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Credit Debt Glossary

American Consumer Credit Counseling (ACCC): This non-profit organization, which is staffed by certified and professionally-trained credit counselors, is geared towards assisting consumers to successfully manage their finances and avoid or reduce indebtedness. ACCC offers financial education classes and credit counseling to borrowers throughout the U.S..

Annual Percentage Rate (APR): This is defined as the annual interest rate that a consumer pays to borrow money or transfer a balance from one credit card to another. The contractual terms, total added cost, and loan amount are factors influencing the APR. While some credit cards offer a fixed APR, others are of the 'variable rate' type. Upon the expiration of the introductory rate, a new APR goes into effect. Federal law requires disclosure of the APR by credit card companies.

Bad credit: This status, which refers to a low credit rating, is typically triggered by such factors as late payments, unpaid balances, over-the-limit fees, bankruptcy filings, judgments, foreclosure, repossessions, and inquiries.

Balance transfer: This process involves transferring outstanding credit card balances to another issuer offering a lower interest rate or APR and more favorable terms. Balance transfer enables consumers to consolidate credit card debt and pay less interest charges.  

Bankruptcy: This legal proceeding is intended for assisting businesses and individuals to wipe out outstanding debts. The two main types of bankruptcies are Chapter 7 "liquidation" in which most debts are completely forgiven and Chapter 13 "reorganization" in which debt is restructured and repaid in accordance with a payment schedule

Consumer Credit Counseling Service (CCCS): This nonprofit agency provides comprehensive and confidential financial counseling via the internet, by phone, or in person, by helping individuals to balance their budget. It also offers money management classes, housing counseling, and debt management programs that guide consumers on utilizing credit responsibly. CCCS also acts as an intermediary with lenders in an effort to broker manageable repayment plans for borrowers.

Credit bureau: This company prepares credit reports detailing consumers' liabilities and payment history and provides them to creditors, who in turn utilize them to assess applicants' creditworthiness and ability to repay debts. Alternatively known as credit reporting agencies, the three leading credit bureaus in the United States are TransUnion, Experian, and Equifax.

Credit card consolidation:
This refers to the process of combining different credit card balances into one lump sum payment by transferring them to a credit card with a lower APR or interest rate. Credit card consolidation offers numerous benefits including lower rates of interest, reduced and affordable monthly payments, and the simplicity of a single payment as opposed to multiple payments to different credit card companies.

Credit card debt consolidation loan: This product involves incorporating multiple outstanding, high-interest credit card balances into one card which typically boasts a lower interest rate, a longer repayment term, and reduced monthly payments. A credit card debt consolidation loan is usually secured by collateral such as a vehicle or home. This type of loan enables borrowers to simplify their finances by making a single monthly payment and to avoid creditor harassment and bankruptcy.

Credit card for bad credit: This unsecured card caters specifically to individuals with a low credit score (i.e. due to bankruptcy) or no credit history at all and who would otherwise be ineligible for regular credit cards. By keeping their balances below the credit limits and making timely payments to all their creditors, holders of credit cards for bad credit can build or repair their credit rating. By improving their credit score, borrowers may then qualify for traditional credit cards.

Credit card debt settlement: Also known as debt negotiation, this is a type of debt consolidation whereby creditors allow borrowers to combine and settle their credit card balances for 30 to 50% of the amount due. The duration of a credit card debt settlement program ranges from one to three years.

Credit history: This is a record of a consumer's payment history, identification information, employment data, loans or credit lines, and public records such as bankruptcies and judgments. Credit reporting agencies gather information about a borrower's credit history, which enables them to assess his or her ability to repay credit card balances or other types of debts. Creditors rely on an applicant's credit history to evaluate the latter's creditworthiness.

Credit rating: Also known as a credit score or the FICO score, this number which is published by credit bureaus represents an estimate of an individual's creditworthiness and ability or likelihood to satisfy debt obligations. A borrower's credit rating derives from an evaluation of his or her payment history and present liabilities and assets.

Credit repair: This process involves the rehabilitation of a consumer's credit score and creditworthiness by reviewing his or her credit reports and disputing any omissions, errors, misleading information, incomplete or outdated data, or typing errors. Borrowers may dispute any item in the credit reports and request Experian, TransUnion, and Equifax- the leading credit bureaus- to make the corrections. Credit repair also involves negotiating with lenders for lower monthly payments and creating a spending plan that lowers debt.

Credit repair service: This type of service offers borrowers the opportunity to improve their credit score and to clean up their credit reports by documenting and disputing erroneous, incomplete or inaccurate information in the latter. Credit repair services specialize in removing questionable items such as foreclosures, tax liens, repossessions, tax liens, and bankruptcies by challenging them directly with credit reporting agencies.

Credit report: This is a detailed record of a borrower's credit history, which includes his or her payment record, payment amounts, previous debts and current outstanding balances, and any collection activity or action taken against him or her. Credit reports are issued by consumer reporting agencies (CRAs) and are comprised of the following data: 1) Identification material such as name, address, and social security number, 2) recent inquiries, 3) credit information (i.e. loan amount or credit limit, and 4) public record information (i.e. judgments, liens, bankruptcy). The public may request a free credit report annually from the three leading credit bureaus, namely TransUnion, Experian, and Equifax.

Credit reporting agency: Also referred to as a consumer reporting agency or credit bureau, this private firm which is governed by the Fair Credit Reporting Act, gathers and sells data relating to consumers' ability to handle debt and creditworthiness to lenders. Credit reporting agencies rely on a borrower's payment history and credit patterns to calculate the latter's credit rating.

Credit score: Also referred to as the FICO score, this three-digit number, which typically ranges from 300 to 900, evaluates the level of risk that a borrower poses to lenders. The higher the number, the lower the risk. The three main credit reporting agencies- TranUnion, Experian, and Equifax, calculate a consumer's credit score by referring to the following items: 1) payment history, 2) unpaid debts, 3) credit history, 4) number of inquiries on their report, and 5) the types of credit currently being used.

Debt consolidation: This process entails taking out a new unsecured loan such as a credit card to pay off multiple high-interest unsecured loans or a secure loan against property serving as collateral, typically a home. Debt consolidation enables borrowers to benefit from a fixed or lower rate of interest and grants them the convenience of paying only one loan.

Debt Management Plan (DMP): This is an unsecured debt payment method whereby a borrower deposits monthly payments with a credit counseling agency, which disburses the sum to the former's lenders pursuant to a payment arrangement negotiated with the two parties. A DMP, which is usually completed in 36-60 months, offers numerous advantages including 1) lower interest rates and monthly payments, 2) re-aging of accounts, 3) waiver of certain types of fees (i.e. late fees), and 4) an end to collection action.

Enrolled agent (EA): This tax professional is authorized by the U.S. Treasury Department to represent taxpayers before the Internal Revenue Service for collections, appeals, and audits. Enrolled agents also prepare tax returns for individuals, businesses, corporations, and estates.

Fair Credit Billing Act (FCBA): Pursuant to this federal law, consumers are entitled to dispute errors on their credit card statements by informing the lender of the inaccuracy within 60 days following the bill's mailing. The credit card issuer must then correct the error or inform the sender within 30 days that it has received the letter and correct the mistake within 90 days or provide an explanation for the alleged accuracy of the credit card statement. The FCBA protects the public from unfair billing methods and provides a procedure for disputing unauthorized charges and other billing errors in open end credit accounts such as revolving charge accounts and credit cards.

Fair Credit Reporting Act: This federal law governs the gathering, disclosure, and utilization of consumer credit information and aims to ensure that credit reports contain updated, pertinent, and accurate data. The Fair Credit Reporting Act grants individuals the right to review their credit report and correct errors.

Fair Debt Collection Practices Act (FDCPA): This federal law prohibits certain debt collection methods such as unfair practices, misleading tricks, abuse, and false statements, set forth when and how bill collectors may contact debtors, and provides remedies and protections for delinquent borrowers.

Family credit counseling: Typical services provided by family credit counseling include 1) budget and credit counseling, 2) debt management programs (DMPs), 3) financial literacy classes, and 4) assistance in the management of personal finances. More specifically, family credit counseling can help borrowers achieve the following objectives: 1) re-aging of accounts, 2) ceasing of collection activity, 3) waiver of over-the-limit and late fees, 4) reduced or no interest charges, and 5) debt consolidation.

Federal Trade Commission (FTC): This is the federal agency that enforces the provision of the Fair Credit Reporting Act and promotes consumer protection through legislation concerning debt collection, lending, unfair business practices, and false advertising. The FTC also teaches consumers how to safeguard their identities and informs and protects them against identity theft.

Finance charges: These supplemental fees, which include balance transfer fees, interest rates on credit cards, late fees, and transactional service fees, are tacked on to the original loan amount. The cost of credit is determined by the APR and the outstanding balance. Borrowers may avoid finance charges by timely paying their bills each month.   

Home equity line of credit (HELOC): With this type of mortgage loan, typically applied towards major expenditures such as hospital bills, home renovations, and college tuition or utilized for credit card consolidation, a borrower's home serves as a security interest or collateral. Borrowers receive funds drawn against their home equity, up to a designated amount.

Installment agreement: Also known as an IRS payment plan, an installment agreement allows taxpayers to pay a portion or all of their tax liability in manageable monthly payments. Taxpayers who owe up to $25,000 usually qualify immediately for an installment agreement, provided they are current on their tax returns. Upon entering into an installment agreement, the IRS ceases collection efforts, bank levies, and garnishments.

IRS levy: This constitutes a seizure by the IRS of a delinquent taxpayer's personal or real property upon satisfaction of the following elements: 1) the IRS' assessment of the tax and mailing of a Notice and Demand for Payment, 2) taxpayer's failure or refusal to pay the tax, and 3) receipt by the taxpayer of a Final Notice of Intent to Levy and Notice of Your Right to A Hearing at least 30 days preceding the seizure.

IRS tax lien: This constitutes a claim made by the IRS against a delinquent taxpayer's assets. An IRS tax lien attaches to all of a taxpayer's interest, title, and rights. After filing a federal tax lien, the IRS generally does not release its claim until the taxpayer pays in full the penalties, taxes, recording fees, and interest or until the former is no longer legally authorized to collect the tax.

IRS tax relief settlement: Pursuant to this method, taxpayers may avoid bankruptcy by settling their liabilities for a percentage of the total debt and obtaining a forgiveness of the remaining balance. When calculating the percentage, the IRS takes into account a taxpayer's ability to repay the tax debt, his or her credit rating, and income.

Line of credit: This represents the amount of credit that a lender is willing to extend to a borrower for a specific time period and purpose. The ceiling on a line of credit is based on a consumer's creditworthiness. Lines of credit include credit cards or other revolving credit accounts. Upon partial or full repayment of the line of credit, a borrower may again withdraw funds from the account.  

Money Management International (MMI): As the most prominent non-profit credit counseling agency associated with the National Foundation for Credit Counseling (NFCC), MMI helps consumers in numerous ways including 1) money management and responsible use of credit, 2) financial assessment and budgeting, 3) preparation of a customized debt management plan, 4) individual credit counseling, and 5) bankruptcy counseling.

National Foundation for Credit Counseling (NFCC):
This organization offers a multitude of credit and money management services such as 1) credit counseling, 2) financial literacy classes, 3) housing counseling, 4) bankruptcy counseling, 5) debt management programs, and 6) budget counseling.

Not currently collectible: This status is assigned to a tax debtor who is unable to pay his or her tax liability in full or via an offer in compromise or an installment agreement. Once an account is listed as currently not collectible, the IRS may not issue garnishments or levies and must cease all collection efforts. Tax debts that are not collected by the IRS within the 10-year statute of limitations are discarded.

Offer in compromise: Under this formal tax resolution program, taxpayers may settle their tax liability for less than the full amount due. The IRS accepts an offer in compromise when the taxpayer shows that 1) he or she is unable to pay the tax, 2) does not in fact owe the tax, and 3) the amount offered is a reasonable estimate of the collection potential.

Over-the-limit fees: These charges are imposed when borrowers exceed their credit limit in finance charges, fees, or purchases.

Partial payment installment agreement: Under this tax debt resolution method, taxpayers partially pay off their debt to the IRS by way of monthly payments. Once the terms of the installment agreement are met, the IRS forgives the remainder of the tax liability. To qualify for a partial payment installment agreement, taxpayers must have filed and be current on all their tax returns.  

Penalty abatement: This involves the reduction or removal by the IRS of penalty fees incurred by taxpayers who can provide an adequate explanation for their tax delinquency. Penalty abatement is granted to taxpayers who dispute penalties and interest on the basis of 1) an IRS error, 2) an administrative waiver, or 3) reasonable cause.

Prepaid credit card: This is issued to consumers who deposit funds into a debit card account, allowing them to control their spending and avoid credit card debt by restricting them to the money in the prepaid account. There are no credit checks, interest fees, or bills. Borrowers may reload prepaid credit cards via another credit card, a bank transfer or cash. They may be used for any purpose (i.e. pay bills) and at online businesses and retailers.

Principal: This represents the original amount borrowed by a consumer, excluding interest, cost, and fees. Interest is calculated as a percentage of the principal.

Re-aging: This technique involves re-labeling delinquent accounts as "current" and removing blemishes from a borrower's credit history. While debtors must still pay the original amount, they are no longer charged late fees. To be eligible for re-aging, which can boost credit scores, borrowers must be able and willing to repay the debt and submit at minimum three consecutive payments or a lump sum payment for an equivalent amount. Additionally, the account must be active for a minimum of nine months.

Secured credit card: This type of card, which is designed for individuals with no credit history or a poor credit rating, requires a deposit of funds at a bank or other lending institution. The amount deposited, which is generally in the range of $250-$500, represents the credit limit for the account. A secured credit card can help borrowers rebuild or establish a credit history. 

Secured debt consolidation loan: This type of loan, which may be obtained by pledging some form of collateral or security, such as real estate, offers numerous benefits such as lower interest rates, access to larger loan amounts, lower monthly payments, and a single bill each month.

Unsecured debt consolidation loan: With this type of loan, borrowers need not pledge any collateral. Consumers with a poor credit score qualify for these loans, which offer shorter payment terms.

Zero interest credit card: With this type of credit card, borrowers are not required to pay any charges during the introductory rate period, the length of which varies from one credit card to the next. Zero interest rate cards help consumers pay off high-interest credit card balances more rapidly.