Consumer Credit Guide


Improve your financial literacy using a comprehensive financial glossary with simple and clear definitions of basic financial terms. We simplify terms, synonyms, and acronyms used for Consolidated Credit Counselling Services. Learn commonly used terms in debt management, financial planning, credit, and lending.

Table of Contents

Aa

absolute discharge

The conclusion of a bankruptcy proceeding. It releases the debtor of legal obligations to pay back the full amount of what is owed to creditors and/or financial institutions, sometimes with stipulations.

 

acceleration clause

A provision in a loan agreement that allows a creditor to demand payment in full when you do not meet the terms of the agreement.

 

account

A statement of activity during a fiscal year resulting in a monetary balance. A record of transactions maintained by lending institutions to track proprietary payments and debts.

 

accounting date

Refers to the last date of a statement cycle. It is reflected on monthly statements of a fiscal year to report status and payment deadlines.

 

accrued interest

Interest that accumulates over time on a debt that you owe.

 

acquisition

The purchase of one entity by another; also known as a company takeover.

 

actuary

A business expert who measures financial risks using mathematics for theoretical projections to ensure financial security.

 

add-on interest

A type of loan that calculates a fixed monthly payment by combining the principal loan amount and its interest rate for the loan’s life.

 

Adjustable-Rate Mortgage (ARM)

A type of mortgage where payments vary throughout the life of the loan because of its fluctuating interest rate index. Also known as variable-rate mortgages or floating mortgages.

 

affidavit

A written declaration of facts voluntarily sworn under oath before an official.

 

annual percentage rate (APR)

The cost of credit, expressed as a yearly rate. The Federal Truth in Lending Act requires that all offers for credit indicates the credit’s APR so that consumers can understand the cost of the credit they are applying for so they can compare credit offers.

 

annuity

An amount paid out to a person by a particular time frame for an investment.

 

appraisal (lending)

An unbiased valuation of something regulated for financial lending services.

 

appreciation

An increase of an asset’s value over time.

 

arrears

The status of overdue dividends of an account that should have been resolved by prior due dates.

 

assets

Tangible or intangible resource of measurable economic value, benefit, or worth

 

assignment in bankruptcy

An insolvents assignment of all assets to a LIT for debt repayment.

 

audit

An examination of records against account transactions to ensure accuracy.

Bb

balloon payment

A final payment on a loan that is substantially larger than previous payments.

 

balance

A monetary figure used to reflect an amount on an account.

 

balance transfer

The process of moving debt from one credit-lending source to another credit-lending source.

 

bank

A for-profit financial institution that provides services to consumers.

 

bankrupt

A legal court declared status of an individual that is unable to pay his or her debt. Also known as insolvent.

 

bankruptcy

A legal procedure governed by federal law that helps consumers who have too much debt. There are two bankruptcy options for consumers – Chapter 13 reorganization and Chapter 11 liquidation. If you file for Chapter 13, you will have three to five tears to pay off your debts and the balance of what you owe on certain debts will be wiped out at the end of that time. Some debts will remain. If you file for Chapter 11, you will have to give up certain assets so that they can be sold and the proceeds will be applied to your debts.

 

bankruptcy trustee

A person licensed by the Superintendent of Bankruptcy to administer consumer proposals and bankruptcies. Also known as trustee.

 

Beacon/Pinnacle Score

A formerly branded scoring system by Equifax credit bureau.

 

bi weekly payments

An accelerate payment strategy to pay off debt quickly by making a total 26 payments during the 53 week calendar year.

 

borrower

A debtor.

 

budget

A semi-permanent management plan of income to meet financial goals.

Cc

capacity

The ability to repay a loan with current income; one of three factors in credit scoring.

 

capital

The money a person has available for a business investment.

 

cash advance

Cash obtained from credit card.

 

cash advance loans

A high-interest rate short-term loans available online and through brick-and-mortar for instant cash withdrawal.

 

cash value

The savings portion of a whole life, universal, or variable life insurance policy. You can borrow against that value.

 

Certificate of Full Performance of Proposal

A legal certificate awarded to an insolvent person upon meeting full repayment of debts outlined in a consumer proposal.

 

closed-end credit

A loan that you must repay by making fixed payments over a specific period of time.

 

co-borrower

A co-signer on a loan or line of credit who is fully liable for the debt repayment.

 

co-signer

Someone who signs a credit agreement so that if the main borrower does not repay the debt according to the terms of the agreement, the creditor can look to that other person for payment. The main borrower and the cosigner are equally responsible for the debt.

 

collateral

Assets pledges as security for a secured debt. If you do not pay a debt that you have collateralized, the creditors can take the collateral.

 

collection agency

A business that collects past due debts for other businesses as well as individuals. Most collection agencies get paid for their services by taking a percentage of what they collect for their clients.

 

consolidation loan

A loan used to combine all outstanding loans, credit cards, and debts into one account balance for repayment.

 

consumer credit

Any loan or debt taken for personal and household consumption. See consumer debt.

 

consumer debt

Debts that are incurred by individuals as personal and household expenses.

 

consumer debt proposal

See also: consumer proposal; debt proposal.

 

consumer proposal

A legal agreement where a Licensed Insolvency Trustee (LIT) formally settles the insolvency debt by selling a person’s assets to repay creditors according to a lesser agreed amount governed by the Bankruptcy and Insolvency Act.

 

Consumer Protection Act (CPA)

Legislation and regulations to protect consumers against unfair business practices on province and federal levels.

 

consumer rights

The right to have access to information about the quality of goods and services.

 

credit

A borrower’s ability to pay back a loan amount from a financial institution and keep the account in good standing.

 

credit agreement

A contract between a borrower and a creditor that details the amount borrowed, the applicable interest rate and all other terms of the credit.

 

credit bureau

A business that gathers information regarding a consumer’s use of credit and provides that information to businesses and organizations legally authorized to review it. Also called a reporting agency.

 

credit card

A payment card that allows holders to make a financial transaction using borrowed money from a credit lender.

 

credit card debt

A type of unsecured liability that is incurred through revolving credit card loans.

 

credit card debt calculator

An algorithim computation used to help determine how long it will take to pay off credit card debt.

 

credit counselling

Credit counselling is designed to help you understand your options for getting out of debt so that you can find the best solution for your needs.

 

credit history

A record of how you have managed your credit over time that is maintained by a credit bureau. Creditors, insurers, employers, and landlords use consumers credit record information as well as credit scores based on that information to make decisions about consumers. Also called a credit report, credit report, or credit file.

 

credit insurance

Repays a loan in the event of your death or disability.

 

credit limit

The maximum amount of money allotted to spend to a borrower on a credit card. Also known as spending limit.

 

credit practices rule

Protects you when you apply for credit with a retail business, auto dealer, credit union or finance company by requiring that they include specific disclosures in their consumer credit contracts. The disclosures relate to your rights should you fail to repay the credit according to the contract’s terms. It also requires that you be provided with certain written information if you agree to cosign someone else’s credit and gives you specific rights when it comes to late fees.

 

credit rating

A universal metrics scale used by lenders to provide credit to borrowers. See also: credit score.

 

credit repair

The process of removing inaccurate or outdated information from a credit record. Some credit repair firms use illegal methods to remove negative but accurate information from a consumer’s credit file.

 

Credit Repair Organization Act

A federal law that regulates the activities of credit repair organizations and that gives consumers specific rights when they work with such an organization.

 

credit report

 A credit report is a written history of a consumer’s credit use. It is used by creditors and lenders to establish your creditworthiness and help assess your risk as a borrower.

 

credit score

A number that is derived from the information in your credit history and that is an indicator how well you are likely to manage credit in the future. See also: credit rating

 

creditor

A person or business to whom you owe money.

 

creditworthiness

A debtees assessment of a borrower’s ability to repay a loan. Also known as ability-to-repay. See also: capacity.

 

current liabilities

Debts that will be due within the current year.

 

Dd

debit card

Allows you to pay for purchases out of your bank account or money market account without writing a check. The money for purchase may come directly out of your account at the time of purchase or your account at the time of purchase or your account may be debited for the cost of the transaction a couple days later if you use the card like a charge card.

 

debt

An amount of money owed to a lender from a borrower.

 

debt avalanche method

Pay off debt with the highest interest rate first with additional money while making minimum payments of other debt accounts.

 

debt calculator

A computation used to help determine how long it will take to pay off debt.

 

debt collection agency

A company that pursues the repayment of a delinquent account on behalf of a debtor. Also known as a collection agency.

 

debt consolidation

The process of taking out a larger loan to pay off one or more smaller loans.

 

debt consolidation loan

A loan obtained by a debtor to pay off all outstanding debt balances by combining them into a single low-interest rate loan for repayment.

 

debt consolidation program

A repayment option for consumers who struggle to keep up with the cost of debt. Not all types of debt can be re-negotiated and included in repayment solutions.

 

debt counselling

An advising service within the profit or non-profit sector that is used to provide consumers with money management and debt solutions, preferably by trained experts. See also: credit counselling.

 

debt forgiveness

A legal agreement with creditors to partially or totally eliminate the amount owed in exchange for a new payment plan, terms, or conditions.

 

debt management program

A professionally assisted repayment plan to manage credit debt balances into a single repayment schedule. Also known as a DMP. Also known as a Debt Management Plan.

 

debt payment calculator

An algorithm computation that is used to help determine how long it will take to pay off debt.

 

debt proposal

An alternative to filing bankruptcy using a consumer proposal with a repayment option that protects against creditors while allowing the debtor to keep assets as an alternative to filing bankruptcy.

 

debt ratio

A measurement of debt to asset expressed in decimal or percentage.

 

debt ratio calculator

The algorithmic computation that is used to determine the ratio between debt and gross income expressed as a percentage or decimal electronically.

 

debt reduction plan

Budget tracking of fixed expenses and variable expenses to consider areas where accelerated debt payments are more appropriate.

 

debt reduction program

Designed by lenders and creditors to allow consumers to pay a portion of outstanding debt, and the remaining balance is forgiven under a lender’s terms and conditions.

 

debt relief company

For-profit and non-profit institutions that negotiate terms of repayment with debtee on behalf of the debtor.

 

debt settlement

Designed by lenders and creditors to allow consumers to pay a portion of outstanding debt, and the remaining balance is forgiven under a lender’s terms and conditions.

 

Debt-to-Income ratio (DTI)

Measurement of a person’s total debt against total income that reflects the ease or difficulty of debt repayment.

 

debtor

A borrower who owes a financial debt.

 

default

What you do when you do not live up to the terms of a credit agreement.

 

default judgement

A court judgement issued by a judge when you are sued and don’t respond to the lawsuit.

 

deficiency

The difference between what you owe on a secured debt and what the asset that secures it sells for.

 

delinquency

The status of a line of credit or loan with a missed payment that is accruing and on the verge of default.

 

discharge

What happens when the court erases certain debts at the end of your bankruptcy so that you will not have to pay them.

 

discharge in bankruptcy

The courts’ legal release of an insolvent from debt repayment obligations to creditors after a bankruptcy has been issued. Also known as bankruptcy discharge.

down payment

The initial amount of money you may have to pay when you make a credit purchase. For example, you make a down payment on a home. The down payment reduces the amount that you must finance and helps protect the lender should you default on your credit agreement.

 

Ee

Electronic Funds Transfer Act

A federal law that provides you with limited protections when unauthorized purchase and withdrawal are made using ATM or debit card or when errors related to purchases and withdrawals you made with your ATM or debit card appear on your bank statement.

 

emergency fund

A financial safety net to cover unexpected expenses in the event of job loss, medical emergency, or accidental property damage. A form of protection against debt accrual by maintaining financial soundness for an extended period in liquid savings.

 

Equal Credit Opportunity Act

A federal act that prohibits creditors from discriminating against you during the credit application process on the basis of your race, religion, national origin, sex, age or marital status or because you receive public assistance. It also requires creditors to respond to your credit application within 30 days of receiving it. If you are denied credit or granted less credit than you applied for, the law requires that the creditor give you a specific reason for the denial.

 

equity

The difference between what your home is worth and the balance due on your mortgage and on any other financial obligations that your home may secure.

 

exempt assets

The assets you are allowed to keep if a creditor gets a legal judgement against you because you have not paid a debt or if you file for bankruptcy. Every state has a law that spells out the types of assets consumers can claim as exempt. Additionally, there are federal exemptions that consumers can use in bankruptcy.

 

expenditure

A spender’s cost for tangibles and intangibles.

 

expense

An amount of money spent to buy something or do something.

Ff

Fair Credit and Charge Card Disclosure Act

Part of the Federal Truth in Lending Act, this law requires creditors to provide you with specific information when you apply for credit or when they send you an offer for credit. The information tells you how much the credit will cost you to use and it helps you compare credit offers so you know which one has the best terms.

 

Fair Credit Billing Act

A federal act that establishes procedures for correcting billing errors when you purchase a product or service using a credit card or retail store charge card. Under this law, you are protected if someone you did not authorize uses your credit card or retail store charge. The law also protects you when you purchase merchandise with a credit card or retail store charge card and turns out to be defective, damaged, shoddily made, or not delivered. Furthermore, if you pay for a service with your credit card or retail store charge and the service is not delivered or not provided according to the terms of your contract.

 

Fair Credit Reporting Act

A federal act that gives consumers specific rights when it comes to the information in their credit histories. It also establishes specific responsibilities for credit bureaus, suppliers of information to credit bureaus and users of that information.

 

Fair Debt Collections Practices Act

A federal law that regulates the activities of debt collectors and establishes your rights when you are contacted by a debt collector.

 

fee

A sum of money a person pays as a penalty or for a service.

 

FICO score

A credit scoring system used to determine a borrower’s financial loan eligibility.

 

finance charge

Another term for the amount of interest you pay a credit card company when you do not pay your card balance in full each month as well as the amount of interest you pay on your outstanding loan balance. The finance charge is expressed as a percentage rate, for example, 3.9npercent. 9.9 percent, 19 percent or some other amount.

 

financial advisor

A professional who provides financial-economics advice to manage money for debts and investments.

 

financial literacy

The ability to make sound financial decisions using basic money management for credit, debt, and wealth.

 

financial planning

An outline of personal income for investments, savings, and debt management plans.

 

financial stress

A state of anxiety caused by the lack of money for debt obligations and expenses.

 

fixed asset

Are tangible assets purchased with assumed life-cycles of over a year.

 

fixed expense

A predictable cost for a financial obligation with a cost remains the same month over month.

 

fixed interest rate

An interest rate that stays the same for the lifetime of the loan.

 

forbearance

When a creditor agrees not to collect on a debt.

 

foreclosure

Then process whereby a mortgage lender or another creditor with a lien on your home or on some other piece of real estate that you own takes that asset because you did not live up to the terms of your agreement with the creditor.

 

fund

When a financial resource releases money set aside for a purpose.

Gg

garnishment

When a creditor seizes a portion of your wages for a delinquent loan repayment debt.

 

grace period

The time during which you can pay account balances in full without incurring a finance charge.

 

gross

Total of generated income prior to taxes and fees.

 

gross income

Total income earned in a year prior to tax-deductions.

 

gross pay

An employers’ total compensation amount before any deductions.

 

guaranteed approval loan

High interest-rate loans offered to bad credit borrowers.

 

guarantor

A person who agrees to pay a loan if the original borrower defaults on payments.

Hh

home equity line of credit (HELOC)

A type of credit that allows you to tap the equity in your home as needed up to a certain dollar amount. Your home serves as collateral.

 

home equity loan

A secured loan amount based upon the appreciation value of the mortgage and value of a home
Also known as a second mortgage.

 

Home Equity Loan Consumer Protection Act

A federal law that requires a creditor to provide you with certain information when you apply for a home equity line of credit so that you can understand the true cost of the credit and can compare it to similar offers.

 

honouring a cheque

A bank agrees to pay the cheque amount to the payee.

 

honouring an agreement

The act of fulfilling an agreement. Also known as honouring a contract.

Ii

identity theft

The usage of someone else’s credentials to obtain goods or services.

 

Identity Theft and Assumption Deterrence Act

This federal law makes stealing your identity a criminal act and establishes your rights when you are the victim of identity fraud.

 

income

Money generated from investment profits or pay from business transactions.

 

income tax

A tax imposed on personal salaries.

 

inflation

The gradual increase in prices over time on goods that devalues the buying power of money.

 

insolvency

A person or the state of being unable to repay debt. See also: bankruptcy

 

insolvency trustee

A licensed person who administers bankruptcies and consumer proposals. See also: licensed insolvency trustee.

 

insolvent

An inability to pay debt because asset values are less than debt liability. See also: bankrupt

 

insolvent person

A person who is unable to repay debt.

 

inspector

The appointed person(s) who ensure accountability of the LIT during the administrations of insolvencies and consumer proposals on behalf of all creditors.

 

installment loan

A loan that you repay over time by making periodic payments of principles and interest at specific intervals.

 

interest (lending)

A percentage charged for borrowing money. Also known as an interest rate.

Jj

joint account

A financial account held by more than one person.

 

joint debt

The legal responsibility of debt created by a borrower for a consigner and guarantor ensures full repayment of debt.

 

judgement

The court’s final decision at the end of a lawsuit.

 

judgement proof

When you have no assets that a creditor can take in order to satisfy a judgment against you.

 

Kk

 

Ll

lender

A financial institution that loans money to borrowers.

 

liabilities

The owing of debts and financial obligations.

 

Licensed Insolvency Trustee (LIT)

An individual licensed by the Office of the Superintendent of Bankruptcy who administers consumer proposals and bankruptcies in Canada. Also known as bankruptcy trustees. Also known as a LIT.

 

lien

A creditor’s claim against property you own. When a creditor has a lien on one of your assets, if you do not pay the debt that is associated with that lien, the creditor has the legal right to take the property. Your mortgage lender has a lien against your home and on your car.

 

liquidation

Act of dissolving asset for liquidity debt repayment.

 

liquidity

Accessible money or the facility to convert assets to cash.

Mm

maintenance

A service fee that is charged for the usage or access to a financial account and/or a financial service. Also known as a service charge.

 

maturity date (lending)

The date when the life of a loan ends or a financial investment becomes available.

 

maximum withdrawal

The most amount of money one may take out of an account without penalty. Amount in excess may need prior approval.

 

minimum payment

The least amount of money accepted to remain in good standing on a loan or credit repayment.

 

mortgage loan

A loan to purchase real estate. The loan is secured by the real estate.

 

Nn

net pay (income)

The take home pay cheque amount after the deductions of taxes and benefits from the gross pay amount.

 

non-profit

An business organization that commits to a social cause as a charity or public sector agency, not for profit, but social obligation.

Oo

occupation

The field of work a person is employed in.

 

ombudsman

A non-profit entity that resolves complaints against financial institutions on behalf of small businesses and consumers.

 

open-end credit agreement

A credit agreement with no specific date by which you must pay the account balance in full although you must make monthly minimum payments on the balance. Credit cards are a common example of open-ended credit as are retail store charge cards and gasoline cards.

 

orderly payment of debts

A debt repayment option offered to Alberta and Nova Scotia residents where a fixed interest rate of 5% is applied total debt on a 5 year life term.

 

overdraft

Withdrawal of funds beyond the amount present in a chequeing account. Also known as overdraw.

 

overdue

The status of a payment for a missed due date. Also known as past due.

 

Pp

payment hearing

A payment mandate on a debt assigned by the courts.

 

periodic rate

A credit agreement with no specific date by which you must pay the account balance in full although you must make monthly minimum payments on the balance. Credit cards are a common example of open-ended credit as are retail store charge cards and gasoline cards.

 

personal finances

An individuals’ personal decisions in regards to income, investments, and debt management.

 

personal property

An asset that can be moved, as opposed to real estate, which is fixed. Your personal property may include vehicles, furniture, jewelry, fine art, and so on.

 

preferred creditor

A preferred creditor is paid in priority to regular unsecured creditors. In a business bankruptcy employees who are owed wages are preferred creditors, and receive payments before regular unsecured creditors.

 

prepayment penalty

A penalty you may apply if you pay off a loan early. The penalty helps compensate the lender for the fact that it will not earn as much interest income on the loan as if you had continued paying on it until the loan term was up.

 

principal

The amount of money you borrow. Principal does not include interest.

 

punitive damages

Money that a court may order a business to pay you as punishment for harming you in some way and to encourage the business not to repeat its illegal behavior.

Qq

quarterly statement

A detailed overview of account activity covering three-month intervals.

Rr

refinance

To pay off an existing loan and get a new loan in order to lower your interest rate, get more or less time to pay off the original loan, and so on. You may also refinance as a way to raise cash and liquidate equity.

 

registered retirement savings plan (RRSP)

A retirement and investing plan for Canadian workers.

 

repayment

The act of paying back a lender.

 

repossession

When a secured creditor takes back your collateral- your car for example- because you did not live up to your agreement with the creditor.

 

Ss

second mortgage

Borrows the equity from real-estate value through a secondary loan.See also: Home Equity Loan .

 

secured credit card

A credit card that is secured by the money in your savings account or by a certificate of deposit. You can borrow up to a percentage of the money in the account or the value of your Certificate of Deposit. If you do not pay on your credit card according to the terms of your credit agreement, the creditor can take the funds in your savings account or your Certificate of Deposit.

 

secured creditor

A creditor that has a lien on one of your assets. If you do not pay the creditor according to the terms of your agreement with one another, the creditor is entitled to take the asset, also referred to as collateral.

 

secured debt

A debt that you collateralized with an asset that you own. If you do not meet the terms of your credit agreement, the lender can take that asset in lieu of payment. Common examples of secured debts include car loans and mortgages.

 

secured loan

A loan that requires the borrower pledges a collateral asset of equal or greater value for financing.

 

security agreement

An agreement associated with a secured loan. The agreement specifies the collateral that secures the loan and under what circumstances the creditor can take the collateral, among other things. Notice of the existence of security agreement is sometimes filed with your local courthouse as evidence of the lien.

 

seizure of property

A consequence of default on a secured loan that requires the remittance of loan asset.

 

Tt

term

The length of time that a loan agreement will be in effect- from the date that the agreement is signed to date that the loan will be paid in full.

 

trustee

A person licensed by the Superintendent of Bankruptcy to administer consumer proposals and bankruptcies.Also known as bankruptcy trustee.

 

Truth In Lending Act

A federal law that requires specific disclosures about the terms credit so that consumers can make informed decisions regarding whether a particular credit offer is a good idea for them. It also gives you a variety of other rights when you apply for or use credit.

 

Uu

unsecured creditor

A lender who provides credit to a person without any collateral for the debt amount.

 

unsecured debt

A debt for which no assets are pledged to guarantee payment. The most common types of unsecured debt is credit card debt.

 

unsecured loan

A credit for an amount of money without the use of collateral.

 

usury laws

State laws that regulate the interest rates that creditors can charge consumers.

 

Vv

variable expense

Costs that change month to month; groceries or utility. These costs may be higher in the winter and the budget adjusted accordingly.

Ww

wage garnishment

What may happen if you do not pay a debt that you owe. The creditor you owe the money to could get a judgment against you and then get the court’s permission to take a percentage of your wages in order to get its money. Your employer will be legally required to deduct garnishment amount from your pay checks. Not all state permit wage garnishment.

 

wealth-building

A long term strategy used to build wealth.

 

will

A legal document that provides the distribution of the holder’s assets upon death. Also known as a testamentary trust.

 

withdraw

The removal of money from a financial account.

 

Xx

 

Yy

yield

A formula expressed as a percentage of profits and earnings for investment over a set period of time.

 

Zz

zero down payment

A financing option that requires no down payment. Also known as no down payment.

 

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