A consumer loan secured by a second mortgage, allowing home owners to borrow against their equity in the home. Consequently, the home is used as collateral in securing the loan.

A provision in most loan contracts which allows payment to be received for a certain period of time after the actual due date. During this period no late fees will be charged, and the late payment will not result in default or cancellation of the loan. A typical grace period is 15 days. Payments made within the grace period will not result in a 30 day late indicator on the borrower’s credit history.

A legal process whereby payments towards a debt owed by an individual can be paid by a third party – which holds money or property that is due to the individual – directly to the creditor. The third party in such a case is generally the individual’s employer and is known as the garnishee. Garnishments are typically used for debts such as unpaid taxes, monetary fines and child support payments.

For example, if John Smith owes $10,000 in unpaid taxes that have been overdue, the IRS can resort to garnishment of his wages. The IRS would then direct Smith’s employer to remit a portion of his salary for a certain amount of time, until Smith has paid off his taxes in full. Garnishments can have a negative impact on one’s credit rating.

When a borrower defaults on a home mortgage loan and the lender initiates proceedings to take possession of the house and sell it to recover the debt. In an involuntary foreclosure, the borrower typically remains liable for the full amount of the debt. If the house sells for less than the amount the borrower owed on the mortgage, the borrower may still be required to pay the remaining balance.

A fee charged for the use of credit or the extension of existing credit. May be a flat fee or a percentage of borrowings, with percentage-based finance charges being the most common.

A finance charge is often an aggregated cost, including the cost of the carrying the debt itself along with any related transaction fees, account maintenance fees or late fees charged by the lender.

With credit cards, this is the interest you end up paying on any remaining balance if you don’t pay your credit card bill in full each month.

Failure to make a payment on time. On a credit report, a delinquent is usually expressed as 30 days, 60 days, 90 days, or 120 days past due.

A debt which has been incurred and will be paid back at some point in the future. This is very common with student loans, where a borrower graduates, but is unable to find employment. In most cases where a deferment is granted, interest on the loan is still calculated and added to the balance each month.

A number between 300 – 850 that represents the creditworthiness of an applicant. The higher the score, the more creditworthy the applicant and the more likely the borrower will pay back a loan on time. Credit scores are derived from various factors, the most significant being a person’s credit history.

A report containing detailed information on a person’s credit history, including identifying information, credit accounts and loans, bankruptcies and late payments, and recent inquiries. It can be obtained by prospective lenders with the borrower’s permission, to determine his or her creditworthiness.

The maximum amount of credit that a bank or other lender will extend to a customer, or the maximum that a credit card company will allow a card holder to borrow on a single card.

A record of a consumer’s ability to repay debts and demonstrated responsibility in repaying debts. A consumer’s credit history consists of information such as: number and types of credit accounts, how long each account has been open, amounts owed, amount of available credit used, whether bills are paid on time, and number of recent credit inquiries. It also contains information regarding whether the consumer has any bankruptcies, liens, judgments or collections. This information is all contained on a consumer’s credit report.

Non-profit service provided to consumers that need assistance either reducing or eliminating debt and improving their credit scores. Consumers work with an accredited professional to evaluate all aspects of their credit to devise a plan to achieve financial freedom. Individuals may also seek using consumer credit counseling services to negotiate a debt settlement with creditors.

Any card that may be used repeatedly to borrow money or buy products and services on credit. Issued by banks, savings and loans, retail stores, and other businesses.

An agency that researches and collects individual credit information and sells it for a fee to creditors so they can make a decision on granting loans. Typical clients include banks, mortgage lenders, credit card companies and other financing companies. Also commonly referred to as consumer reporting agency or credit reporting agency. Currently, there are 3 major credit bureaus: Experian, Equifax, and Transunion.

The replacement of multiple loans with a single loan, often with a lower monthly payment and a longer repayment period. Also called ‘debt consolidation loan’.

A collection account is an account that is seriously past due and that a creditor has turned over to a collection department or even a collection agency for more aggressive action.

After a collection account is sold or transferred to a third-party collection agency, the debtor must typically deal with the collection agency representatives rather than the original creditor. A severely delinquent debt may end up being reported twice on a credit report, once by the original creditor and once by the collection agency.

Paying off a collection account will end the constant phone calls from the collector, but it will not necessarily improve one’s credit score. While having paid-off a collection account is preferable to still owing the debt, potential lenders generally do not distinguish between the two; they are both very derogatory items.