Financial Terms Glossary: C D

Credit Repair | A generally unscrupulous or illegal form of credit counseling that promises the impossible, such as erasing accurate records from your credit report. Credit Report | The individual records of consumer financial behavior kept by credit bureaus and provided to businesses when they want to evaluate potential borrowers. Credit reports include records on: consumer name, current and former addresses, employment, credit and loan histories, inquiries, collection records, and public records such as bankruptcy filings and tax liens. Credit Score | A numerical evaluation of your credit history used by businesses to quickly understand how risky a borrower you are. Credit scores are calculated using complex mathematical formulas that look at your most current payment history, debts, credit history, inquiries and other factors from your credit report. Credit scores usually range from 300-850, the higher the score, the better. There are thousands of slightly different credit scoring formulas used by bankers, lenders, creditors, insurers and retailers. Each score can vary somewhat in how it evaluates your credit data. Debt The amount of money owed. Debt Consolidation | A process of combining debts into one loan or repayment plan. Debt consolidation can be done on your own, with a financial institution or through a counseling service. Student loans are often consolidated in order to secure a lower interest rate. (See Debt Counseling and Debt Settlement) Debt Counseling | A type of credit counseling that focuses specifically on helping people with debt issues. Instead of consolidating debts into one loan, debt counseling agencies negotiate with your creditors using pre-set agreements and spread your payments over a longer period in order to reduce the monthly amount due. Usually non-profit companies, most of these agencies offer helpful and affordable services. Consumers should be aware that there are also debt counseling agencies that are expensive, ineffective and even damaging to the client’s credit score (see Credit Repair). Debt Management Plan | A repayment plan that helps consumers pay off their debts over a set period of time with consolidated payments, often with reduced monthly payments, interest rates, and fees. Debt Settlement | A process where you pay an agency to negotiate directly with your creditors in the hopes of making significantly reduced settlements for your debts. Working with a debt settlement company can result in damaged credit from numerous late payments and collection records. Consumers should fully investigate the practices, reputation and costs of working with a debt settlement company before signing up. Debt-to-Available-Credit Ratio | The amount of money you owe in outstanding debts compared to the total amount of credit you have available though all credit cards and credit lines. This ratio measures how much of your available credit you are using. The higher your debt to available credit ratio, the more risky you appear to potential lenders. Debt-to-Income Ratio | The percentage of your monthly pre-tax income that is used to pay off debts such as auto loans, student loans and credit card balances. Lenders look at two ratios: The front-end ratio is the percentage of monthly pre-tax earnings that are spent on house payments. In the back-end ratio, the borrower’s other debts are factored in along with the house payments. Default The status of a debt account that has not been paid. Accounts are usually listed as being in default after they have been reported late (delinquent) several times. Defaults are a serious negative item on a credit report. Default Purchase Rate | If you default on your account, your card issuer, may sell your debt to another company or collection agency. If that happens, you could be responsible for a different, and higher rate. Deficiency Any amount one still owes on a contract after the creditor sells the collateral and applies the proceeds to the unpaid obligation. Delinquency A term used for late payment or lack of payment on a loan, debt or credit card account. Accounts are usually referred to as 30, 60, 90 or 120 days delinquent because most lenders have monthly payment cycles. Delinquencies remain on your credit report for 7 years and are damaging to your credit score. Demand Draft Checks | A type of electronic check that can be created online by entering account numbers listed on the bottom of a personal check and that can be cashed without a signature. This system was originally designed to help telemarketers take check payments over the phone. Now it is one of the fastest growing fraud tools. Dispute The process of submitting a request to the credit bureaus to have an error on your credit report corrected. Disputes are investigated and updates made to your credit report over a 30 day period. If your correction is made, you will receive a letter from the credit bureaus and a copy of your updated credit report. If your dispute is rejected, you will receive a letter explaining why the credit bureau could not verify the correction. Divorce Decree | A court order that grants a divorce and outlines terms for child support, alimony and the separation of assets. While a divorce decree may define responsibility for shared debts (your spouse pays the car loan, you pay the mortgage) it does not legally separate responsibility for these accounts. In order to stop double responsibility and credit reporting of shared accounts, the debts must be closed or refinanced directly with the lender. Double Billing Cycle | The practice of 2-cycle billing was made illegal by the Credit CARD Act of 2009, which goes into effect in late February 2010. Some companies used to employ a double billing cycle, which means that while the due date on your statement refers to your minimum payment, the due date to pay off your entire balance is different. If that due date is two weeks earlier, and you pay off your entire balance on your card by the due date stated on your bill, then the company could still charge you interest for the two-week interim period.