Glossary
Adverse action codes
Score factors, also called reason codes or score factors, are numerical or word-based codes that describe the reasons why a particular credit score is not higher. For example, a code might cite a high utilization rate of available credit as the main negative influence on a particular credit score. The codes are often provided with credit score reports, or with adverse action reports issued after denial of credit. Different sources of credit scores use different code systems.
Algorithm
An algorithm is a predetermined, finite set of steps or calculations in which data are rigorously analyzed. In credit scoring, algorithms are the complex set of calculations that analyze a person’s or a business’s past behavior with credit to determine the level of risk that person or business carries for future loans.
App-o-rama
An app-o-rama describes the practice of credit card points and miles junkies to apply for multiple credit cards in a very short period of time. By limiting the span of time between applications, an app-o-rama limts the odds that you’ll be turned down for a card due to multiple applications. App-o-ramas are less effiective than they used to be, and require more research, because credit inquiries now show up on a credit bureau’s datase in close to real-time.
Application
A credit card application is the document a consumer or consumers sign to request a credit card. It typically asks for personal information such as income and Social Security number to help the card issuer decide whether to extend credit and at what rate. Who signs the application is particularly important. If a husband and wife both apply, for example, then both become individually responsible for the entire debt.
Approval response
An approval response is an authorization that is received by a merchant when a transaction is approved.
Arbitrage
Arbitrage, also called stoozing, is the practice of taking a free or low interest loan from a credit card company, depositing it in a high-yield savings account, making the minimum payments on the card and pocketing the difference. Consumers who practice arbitrage make money on the interest rate spread between money received and money paid — just like a bank.
Association
A credit card association is a group of card-issuing banks or organizations that set common transaction terms for merchants, issuers and acquirers. Some major associations are Visa, MasterCard, American Express and Discover.
Authorized user
An authorized user is any person who has permission to use a credit card account, but is not responsible for paying the bill. Authorized users differ from joint credit, in which both parties are obliged to pay. In some cases, the user will receive a credit card in his or her name, even though it is linked to someone else’s account.
Additional cardholder
When you have a credit card, it is often possible to add an additional card to the account for use by someone else. The main cardholder remains responsible for making payments on all charges made, whether by the original cardholder or the additional cardholder.
Authentication
Authentication is the process of assuring that a credit card transaction has been initiated by an authorized user of that card. From the merchant’s point of view, authentication means getting the right information from the consumer, and having it verified by the transaction network. In recent years, authentication has been stepped up by means including security codes on credit cards.
Balance chasing
The practice by some banks of cutting a customer’s available line of credit multiple times as the borrower pays down the card’s balance.
Behavioral modeling
Behavioral modeling is a technique used by some credit card companies. It uses consumers’ purchasing behavior to assess their risk of defaulting. Behavioral modeling is controversial: Someone who suddenly swithces to shopping at bargain stores may be suddenly frugal, not suddenly risky.
Behavior score
A behavior score is an internal, proprietary scoring system used by some credit card issuers to supplement the credit scores they purchase from credit bureaus. A behavior score, like a traditional credit score, is a numeric summary of the bank’s experience with the customer. Behavior scores include a deeper analysis than the credit bureaus can provide, since the card issuer can mine the customer’s payment history, credit utilization over time and even the amounts and types of products purchased.
Behavior-based repricing
Behavior-based repricing is an interest rate hike attached to new balances. It is determined by “risky” behavior of an account such as late payments and/or credit limit overage.
Bank identification number (BIN)
A bank identification number (BIN) is the first six digits of a Visa or MasterCard account number. The bank identification number is used to identify the card-issuing institution
Blocks
With credit and debit cards a “block” may be placed on a portion of a consumer’s credit limit or available debit balance if the final amount of a transaction is unknown. That can happen at gas stations, restaurants or hotels, because the merchant can’t know at the time the card is presented how much you’ll pump, how much you’ll tip or how many drinks you’ll take from the minibar. Consumers near their credit or debit limits need to watch their available balances carefully, or the hold amount could push them over the limit, triggering a fee. Blocks, also called holds, are usually released within minutes or hours, but blocks can sometimes last days.
A person is considered collection-proof if he or she has so few assets that creditors have little hope of collecting anything. While a creditor has the right to sue and seek a judgment against any debtor, in reality, most will not bother to pursue the case if the debtor is collection-proof. Also known as judgment-proof.
Credit mix
Credit mix is one of the five factors used in determining a credit score. To achieve a maximum credit score, you want to demonstrate that you can handle different types of loans, whether it’s a revolving loan such as a credit card, or an installment loan such as an auto loan. Having a broad credit mix is good for your score. The formula for the commonly used FICO credit score considers credit mix to be worth 10 percent of the score.
Credit inquiry
A credit inquiry is created when a lender pulls someone’s credit record. It creates a record in a credit report of each time the borrower, a lender or a potential lender obtains a copy of the consumer’s credit report. Credit inquiries, especially multiple inquries, may negatively impact credit scores. See hard inquiry and soft inquiry.
Credit history
Credit history is the record of use of debt. In the United States, three major credit bureaus — Experian, TransUnion and Equifax — track individuals’ and businesses’ credit histories, and compile them into credit reports. Credit card issuers and other lenders use credit histories to decide whether to provide customers with credit, and on what terms. What records are kept in your credit history, for how long and how they may be used are regulated by the federal Fair Credit Reporting Act
Credit utilization ratio
A credit utilization ratio is used in the calculation of credit scores. It compares the amount of credit being used to the total credit available to the borrower. Having a low ratio — in other words, not much debt but a lot of available credit — is good for your credit score. Experts say you should keep that ratio as low as possible, both overall, and on each card . The ratio is also known as a balance-to-limit ratio, or credit-available-to-credit-used ratio.
Credit muling
Credit fraud in which a customer of a bank uses his or her own name and information to obtain high-value loans with no intention of paying them back. Also known as first party fraud.
Carding
In the credit card world, carding is a term for the activities of carders — thieves who use various means to illegally acquire and use credit or debit card account information for their own gain.
Charge-back period
The charge-back period is the number of days, from the transaction’s processing date or endorsement date, during which the issuer may initiate a charge-back.
Churning
Taking on multiple new rewards cards to get the sign-up bonuses, then canceling them (usually before the annual fee is due) and reapplying to get the bonuses again is called churning.
Choice of law
A choice of law clause is a common component of credit card agreements. The clause names the card issuer’s home state and calls for that state’s laws to govern disputes between the issuer and the cardholder. However, courts are not bound by the clause. They may decide that the law in the state where the case is filed should apply to the dispute.
Claims and defenses
Claims and defenses is a category of consumer complaint, protected by federal law, that can be used to dispute a credit card charge. Claims and defenses can be filed up to one year from the time of the disputed purchase but must meet four criteria: 1) The amount in dispute is more than $50; 2) You must not have paid the disputed charge; 3) You must have made a good-faith effort to get a refund from the merchant first; 4) The merchant must be within 100 miles of your home and within your state (this requirement is waived for online purchases).
Credit rating
A credit rating is a measure of the creditworthiness of a borrower. In credit cards and other borrowing, credit ratings are calculated by the credit bureaus, based on past payment behavior, income, employment and other factors that serve as a general predictor of ability and propensity to repay debts.
Credit bureau risk score
A credit bureau risk score is a snapshot of a person’s credit history, based only on the information available through credit bureaus. It the risk score evaluates people for the benefit of lenders, to help them decide the risk of whether a debt will be repaid.
Credit freeze
A credit freeze is a service available to consumers through the credit bureaus in which consumers lock down their credit, preventing new accounts from being opened. It is a useful tool in cases where identity theft has been detected or is suspected. The credit bureaus charge fees for establishing credit freezes unless identity theft has occurred. They also charge for “thawing” the credit freeze, should a consumer decide to open a new account.
Closed loop
Closed loop is a payments industry term for a gift or credit card that can be used only in a single store or group of stores. Closed loop cards rarely have purchase fees, dormancy fees or other fees associated with the general purpose, open loop gift cards.
Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau, or CFPB, is a federal agency charged with being a watchdog for consumer financial products, such as credit cards, payday loans, mortgages and student loans. Approved as part of the massive Wall Street reform bill signed by President Obama in July 2010, the agency officially launched in July 2011.
conjoined account
The word conjoined can have many meanings, but in banking terms, it refers to an account with two or more names on it. Those people have a conjoined account.
Contactless payments
Payment transactions that require no physical contact between the consumer’s payment device and the physical terminal. To make this type of payment, the consumer holds the contactless card, device, or mobile phone close to the terminal and payment information is communicated wirelessly via radio frequencies.
Credit Card Accountability, Responsibility and Disclosure Act of 2009
Signed into law on May 22, 2009, the federal act limits when credit card interest rates can be increased on existing balances, requires 45 days’ advance notice of significant changes in credit card terms and gives consumers at least 21 days to pay their monthly bills. The bulk of the provisions took effect Feb. 22, 2010. It is also known as the Credit CARD Act of 20
Cross-collateralization
Cross-collateralization is a method used by lenders to secure one type of loan with the collateral from another. In consumer loans, it is most often used by credit unions. If you have a savings account, an auto loan and a credit card from a single lender, the fine print of the loan may include the auto or the savings as cross-collateral for the credit card. If you default on your credit card, the lender could claim the auto or the savings to pay the default amount.
Cramdown
A cramdown is a jargon term used to describe the ability of a bankruptcy judge to lower the amount owed by a debtor to a creditor.
CVV
CVV is one of the credit card industry’s several acronyms for the credit card security code that helps verify the legitimacy of a credit card. Depending on the card, the security code can be a three-digit or four-digit number, printed on either on the back of the card or the front. CVV stands for “card verification value” code. Other card issuers call their security codes CVV2 (Visa), CVC2 (MasterCard) or CID (American Express).
Commercial credit score
A commercial credit score uses a firm’s credit history to calculate a number indicating a company’s risk, similar to what a consumer credit score does for borrowers. Also, known as a business credit score, the number predicts the likelihood of a company’s late payment. The three leading commercial score issuers are commercial information firm Dun & Bradstreet and credit bureaus Equifax and Experian.
Cashing
Cashing is a form of carding that involves using stolen credit card or debit card information to directly withdraw cash from an identity theft victim’s credit line, credit card or bank account. Also known as “PIN cashing.”
Fee harvesting cards
Cards for people with bad credit often carry high fees — such as annual fees, monthly fees, setup fees, activation fees — that make credit extraordinarily expensive. Cards for with numerous fees for people with subprime credit are known as fee harvesting cards. The Credit CARD Act of 2009 limits upfront fees to 25 percent of the available balance for the first year.
Fee-harvesting credit cards
Fee-harvesting credit cards are those whose purpose is to generate fee income for the issuer. The cards tend to have low credit limits, much of which can be eaten up by the various fees imposed, from processing fees to monthly and annual fees. Because the worst of these cards were seen as unfair to consumers, the Credit CARD Act of 2009 included caps on fees. The act says no more than one-quarter of a card’s credit limit can be consumed by fees in the first year the account is opened. Thus, fees on a card with a $400 limit are capped at $100.
Floor limit
An amount that Visa and MasterCard have established for single transactions at specific types of merchant outlets and branches, above which authorization is required.
Forbearance
Forbearance programs are established by credit card companies to give temporary relief to overstretched cardholders. They can take several forms, among them: postponing payments for six months to a year or even longer; lowering minimum payment monthly payments; reducing interest rates; eliminating some fees. Forbearance is not forgiveness — consumers still must repay the credit card debt.
Fullz
Fullz is a slang term used by credit card hackers and data resellers meaning full packages of individuals’ identifying information. “Fullz” usually contain an individual’s name, Social Security number, birth date, account numbers and other data. Fullz are sold to identity thieves, who use them in credit fraud schemes. See “Four ways crooks cash in on your stolen information“
Fair Debt Collection Practices Act (FDCPA)
Congress passed the U.S. Fair Debt Collection Practices Act in 1977 to fight harassment, deception and other abuses. The law applies to “third-party” debt collectors, meaning those who collect on behalf of creditors. It restricts when collectors may call and what they may say. It also gives individuals the right to sue collectors in order to enforce the law’s consumer protection provisions.
G.19 report
The monthly Federal Reserve G.19 report considers various types of consumer debt, including revolving credit — a loan category comprised almost entirely of credit card debt — as well as nonrevolving debt, which includes such debt as auto loans, student loans and loans for mobile homes, boats and trailers. Also known as the consumer credit report.
Jamming
Jamming is a scam by fraudulent credit repair firms who bulk mail dispute letters to credit bureaus, asking to have legitimate information removed from a customer’s credit record. The process jams up the dispute process and ultimately fails the fee-paying consumer too.
joint and several liability
This comes into play when there are multiple parties that are held responsible for a debt. Under “joint and several liability,” the creditor can approach any of the responsible parties for the entire amount owed — rather than collect a piece of what’s owed from each individual party. The party that pays the full amount owed can then seek a contribution from the other responsible parties, though the others are not obligated to help.
Means test
There are many types of means tests, but it took on a new, credit-related meaning with the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act, which went into effect in 2005. The act imposed a means test that limits the ability of high wage earners to dispose of their debts through Chapter 7 bankruptcy. Because costs of living vary, the bankruptcy means test varies by state.
Mail or Telephone Order Merchandise Rule
The FTC rule, also referred to as the 30-day rule, requires merchants who are shipping a product to a buyer do so within a reasonable period of time. If the merchant cannot ship within 30 days (or within the period of time stated), the customer’s consent must be sought to allow for the delay. If no consent is obtained or if the customer does not consent to the delay, the merchant is required to refund the customer’s money in a prompt manner for the unshipped merchandise.
Post date
In credit card terms, the post date is the date upon which cardholders’ purchases are recognized on the books of their credit cards’ issuers.
Restore Online Shoppers Confidence ACT (ROSCA)
The Restore Online Shoppers’ Confidence Act, signed into law in 2010, prohibits “data pass” transactions in which a consumer’s payment card information is passed from one merchant to another for the purpose of making additional sales with little consumer consent. The law requires third-party sellers to clearly and conspicuously disclose who they are and what they are selling, and that consumers take affirmative actions to permit the additional sales.
Revolving line of credit
A revolving line of credit refers to a bank or merchant offering a certain amount of always available credit to an individual or corporation for an undetermined amount of time. The debt is repaid periodically and can be borrowed again once it is repaid. Borrowing using a credit card is an example of using a revolving line of credit.
Revolving charge
A revolving charge refers to a type of credit in which the amount owed and the length of time it is owed are variable. A credit card is a financial instrument that offers revolving charges. Users can charge any amount up to their credit limit, and the lender does not require the full amount to be paid immediately — the charges revolve at the end of the billing period. Some cards do not allow charges to revolve, but require payment at the end of the billing cycle (usually monthly). They are called charge cards.
Return assistance program
A credit card benefit intended to extend a retailer’s refund policy. If the cardholder cannot get a refund from the merchant, the card issuer may provide one, within limits.
Re-aging, or re-age
Re-aging is a term that involves unpaid debt. If a consumer makes a payment, no matter how small, or even makes a verbal commitment to pay, on a debt that has exceeded or is approaching the end of the statute of limitations, the debt may be re-aged. Re-aging a debt means the clock starts anew on the statute of limitations, extending the time that a creditor may use the courts to collect that debt. Consumer advocates now advise debtors not to acknowledge old debts or debts they don’t recognize as their own to avoid inadvertently re-aging the debt, and resetting the clock on the statute of limitations. On rare occasions, a consumer might want to re-age a debt. For example, you may negotiate a deal with a lender to re-age a debt in exchange for removing late payment and/or collection activity from your credit record, which would improve your credit score.
Residual interest
Residual interest is the amount of interest that accrues between when a credit card bill is sent, and when payment is received. Also called “trailing interest,” It applies only when you carry a balance on your credit card. Consumer advocates call it an unfair practice because unless you call your issuer and ask exactly how much it will cost to pay your bill in full on the date you expect your payment to arrive, you’ll still owe interest on your next bill, regardless of whether you make any more purchases with your card.
Z (regulation)
Regulation Z is a 1969 addition to the U.S. Truth in Lending Act (TILA) that spelled out many of the obligations of credit card issuers toward consumers. Under Regulation Z, credit card issuers are required to disclose the terms and conditions to potential and existing cardholders at the point of account opening and at regular intervals.
Sin purchases
Potentially controversial goods such as alcohol, tobacco, lottery tickets, tattoos or adult movies. Purchases of such item may be legal in the U.S. as a whole, but 12 states have rules restricting the use of Electronic Benefit Transfer (EBT) cards for such transactions. Depending on the state, retailer, card issuer and/or bank involved, credit cards may also not be used to purchase lottery tickets.
Straight-roller
A term used to describe a delinquent credit card account that spirals downward as it goes from current, to 30 days late, to 60 and 90 days past due, and so on with no attempt to make payments.
Score factor
Score factors, also called reason codes or adverse action codes, are numerical or word-based codes that describe the reasons why a particular credit score is not higher. For example, a code might cite a high utilization rate of available credit as the main negative influence on a particular credit score. The codes are often provided with credit score reports, or with adverse action reports issued after denial of credit. Different sources of credit scores use different code systems.
Truncation
The habit of merchants to display only some digits of a customer’s credit card number on a sales draft or receipt, in order to provide better security while still enabling identification (for the cardholder) of the card used. Truncation has been required by federal law since 2006. By law, no more than the last five digits of a debit or credit card may be shown on a receipt.
trade line
A trade line is the most common type of entry found on credit reports. Each trade line represents a credit account that has been reported to a credit bureau. It contains detailed information about the account, including the type of account, the account number, account owner and payment status. The trade line also shows when the account was open (or closed), the credit limit, payment history, balance and the date of last activity. Sometimes spelled tradeline.
VantageScore
A credit score product launched in March 2006 by the three major credit bureaus (Equifax, Experian and TransUnion) as a competitor product to the FICO score. Like a FICO score, a VantageScore
is a three digit numeric value that assesses a borrower’s credit risk.
DAAP
UDAAP stands for Unfair, Deceptive, or Abusive Acts and Practices. UDAAP is defined under the Dodd-Frank Act signed in to law in 2010. The Act states it is unlawful for any provider of consumer financial products, services or a service provider to engage in any unfair, deceptive, or abusive acts and practices.
Usury
The lending of money, especially at exorbitant interest rates. Many states have usury laws that cap interest rates, but a 1978 Supreme Court rulings allowed credit cards or other lenders to ignore those laws if the lender is headquartered in a state that does not have them. Most major card issuers have located their headquarters in states with no usury laws. That effectively negated state usury laws, and hence there is no cap on most credit cards’ interest rates. They can charge usurious rates, legally.
Written statement of unauthorized debit (WSUD)
A written statement of unauthorized debit (WSUD) is a form that must be filled out by bank customers who find bogus or incorrect debits in their accounts. The form is supplied by a financial institution where the charge took place, and it initiates the process of reversing an ACH debit that the card user says was unauthorized, ineligible or improper, or for which the authorization has been revoked. The consumer must file the WSUD within 60 days after transmittal of the first bank statement showing the unauthorized transaction.
Worst status
When you check your credit score or are denied a line of credit, you’re given reason codes that explain why your score isn’t higher or why you weren’t approved. The term “worst status” is often used in reason code summaries to indicate the worst state that one of your accounts has been in. For instance, if you missed a credit card payment by 30 days or more, a reason code might say “Delinquent/derogatory item is worst status on revolving accounts.”
Zombie debt
Zombie debt is old credit card and other debts that are beyond the statute of limitations, so a debt collector cannot successfully use the courts to collect them. Although these debts no longer have the courts as an avenue of collection, there’s nothing to prevent debt collectors from asking consumers to pay them. In recent years, the debt collection industry has expanded, creating more agencies and lengthier efforts to collect. So from the consumer’s perspective, debts don’t die, they rise to live on and on. Like zombies.