If you’re new to credit in the US, this credit glossary explains the most important credit terms in simple language.
Use this page to understand credit scores, credit cards, utilization, inquiries, reports, and other common terms beginners see when building credit.
Jump to a letter:
A | B | C | D | F | G | H | I | L | M | O | P | R | S | T | U
A
Authorized User
An authorized user is a person who is added to someone else’s credit card account.
The authorized user can usually use the card, but is not legally responsible for paying the debt. In many cases, the account history may appear on the authorized user’s credit report.
Being added as an authorized user can help build credit faster if the main cardholder has a long history of on-time payments and low credit utilization.
Account Age
Account age is the length of time a credit account has been open.
Older accounts usually help your credit profile because they show a longer borrowing history. Lenders and scoring models often view longer account age as a sign of stability.
Closing old accounts can sometimes reduce the average age of your credit accounts over time.
Account Balance
Account balance is the amount of money you currently owe on a credit account.
For credit cards, this balance can affect your credit utilization ratio. A higher balance compared with your credit limit can lower your score, even if you pay on time.
It is usually better to keep balances low, especially before your statement closes.
B
Balance Transfer
A balance transfer is when you move debt from one credit card to another, usually to get a lower interest rate.
Many credit cards offer promotional balance transfer rates, sometimes as low as 0% APR for a limited period. This can help reduce interest costs while paying off existing credit card debt.
However, balance transfers often include a transfer fee, typically around 3%–5% of the transferred amount.
Bankruptcy
Bankruptcy is a legal process that allows individuals or businesses to eliminate or restructure debt when they cannot repay it.
In the United States, the most common types are Chapter 7 and Chapter 13 bankruptcy. Chapter 7 can discharge many unsecured debts, while Chapter 13 allows repayment through a structured plan.
Bankruptcy can stay on a credit report for up to 7–10 years and significantly affect credit scores.
Billing Cycle
A billing cycle is the period between credit card statements, usually lasting about 28–31 days.
During the billing cycle, purchases, payments, and other account activity are recorded. At the end of the cycle, the credit card issuer generates a statement showing the balance owed.
Understanding your billing cycle helps manage credit utilization and payment timing.
Business Credit
Business credit refers to the credit profile of a company rather than an individual.
Businesses can build credit by opening accounts with vendors, lenders, and business credit card issuers. Business credit reports are typically maintained by agencies such as Dun & Bradstreet, Experian Business, and Equifax Business.
Strong business credit can help companies qualify for loans, trade credit, and better financing terms.
C
Cash Advance
A cash advance allows you to withdraw cash using your credit card.
Cash advances usually have higher interest rates than regular purchases and often begin accruing interest immediately without a grace period.
Most credit card issuers also charge a cash advance fee, making this one of the most expensive ways to borrow money.
Charge-Off
A charge-off occurs when a lender writes off a debt as unlikely to be collected after several months of missed payments.
Even though the account is charged off, the borrower still legally owes the debt. The creditor may sell the account to a collection agency.
Charge-offs can remain on your credit report for up to seven years and significantly damage your credit score.
Collection Account
A collection account appears on a credit report when a debt has been sent to a collection agency.
This usually happens after a borrower fails to make payments for several months. Collection accounts can negatively impact credit scores and remain on reports for up to seven years.
Paying or settling collections may help lenders view your credit more favorably.
Credit Age
Credit age refers to how long your credit accounts have been open.
Credit scoring models consider both the age of your oldest account and the average age of all accounts. A longer credit history generally helps your credit score.
Closing older accounts can sometimes reduce your average account age over time.
Credit Bureau
A credit bureau is a company that collects and maintains credit information about consumers.
In the United States, the three major credit bureaus are Experian, Equifax, and TransUnion. These companies compile credit reports used by lenders to evaluate credit risk.
Consumers can request free copies of their credit reports each year.
Credit Card Issuer
A credit card issuer is the financial institution that provides a credit card to consumers.
The issuer sets the card’s credit limit, interest rate, fees, and rewards structure. Examples of issuers include banks and financial institutions.
The issuer also reports payment history and account activity to credit bureaus.
Credit History
Credit history is the record of how a person has used credit over time.
It includes information about credit cards, loans, payment history, account balances, and other financial behavior.
A strong credit history helps lenders determine whether a borrower is likely to repay debt responsibly.
Credit Inquiry
A credit inquiry occurs when someone checks your credit report.
There are two main types: hard inquiries and soft inquiries. Hard inquiries typically happen when applying for credit and may slightly affect your credit score.
Soft inquiries usually occur during background checks or when you check your own credit and do not affect your score.
Credit Limit
A credit limit is the maximum amount of money a lender allows you to borrow on a credit account.
Credit limits are commonly associated with credit cards and lines of credit. Keeping your balance well below the limit helps maintain a healthy credit utilization ratio.
Higher limits can improve credit utilization if balances remain low.
Credit Mix
Credit mix refers to the variety of credit accounts you have.
Examples include credit cards, auto loans, mortgages, and installment loans. Having different types of credit can demonstrate responsible borrowing behavior.
While credit mix is not the largest factor in credit scores, it can still contribute to a stronger credit profile.
Credit Report
A credit report is a detailed record of a person’s credit history.
It includes information about credit accounts, payment history, balances, inquiries, and collections. Credit reports are maintained by credit bureaus and used by lenders when evaluating credit applications.
Consumers have the right to review their credit reports for accuracy.
Credit Score
A credit score is a numerical representation of a person’s creditworthiness.
Scores typically range from 300 to 850 and are calculated using information from credit reports. Factors such as payment history, credit utilization, and credit age influence the score.
Higher credit scores generally make it easier to qualify for loans and favorable interest rates.
Credit Utilization
Credit utilization measures how much of your available credit you are currently using.
It is calculated by dividing your credit card balances by your total credit limits. Lower utilization ratios generally improve credit scores.
Many experts recommend keeping utilization below 30%, and ideally under 10%.
D
Debt Collection
Debt collection is the process of recovering unpaid debts from borrowers.
When a person fails to pay a debt for several months, the lender may send the account to a collection agency. The agency then attempts to collect the unpaid balance.
Collection accounts can negatively affect credit scores and may remain on credit reports for up to seven years.
Debt Settlement
Debt settlement is an agreement between a borrower and a creditor to pay less than the full amount owed.
This often happens when a borrower is experiencing financial hardship and cannot repay the full debt. Creditors may agree to settle the debt to recover at least part of the balance.
Debt settlement can damage credit scores but may be less harmful than leaving debts unpaid.
Debt-to-Income Ratio (DTI)
Debt-to-income ratio measures how much of your monthly income goes toward paying debts.
It is calculated by dividing total monthly debt payments by gross monthly income. Lenders use this ratio to determine whether a borrower can afford new credit.
Lower debt-to-income ratios usually make it easier to qualify for loans.
Default
Default occurs when a borrower fails to meet the legal terms of a loan agreement.
This usually happens after several missed payments. When a loan enters default, lenders may take collection actions or pursue legal remedies.
Defaults can severely damage credit scores and remain on credit reports for years.
Delinquency
Delinquency refers to a payment that is past due.
Credit accounts are usually considered delinquent after the payment due date passes without payment. Delinquencies may be reported to credit bureaus if payments remain unpaid for 30 days or more.
Repeated delinquencies can significantly lower credit scores.
Dispute (Credit Report Dispute)
A credit report dispute is the process of challenging incorrect information on a credit report.
Consumers have the right to dispute errors such as incorrect balances, accounts that do not belong to them, or inaccurate payment histories.
Credit bureaus are required to investigate disputes and correct any verified errors.
F
FICO Score
A FICO Score is one of the most widely used credit scoring models in the United States.
It ranges from 300 to 850 and is calculated using information from credit reports. Lenders use FICO scores to evaluate a borrower’s credit risk.
Factors such as payment history, credit utilization, credit age, and credit mix influence the score.
Fair Credit Reporting Act (FCRA)
The Fair Credit Reporting Act is a federal law that regulates how consumer credit information is collected and used.
It gives consumers the right to access their credit reports and dispute inaccurate information. The law also requires credit bureaus to maintain accurate records.
The FCRA helps protect consumers from unfair credit reporting practices.
Fraud Alert
A fraud alert is a notice placed on a credit report that warns lenders about possible identity theft.
When a fraud alert is active, lenders may take additional steps to verify a person’s identity before approving credit.
Fraud alerts are free and can help protect consumers from unauthorized credit activity.
G
Good Credit Score
A good credit score generally falls between 670 and 739 on the FICO scoring scale.
Borrowers with good credit scores are often more likely to qualify for loans and credit cards with favorable terms.
Maintaining low credit utilization, making on-time payments, and keeping older accounts open can help maintain a good credit score.
Grace Period
A grace period is the time between the end of a billing cycle and the payment due date.
During this period, credit card users can pay their statement balance without being charged interest on purchases.
Grace periods usually apply only when the previous statement balance was paid in full.
H
Hard Inquiry
A hard inquiry occurs when a lender checks your credit report as part of a credit application.
Hard inquiries usually happen when applying for credit cards, loans, or other types of financing. Each hard inquiry may slightly lower your credit score for a short period of time.
However, the impact is usually small and temporary. Hard inquiries typically remain on your credit report for up to two years.
High Credit
High credit refers to the highest balance ever recorded on a credit account.
Lenders sometimes review this number to understand how much credit you have used in the past. It can provide insight into your borrowing patterns.
High credit amounts may appear on credit reports depending on the type of account and reporting practices of the lender.
I
Installment Loan
An installment loan is a type of credit that is repaid with fixed payments over a set period of time.
Examples of installment loans include auto loans, student loans, and mortgages. Each payment typically includes both principal and interest.
Installment loans are different from revolving credit because the balance decreases with each payment.
Interest Rate
An interest rate is the percentage charged by a lender for borrowing money.
Interest rates determine how much a borrower pays in addition to the original loan amount. Credit cards, loans, and lines of credit all have interest rates.
Lower interest rates usually mean lower borrowing costs.
Identity Theft
Identity theft occurs when someone uses another person’s personal information without permission.
Criminals may use stolen information to open credit accounts, take out loans, or make unauthorized purchases.
Victims of identity theft should report the issue to credit bureaus and monitor their credit reports closely.
L
Late Payment
A late payment occurs when a borrower fails to make a payment by the due date.
Credit card issuers and lenders may report late payments to credit bureaus once they are 30 days past due.
Late payments can significantly lower credit scores and may remain on credit reports for up to seven years.
Length of Credit History
Length of credit history refers to how long a person has been using credit.
Credit scoring models consider the age of the oldest account, the newest account, and the average age of all accounts.
A longer credit history generally helps improve credit scores because it provides more information about borrowing behavior.
Limit Increase
A credit limit increase occurs when a credit card issuer raises the maximum amount a cardholder can borrow.
Higher credit limits can improve credit utilization ratios if balances remain low. Some increases are requested by the cardholder, while others may be offered automatically by the lender.
Responsible use of credit often increases the chances of receiving a limit increase.
M
Minimum Payment
The minimum payment is the smallest amount you must pay on a credit card account each billing cycle.
Credit card issuers calculate the minimum payment based on a percentage of the balance plus interest and fees. Paying only the minimum keeps the account in good standing but can significantly increase the total interest paid over time.
Paying more than the minimum helps reduce debt faster and improves overall financial health.
Mortgage Credit
Mortgage credit refers to loans used to purchase or refinance real estate.
Mortgage lenders evaluate a borrower’s credit score, income, debt-to-income ratio, and credit history before approving a loan. Higher credit scores often qualify borrowers for lower interest rates.
Mortgage credit is typically reported to credit bureaus and can impact credit scores over time.
O
Open Account
An open account is a credit account that is currently active and available for use.
Open accounts may include credit cards, lines of credit, or other revolving credit accounts. Maintaining open accounts with good payment history can strengthen a credit profile.
However, having too many open accounts may increase financial risk if they are not managed responsibly.
Over-limit
Over-limit occurs when a credit card balance exceeds the assigned credit limit.
Some credit card issuers allow transactions that exceed the limit but may charge an over-limit fee. Other issuers may decline transactions once the credit limit is reached.
Exceeding a credit limit can negatively affect credit utilization and potentially lower credit scores.
P
Payment History
Payment history is the record of whether a borrower has paid credit accounts on time.
It is one of the most important factors in credit scoring models. Late payments, missed payments, and defaults can significantly damage credit scores.
Maintaining a consistent record of on-time payments is one of the best ways to build strong credit.
Pre-approval
Pre-approval occurs when a lender evaluates a borrower’s financial information and indicates that they are likely to qualify for a specific credit product.
Pre-approvals often involve a soft credit inquiry and do not affect credit scores. They provide an estimate of eligibility but are not a final approval.
Borrowers may still need to submit a full application before receiving credit.
Pre-qualification
Pre-qualification is a preliminary assessment used by lenders to estimate whether a borrower might qualify for a loan or credit card.
This process usually requires basic financial information and typically results in a soft credit inquiry.
Pre-qualification helps borrowers compare options without affecting their credit scores.
Primary Cardholder
The primary cardholder is the person who opens and is legally responsible for a credit card account.
The primary cardholder must repay all charges on the account, including those made by authorized users.
Payment history and account activity are reported to credit bureaus under the primary cardholder’s credit profile.
R
Revolving Credit
Revolving credit is a type of credit that allows borrowers to use funds repeatedly up to a set credit limit.
Credit cards and lines of credit are common examples of revolving credit. Unlike installment loans, revolving credit does not have a fixed repayment schedule as long as the borrower makes at least the minimum payment.
Keeping balances low on revolving accounts helps maintain a healthy credit utilization ratio.
Revolving Balance
A revolving balance is the amount of money currently owed on a revolving credit account, such as a credit card.
If the full statement balance is not paid by the due date, the remaining balance revolves into the next billing cycle and begins accruing interest.
Managing revolving balances carefully helps maintain good credit utilization and avoid unnecessary interest charges.
Rent Reporting
Rent reporting is the process of adding rental payment history to a credit report.
Some services allow tenants to report their rent payments to credit bureaus. Consistently paying rent on time may help individuals build credit history, especially those with limited credit experience.
Not all landlords or services report rent payments automatically.
S
Secured Credit Card
A secured credit card is a credit card that requires a refundable security deposit.
The deposit usually becomes the card’s credit limit. Secured cards are commonly used by people who are building credit or rebuilding credit after financial difficulties.
Responsible use of a secured credit card can help establish positive credit history.
Soft Inquiry
A soft inquiry occurs when a credit report is checked without a formal credit application.
Soft inquiries happen when consumers check their own credit, when companies perform background checks, or during pre-qualification for credit offers.
Soft inquiries do not affect credit scores.
Statement Balance
A statement balance is the total balance on a credit card at the end of a billing cycle.
This balance appears on the monthly credit card statement and is used to calculate the minimum payment due.
Paying the full statement balance before the due date usually avoids interest charges.
Subprime Credit
Subprime credit refers to credit offered to borrowers with lower credit scores or higher perceived risk.
Lenders may charge higher interest rates or fees to compensate for the increased risk.
Subprime credit products are often used by individuals working to rebuild their credit.
T
Thin Credit File
A thin credit file refers to a credit report with very little credit history.
People with thin credit files may have difficulty qualifying for loans or credit cards because lenders have limited information to evaluate their credit behavior.
Building credit through secured cards or small loans can help strengthen a thin credit file.
Tradeline
A tradeline is a record of activity for a credit account that appears on a credit report.
Each tradeline includes information such as the account type, payment history, credit limit, and current balance.
Tradelines help lenders evaluate a person’s creditworthiness.
TransUnion
TransUnion is one of the three major credit bureaus in the United States.
The company collects credit information from lenders and compiles credit reports used by financial institutions to assess credit risk.
Consumers can review their TransUnion credit report to check for errors or suspicious activity.
U
Unsecured Credit Card
An unsecured credit card does not require a security deposit.
These cards are typically issued to consumers with established credit history. Credit limits and interest rates depend on the borrower’s credit profile.
Responsible use of unsecured credit cards can help maintain or improve credit scores.
Underwriting
Underwriting is the process lenders use to evaluate the risk of lending money to a borrower.
During underwriting, lenders review credit reports, income, debt levels, and other financial information.
The underwriting process helps determine whether a loan or credit application will be approved.
Utilization Ratio
Utilization ratio, also known as credit utilization, measures how much of your available credit is currently being used.
It is calculated by dividing the total credit card balances by the total credit limits.
Lower utilization ratios generally improve credit scores, and many experts recommend keeping utilization below 30%, ideally under 10%.
Credit Glossary FAQ
What is a credit glossary?
A credit glossary is a collection of common credit terms and definitions that explain how credit scores, credit reports, loans, and credit cards work.
Why is it important to understand credit terms?
Understanding credit terms helps people make better financial decisions, avoid mistakes, and improve their credit scores over time.
How many credit terms should a glossary include?
Most credit glossaries include between 50 and 150 common credit terms depending on the depth of explanation.