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Glossary of Terms

Application Scoring - The use of a statistical model to objectively evaluate and “score” credit applications and credit bureau data in order to assess likely future performance. Scores help lenders make decisions such as whether to accept or decline the application.  brown dog running in yard

Bankruptcy - A proceeding in U.S. Bankruptcy Court that may legally release a person from repaying debts owed. Credit reports normally include bankruptcies for up to 10 years.

Charge-Off - The balance on a credit obligation that a lender no longer expects to be repaid and writes off as a bad debt.

Collection - Attempted recovery of a past-due credit obligation by a collection department or agency.

Consumer credit file - A credit bureau record on a given individual. It may include: consumer name, address, Social Security Number, credit history, inquiries, collection records, and public records such as bankruptcy filings and tax liens.

Credit Bureau - A credit reporting agency that is a clearinghouse for information on the credit rating of individuals or firms. Is often called a “credit repository” or a “consumer reporting agency.” The three largest credit bureaus in the U.S. are Equifax, Experian and TransUnion.

Credit Bureau Risk Score - A type of credit score based solely on data stored at the major credit bureaus. It offers a snapshot of a consumer’s credit risk at a particular point in time and rates the likelihood that the consumer will repay debts as agreed. Credit History - A record of how a consumer has repaid credit obligations in the past.

Credit Obligation - An agreement by which a person is legally bound to pay back borrowed money or used credit.

Credit Report - Information communicated by a credit reporting agency that impacts on a consumer’s credit standing. Most credit reports include: consumer name, address, credit history, inquiries, collection records, and any public records such as bankruptcy filings and tax liens.

Credit Risk - The likelihood that an individual will pay his or her credit obligations as agreed. Borrowers who are more likely to pay as agreed pose less risk to creditors and lenders.

Credit Score - This term is often used to refer to credit bureau risk scores. It broadly refers to a number generated by a statistical model which is used to objectively evaluate information that pertains to making a credit decision.

Default - A failure to make a loan or debt payment when due. Usually an account is considered to be “in default” after being delinquent for several consecutive 30-day billing cycles.

Delinquent - A failure to deliver even the minimum payment on a loan or debt payment on or before the time agreed. Accounts are often referred to as 30, 60, 90 or 120 days delinquent because most lenders have monthly payment cycles.

Equal Credit Opportunity Act (ECOA) - Federal legislation that prohibits discrimination in credit. The ECOA originally was enacted in 1974 as Title VII of the Consumer Credit Protection Act.

Fair Credit Reporting Act (FCRA)- Federal legislation that promotes the accuracy, confidentiality and proper use of information in the files of every “consumer reporting agency.” The FCRA was enacted in 1970.

FICO® Scores - Credit bureau risk scores produced from models developed by Fair Isaac Corporation are commonly known as FICO® scores. Fair Isaac credit bureau scores are used by lenders and others to assess the credit risk of prospective borrowers or existing customers in order to help make credit and marketing decisions. These scores are derived solely from the information available on credit bureau reports.

Inquiry - An item on a consumer’s credit report that shows that someone with a “permissible purpose” (under FCRA rules) has previously requested a copy of the consumer’s report. Fair Isaac credit bureau risk scores take into account only inquiries resulting from a consumer’s application for credit.

Installment Debt - Debt to be paid at regular times over a specified period. Examples of installment debt include most mortgage and auto loans.

Insurance Bureau Score - An insurance rating based solely on credit bureau data stored at the major credit bureaus. It offers a snapshot of an individual’s insurance risk at a particular point in time and helps insurers evaluate new and renewal auto and homeowner insurance policies.

Late Payment - A delinquent payment; a failure to deliver a loan or debt payment on or before the time agreed.

Nationwide Mortgage Licensing System and Registry (NMLS) - the legal system of record for licensing in all participating states, the District of Columbia and U.S. Territories.  In these jurisdictions, NMLS is the official and sole system for companies and individuals seeking to apply for, amend, renew and surrender licenses managed in the NMLS on behalf of the jurisdiction’s governmental agencies.  NMLS itself does not grant or deny license authority.

Revolving Debt - Debt owed on an account that the borrower can repeatedly use and pay back without having to reapply every time credit is used. Credit cards are the most common type of revolving account.

Score - See “credit score.”

Scoring Model - A statistical formula that is used to estimate future performance of prospective borrowers and existing customers. A scoring model calculates scores based on data such as information on a consumer’s credit report.

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