Glossary of Important Terms

Credit: Credit is a modern way of borrowing money from a lender, bank, credit union or credit company to pay for purchases now—and then repay the lender at a later date. Using credit isn’t free—you’ll be charged interest for the privilege of using someone else’s money now. The most common form of credit is a credit card.

Credit Bureau: A credit bureau is a company that collects and reports information about your credit. There are three main credit bureaus: Experian, TransUnion, and Equifax.

Credit Report: A credit report is a document that’s issued by one of the three major credit bureaus. It contains four main categories of information about your use of credit and your creditworthiness. These categories are: Personal Information, Credit History, Inquiries and Public Records.

Credit Score: Your credit score (most typically a FICO score) is a numeric “grade” between 300 and 850 that represents your creditworthiness. The higher your score, the better your credit—which means you’ll qualify for lower interest rates on loans, credit cards, and insurance rates. Your credit score is important.

Interest: Using credit sounds great. You get to spend money you don’t have now, and pay it back over time later. As great as it is, it’s not free. Interest is the cost of borrowing money. If you borrow $100 from a lender, they might charge you $10 for the privilege of doing so. You would then have to repay $110 at the end of the term of your loan.

Interest Rate: The amount of interest you are charged when you borrow money is most often expressed as an interest rate. That is, the percent of the money you borrow (or credit you use). If you borrow $100 and your lender charges you $10 for the privilege of borrowing that money, the lender is charging you 10% interest.

Lender: Want to borrow money? A lender is who you borrow from. A lender could be anyone from a bank, to a credit card company, to an online loan company, to a parent or a friend. Lenders charge different interest rates and offer different types of credit or personal loans.

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