Understand, Build, and Manage Your Credit
When you’re applying for a credit card, buying a home, or financing a car, you’ll encounter many financial terms. These can be confusing if you’re not familiar with them. To help you out, we’ve compiled a list of the most commonly used credit terms along with their clear explanations.
Key Credit Terms and What They Mean
Accelerated Payment
This term refers to making your scheduled payment plus an extra amount each month. By doing so, you’ll pay off your debt faster and reduce the total interest paid over time.
Account Condition
Each credit account on your Experian report includes an “Account Condition.” This label shows the account’s current status—such as current or past due—but does not show your payment history.
Account Monitoring
After your credit gets approved, lenders may continue checking your report. This practice, known as account monitoring, helps them manage financial risk. They scan your report for risk factors they’ve defined in advance. When you signed your credit application, you gave them permission to do this.
Accounts in Good Standing
These accounts reflect responsible borrowing. They list the lender’s name, your account number, the status (such as paid or current), the type of account, and other details. However, not all lenders report information to every agency, so some accounts might not appear on your report.
Acquisition Fee
This fee is the cost of acquiring a business or property.
Additional Monthly Payment
This refers to the extra amount you pay each month on top of your minimum required payment. It reduces your principal balance faster and saves you money in the long run.
Adjustable Rate Mortgage
This type of loan comes with a changing interest rate. The rate depends on market conditions and often follows the rates of Treasury securities.
Adjustment in Bankruptcy
In Chapter 13 bankruptcy, this term refers to the percentage of debt you must repay to your creditors.
Affiliate Bureau
This is a credit reporting agency that partners with Experian.
Affinity Card
An affinity card is issued through a partnership between a credit card provider and another organization—such as a charity, airline, or alumni group. For example, Citibank works with American Airlines to offer the AAdvantage card.
AKA (Also Known As)
This abbreviation identifies other names a person may use on financial accounts or reports.
Amortization
Amortization describes the process of paying off a loan through regular payments. Each installment includes part of the principal and the interest.
Amount Past Due
This shows how much you currently owe in late payments.
Annual Fee
Credit cards often come with an annual fee, which is charged once a year. Although some cards offer no annual fee, many include this as part of your overall credit cost.
Annual Income
Your annual income includes all the money you earn in a year. If you’re married, combine both incomes for the total.
Annual Interest Rate
This rate shows how much interest you pay over one year. It’s expressed as a percentage of your outstanding balance. Most lenders cap this rate at 20%.
Annual Percentage Rate (APR)
The APR gives a complete picture of how much borrowing will cost you over a year, including interest and fees.
Annual Rate of Return
This figure shows your yearly investment return before taxes. For example, a savings account might earn 2%–5%, while the stock market average is closer to 11%.
Appraisal
An appraisal is a formal estimate of a property’s value at a given time. A licensed appraiser typically performs this task.
Appraisal Fee
This is the fee charged to estimate a property’s market value—usually as part of a loan or purchase.
Asset
An asset includes anything you own that has value. Examples include real estate, investments, savings, and personal property.
Association Code
This code explains your relationship to a credit account. It may show whether you’re the primary borrower or an authorized user.
Authorized User
This person has permission to use someone else’s credit card account. However, the main account holder is legally responsible for all charges.
Average Daily Balance
This method helps calculate interest on your credit card. It adds up your balance each day during the billing cycle and divides it by the number of days. Lenders then apply a daily interest rate to that average to find the finance charge.