Glossary of Terms

Credit Glossary

It's hard enough trying to stay on top of your credit let alone learn the industry lingo. We've compiled a glossary of industry terms to help you stay ahead of the curve when dealing with your credit, auto loans, home loans, debt, and savings.

Impound

The portion of a borrower's monthly payments held by the lender or loan servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments and other items as they become due. Also known as "reserves."

Index

A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage, and that earned by other investments (such as 1-, 3-, and 5-year U.S. Treasury security yields, the monthly average interest rate on loans closed by savings and loan institutions, or the monthly average costs-of-funds incurred by savings and loans), which is then used to adjust up or down the interest rate on an adjustable mortgage.

Indexed Rate

The sum of the published index plus the margin. For example, if the index is 5% and the margin is 1.75%, the indexed rate would be 6.75%. Often, lenders charge less than the indexed rate in the first year of an adjustable rate mortgage.

Individual Retirement Account (IRA)

An investment account in which an individual can set aside income up to a specified amount each year and usually deduct the contributions from taxable income, with the contributions and interest earned being tax-deferred until retirement.

Installment

The regular periodic payment that a borrower agrees to make to a lender.

Installment credit

Credit accounts in which the debt is divided into amounts to be paid successively at specified intervals. Mortgages and auto loans are examples of installment credit.

Insurance

Protection against a specific loss over a period of time which is secured by the payment of a regularly scheduled premium.

Interest

1. A fee charged for the use of borrowed money.
2. The cost of borrowing money or lending money; usually a percentage of the amount borrowed or loaned.
3. The money earned on a deposit investment.

Interest accrual rate

The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments.

Interest rate

1. The amount of interest charged on a monthly loan payment, usually expressed as a percentage.
2. The rate at which a credit card company or other lender charges a customer for "borrowing" money. It is a percentage of the amount borrowed.

Interest rate buydown plan

An arrangement that allows the property seller to deposit money to an account. That money is then released each month to reduce the mortgagor's monthly payments during the early years of a mortgage.

Interest rate ceiling

For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

Interest rate floor

For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.

Introductory rate

Also referred to as a "teaser rate". The low interest rate charged by a lender for an initial period. After the initial period ends, the interest rate charged increases to the indexed rate, or the stated interest rate.

Introductory period (or intro APR)

A temporary, lower annual percentage rate, granted for a credit card account for a certain period of time, after which the APR is raised. Usually done as a promotional tactic to make a credit card look attractive to new customers.

Investigation

The process a consumer credit reporting agency (credit bureau) goes through in order to verify credit report information disputed by a consumer. The credit grantor who supplied the information is contacted and asked to review the information and report back.

Item-specific statement

Offers an explanation about a particular trade or public record item on your report, and it displays with that item on the credit report. Also known as consumer statement or 100-word statement. See date of last activity.

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