Mastering the language of credit and finance empowers consumers to negotiate better terms, avoid hidden charges, and make informed borrowing decisions.
Core Financial Definitions
- Amortization: The gradual reduction of debt through regular, scheduled installment payments comprising both principal and interest.
- Charge-Off: A declaration by a creditor that a delinquent debt is unlikely to be collected (typically after 180 days of non-payment), though the legal obligation to pay remains.
- Debt-to-Income (DTI) Ratio: Total recurring monthly debt payments divided by gross monthly income. Lenders prefer DTI <36%.
- FICO Score: A three-digit credit risk score ranging from 300 to 850 calculated from credit bureau files.
- Origination Fee: An upfront fee charged by a lender to process and underwrite a new loan application.