Common Debt Terminology & Definitions
Struggling to pay your bills or manage debt is not only stressful but can also be confusing. Banks and credit card companies use specialized words and terms that may be unfamiliar to you.
To help you understand, use the following glossary that breaks down debt and debt relief terms in plain English.
APR (Annual Percentage Rate) - APR Annual Percentage Rate is used to calculate the full cost of credit on a yearly basis. The APR takes into account the amount financed, the interest charge(s), and the amounts and timing of the payments. APRs can fluctuate based on overall market fluctuations, the account holder's behaviors, and other factors, as outlined in an account's Terms and Conditions.
Authorized User - An authorized user is a person who is allowed to make charges on someone else’s credit card, but who is not responsible for making payments.
Available Credit - Your available credit is how much you can spend with your credit card without going over your credit limit. Available credit is equal to the credit limit minus balance and pending transactions.
Balance - Your balance is how much you owe on a credit card. The balance is the total of your transactions, fees, and interest charges minus any credits and payments. It sometimes is called present balance or outstanding balance.
Balance Transfer - A balance transfer could help you consolidate your debt or qualify for a lower interest rate. It works by moving a loan or credit card balance from one company to another.
Bankruptcy - Bankruptcy is a federal court proceeding which helps you create a repayment plan or liquidate your assets to pay debts. According to the FTC, bankruptcy is a last resort option for debt relief.
CFPB (Consumer Finance Protection Bureau) - The Consumer Financial Protection Bureau (CFPB), also known as the Bureau of Consumer Financial Protection (BCFP), is an agency of the United States government responsible for consumer protection in the financial sector.
Charge-Off - A charge-off means your account is permanently closed and written off as a loss to the credit card company, although the debt is still owed. Generally, a charge-off happens when a credit card account goes 180 days (a full 6 months) past due, unless your financial institution chooses to charge-off earlier.
Collections - A credit card account enters collections when the account goes past due, meaning a payment is not received by the due date. In collections, you may receive notices about the missed payment or payments. These could be in the form of calls, emails, letters, statements, online messaging, and texts.
Co-Signer - A co-signer vouches for someone who's applying for a credit card by signing along with them. The co-signer is telling the credit card company that if the cardholder can't pay, they will. Co-signers don't get a card of their own, receive monthly statements, or have access to the credit card account.
Credit Counseling - Credit counseling agencies are usually nonprofit organizations which can help you manage your debt and finances. Credit counselors are typically trained and certified in consumer debt, money and debt management, and budgeting. To locate a credit counselor, contact the National Foundation for Credit Counseling (NFCC) at 800-388-2227 or check the NFCC website.
Credit Bureaus - Credit bureaus are companies that create a picture of your creditworthiness in the form of a credit report and a credit score (see FICO entry below). Credit card companies report your behavior, like payment history, to credit bureaus. Experian, TransUnion, Equifax, Innovis are the four national consumer credit reporting agencies in the United States.
Credit Limit and Credit Limit Increase - Your credit limit is the maximum amount you can charge with your credit card. The credit limit depends on your creditworthiness and the terms of the offer. Lenders may review accounts occasionally and adjust a credit limit.
Credit Report - Credit reports contain your full credit history, including your employment history, addresses, credit inquiries, past and present credit cards and loans, the age of your accounts, liens, wage garnishments, and other data. Negative information like missed payments or charge-offs can stay on your report for seven years and bankruptcy information for ten years. Positive information can stay on your report for ten years.
Custom Payment Plan - A custom payment plan may be an option for you if you miss a credit card payment. If you miss a payment, contact your credit card company. They may be willing to work with you to create a payment plan you can afford to get you back on track.
Debt - Debt is the money that you must pay back on your loan.
Debt Consolidation - Debt consolidation is a way to manage multiple debts. If you’re currently making payments on several debts each month, you may be able to combine (or consolidate) them into a single loan with one monthly payment.
Debt Relief - Debt relief is an umbrella term for ways you can manage and resolve your debt. It can take various forms including credit counseling, debt management plans, and others. Read about the types of debt relief here.
Debt Settlement - Debt settlement is when your credit card company forgives a portion of the balance you owe in exchange for you repaying the remaining amount. The remaining amount may be repaid in a single payment or a series of payments depending on the terms of the agreement.
Debt Settlement Company - Debt settlement companies arrange to settle your debts for you in exchange for a fee.
Delinquency - A credit card account enters delinquency (or becomes delinquent) when you miss a payment. As long as the account is not more than 180 days past due, then the account will become current (not delinquent) when you make at least the minimum payment due. After 180 days, the account charges-off and permanently closes.
Due Date - Your due date is when a payment must be received by your credit card company to avoid being past due.
Fees or Late Fees - Fees could result from being late on your credit card payments.
FICO Score - In the United States, the FICO (Fair Isaac Corporation) score is a standard system for evaluating your creditworthiness. The FICO score could vary among bureaus because of different information and models used.
Hardships - A hardship is when your income decreases due to an unexpected job loss, injury, illness, natural disaster, or other factors.
Interest - Interest is money you pay regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt. If you do not pay your credit card in full each month, interest rates will be added to your balance.
Line of Credit - Your line of credit is the maximum amount you can charge with your credit card. The credit line or credit limit is the maximum amount of credit given to an individual by a lender. The credit limit depends on the creditworthiness of an individual and the terms of the offer. Lenders may review accounts occasionally and increase a credit limit.
Minimum Payments - A credit card minimum payment is the smallest amount you must pay each monthly billing cycle to keep your account up to date and avoid penalties and fees.
Past Due - An account is considered past due if you are late on a payment. Once you make at least the minimum payment, the account is current (no longer past due).
Principal - Principal is the original amount of money you borrowed on a loan, not including interest or fees.
Residual Interest - Residual interest is interest that’s charged between when a credit card bill is sent and when your payment is received. If you pay your balance in full every month, then all your purchases get grace and you don’t have to worry about residual interest.
Recoveries - Recoveries is an accounting term that represents collection activities of debt that has been written off. That writing off usually happens at charge-off.
We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.