02 Apr A Glossary of Credit Terminology
Sometimes, all the different terminology around credit and credit history can be confusing, right? You may find yourself staring at an email and Googling every second word. “Credit utilisation ratio definition“, “what’s an APR?“. Sound familiar? Credit Boost has compiled a list of the most common terminology you might see or hear when reading about credit. Buckle up for a comprehensive list of easy-to-understand explanations of these terms and what they mean for you.
The ABCs of Credit
For your convenience, the list is organised alphabetically.
APR
APR stands for annual percentage rate. Essentially, it’s the total cost per year of how much money you borrow, including interest and fees. It’s important to consider when considering different loan options.
How to calculate APR
First, add the loan fees and interest together.
You’ll then divide it by the principal and again by the number of days in the repayment term. Then multiply by 365 and again by 100.
Here’s the formula for calculating APR:
APR = ((Interest charges + fees) / Principal / n x 365) x 100))
Billing cycle
This is the period between the closing dates of your credit card statements.
Credit bureau
A company that collects information about your credit history and creates credit report statements. Think Experion, Transunion, and yes, Credit Boost.
Credit card limit
The maximum amount of credit you can borrow on a credit card.
Credit history
Credit history includes how much you’ve borrowed and whether you paid it back and on time. Lenders use this history to decide if they should loan you money, and whether they can trust you.
Credit report
A detailed credit history report, including information about your credit cards, loans, and public records: you can get one for free from each credit bureau every year.
Credit score
A number that represents how good your credit is. The higher your credit score, the better your credit. We wrote an article about different credit scores and what they mean.
DTI
DTI stands for debt-to-income ratio. Basically, it’s a measure of how much debt you accrue concerning how much you earn. Lenders use DTI to decide how much they should loan you.
Grace period
How much time passes between credit statements where you don’t have to pay interest fees for your loan.
Interest
Interest is a percentage of your loan that lenders collect to make a profit on your loan, usually expressed as APR: a yearly interest rate.
Late fee
The money you pay for not paying your minimum on time.
Minimum fee
The smallest amount you have to pay your lender on your loan to avoid a late fee.
Secured loan
A loan is backed by something called collateral, like a car or house. Collateral is something the bank or lender can sell to cover their losses if you don’t pay your debt. If you default (don’t pay) on the loan, they can repossess (take) your collateral.
Unsecured loan
A loan not backed by collateral. These loans are usually more high-risk, and so more expensive for borrowers.
Credit utilisation ratio
How much of your credit you use compared to what you have available. A lower utilisation ratio is better for your credit score.
And there you have it! We hope you understand your credit ABCs. Remember to bookmark your page for those emails we discussed so you can come back later.
Did you know you can use Credit Boost to get a free credit check? Try it out and see what’s in your credit report.