|25 need-to-know credit-scoring terms|
|By Pat Curry
As you learn
about credit scoring, you may hear some new terms. This glossary covers commonly
used words and phrases related to the industry.
A complex mathematical model. In credit scoring, it is used to compare data in
millions of credit reports and predict a person's likelihood to repay debts.
A legal proceeding designed to help people in financial difficulty get a fresh
start by relieving them from having to pay their current debts. Bankruptcies usually
stay on a person's credit report for 10 years.
An unpaid portion of a bill that a lender has accepted will never be paid and
has recorded on the books as a bad debt. It is a serious negative item on a credit
A creditor's attempt to recover a past-due payment by turning the account over
to a collection department or company. Having a debt in collection is a serious
negative item on a credit report.
bureau: A credit-reporting agency that is a clearinghouse
for information on the credit rating of individuals or firms. Often called a "credit
repository" or a "consumer reporting agency." The three largest
credit bureaus in the U.S. are Equifax, Experian and TransUnion.
history: A record of a person's use of credit over time.
The most that can be charged on a credit card or to a credit line.
report: A document containing financial information
about a person, focusing on his or her history of paying obligations, such as
a mortgage, car payment, utilities, and credit cards. Also includes current balances
on outstanding debts, the individual's amount of available credit, public records
such as bankruptcies, and inquiries about credit from various companies.
risk: The measure of a person's creditworthiness. People
who are more likely to repay their debts on time are considered a better risk
by lenders, and will be charged lower interest rates for borrowing money.
ratio: The amount of money a person has in outstanding
debt, compared to the amount of credit available on all of the individual's credit
cards and credit lines. The higher a person's debt to available credit, the more
risky the individual appears to potential lenders.
A designation on a credit report that indicates a person has not paid a debt that
was owed. Accounts usually are listed as being in default after several reports
of delinquency. Defaults are a serious negative item on a credit report.