Financial Terms Glossary: P Q R

Periodic Expenses | Expenses that come less frequently than once per month, like auto club memberships or insurance premiums that are due a few times per year, or things like auto registration or property taxes that are due once per year. Periodic Rate | The interest rate you are charged each billing period. For most credit cards, the periodic rate is a monthly rate. You can calculate your card’s periodic rate by dividing the APR by 12. A credit card with an 18% APR has a monthly periodic rate of 1.5%. Permissible Purpose | Specific guidelines regulating when your credit data can be reviewed and by what type of business. These guidelines are part of the FCRA laws under Section 604. Permissible purposes of consumer reports. Person to Person Loan | Usually applied to auto loans; this loan is a request for direct financing for a vehicle rather than a loan through a dealership. PITI Acronym for the four elements of a mortgage payment: principal, interest, taxes and insurance. Point A unit for measuring fees related to a loan; a point equals 1% of a mortgage loan. Some lenders charge “origination points” to cover the expense of making a loan. Some borrowers pay “discount points” to reduce the loan’s interest rate. Pre-Approval Letter | A document from a lender or broker that estimates how much a potential homebuyer could borrow based on current interest rates and a preliminary look at credit history. The letter is a not a binding agreement with a lender. Having a pre-approval letter can make it easier to shop for home and negotiate with sellers. It is better to have a pre-approval letter than an informal pre-qualification letter. Prepayment Penalty | A fee that a lender charges a borrower who pays off their loan before the end of its scheduled term. Prepayment penalties are not charged by most standard lenders. Subprime borrowers should review the terms of their loan offers carefully to see if this fee is included. Pre-Qualification Letter | A non-binding evaluation of a prospective borrower’s finances to determine how much he or she can borrow and on what terms. A pre-qualification letter is a less formal version of a pre-approval letter. Principal The amount of money borrowed with a loan or the amount of money owed, excluding interest. Private Mortgage Insurance (PMI) | A form of insurance that protects the lender by paying the costs of foreclosing on a house if the borrower stops paying the loan. Private mortgage insurance usually is required if the down payment is less than 20% of the sale price. Promotional Inquiry | A type of soft inquiry made by a creditor, lender or insurer in order to send you a pre-approved offer. Only limited credit data is made available for this type of inquiry and it does not harm your credit score. Public Records | Information that is available to any member of the public. Public records like a bankruptcy, tax lien, foreclosure, court judgment or overdue child support harm your credit report and credit score significantly. Qualifying Ratios | As calculated by lenders, the percentage of income that is spent on housing debt and combined household debt. Rate Shopping | Applying for credit with several lenders to find the best interest rate, usually for a mortgage or a car loan. If done within a short period of time, such as two weeks, it should have little impact on a person’s credit score. Reaffirmation Agreement | An agreement by a bankrupt debtor to continue paying a dischargeable debt after the bankruptcy, usually to keep collateral or a mortgaged property that would otherwise be repossessed. Re-aging Accounts | A process where a creditor can roll-back an account record with the credit bureaus. This is commonly used when cardholders request that late payment records are removed because they are incorrect or resulting from a special circumstance. However, re-aging can also be used illegally by collections agencies to make a debt account appear much younger than it actually is. Some collections agencies use this tactic to keep an account from expiring from your credit report in order to try to get you to pay the debt. Repayment Period | The period of a loan when a borrower is required to make payments. Usually applies to home equity lines of credit. During the repayment period, the borrower cannot take out any more money and must pay down the loan. Repossession When a loan is significantly overdue, a creditor can claim property (cars, boats, equipment, etc.) that was used as collateral for the debt. Reverse Mortgage | A mortgage that allows elderly borrowers to access their equity without selling their home. The lender makes payments to the borrower with a reverse mortgage. The loan is repaid from the proceeds of the estate when the borrower moves or passes away. Revolving Account | An account where your balance and monthly payment can fluctuate. Most credit cards are revolving accounts. Revolving Debt | A credit arrangement that allows a customer to borrow repeatedly against a pre-approved line of credit when purchasing goods and services. The debt does not have a fixed payment amount. Reward Program Fee | The fee charged customers to be enrolled in a rewards program. Some creditors do not charge a fee. Rewards Card | A credit card that rewards spending with points, cash back programs or airline miles. These types of cards usually require that borrowers have good credit and commonly involve an annual fee. Risk Score | Another term for a credit score. (See Credit Score, FICO Score, Beacon Score and Empirica Score)