinquent - A past due account, usually noted as being 30, 60, or 90 days late. After a period of time, delinquent accounts show as being in default. Both are serious negatives on a credit report and could hurt you in an attempt to borrow money.
• FICO score - Named after Fair, Isaac and Co, this is the three digit score most often used to establish the “credit score” of an individual. Scores range from 300 to 850. There are other scoring systems in use, but the FICO model is the most commonly used. If you are buying a home, you will definitely want to know your FICO figure, as that is the one most lenders use.
• Hard inquiry - A notation on a credit report that a company has looked over the report as a prerequisite for granting a loan. If you apply at a car dealership for a loan, that dealer will conduct an inquiry on you from the credit bureau. This request will be noted as a hard inquiry. Too many of these in a short period of time can lower your FICO score, as it makes it appear that you are desperate.
• Installment credit - A loan paid over time in regular amounts, such as a car loan.
• Judgment - A legal ruling resulting from a lawsuit that will require the defendant to pay money or restitution.
• Lien - A legal claim on a person’s house, car or other property in order to offset a debt. If you fail to pay your property taxes, your taxing authority will place a lien on your property. That lien must be repaid if the home is sold.

More items on this glossary of credit terms in part 3.

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