Financial Glossary
Plain-language definitions for the terms that matter most in your financial recovery.
APR (Annual Percentage Rate)
The true annual cost of borrowing money, including both the interest rate and most fees. Always compare APR — not just the interest rate — when evaluating loans and credit cards.
Credit Utilization
The percentage of your revolving credit limits that you are currently using. Accounts for about 30% of your FICO score. Keeping this under 30% (ideally under 10%) helps your score.
Debt-to-Income Ratio (DTI)
Your total monthly debt payments divided by your gross monthly income. Lenders use this to determine your capacity to take on additional debt. Most want your DTI below 43%.
Date of First Delinquency (DOFD)
The date a debt first became past due and was never brought current. This date starts the 7-year clock for how long a negative item can stay on your credit report — not when it was sold to collections.
Compound Interest
Interest calculated on both the original principal and the accumulated interest from previous periods. Makes savings grow faster over time, but also makes high-rate debt more expensive.
Simple Interest
Interest calculated only on the original principal, not on accumulated interest. Most auto loans and personal loans use simple interest amortization.
Avalanche Method
A debt payoff strategy where you direct extra payments toward your highest-interest debt first while paying minimums on everything else. Saves the most money in total interest paid.
Snowball Method
A debt payoff strategy where you direct extra payments toward your smallest balance first. Provides psychological wins early in the process, which helps many people stay on track.
Secured Credit Card
A credit card backed by a cash deposit you make, which typically becomes your credit limit. Used to build or rebuild credit when traditional unsecured cards are not available.
Hard Inquiry
A credit check that occurs when you apply for new credit. Can reduce your score by 5–10 points temporarily. Multiple hard inquiries within 14–45 days for the same type of loan (mortgage, auto) typically count as one inquiry.
Credit Builder Loan
A loan specifically designed to help people establish or rebuild credit. The loan amount is held in a savings account while you make payments. When paid off, you receive the funds and have a positive payment history on your report.
Pay for Delete
An agreement where a collection agency agrees to remove a collection account from your credit report in exchange for payment. Must be obtained in writing before payment. Not guaranteed — collection agencies are not required to agree.
Charge-Off
When a creditor writes your debt off as a loss after approximately 180 days of non-payment. The debt is still owed and collectable. A charge-off appears on your credit report for 7 years from the date of first delinquency.
Deficit
When your total monthly expenses exceed your total monthly income. Operating in a deficit requires borrowing or depleting savings to cover basic costs.
Surplus
When your total monthly income exceeds your total monthly expenses. A positive monthly surplus is the foundation of financial stability.
Emergency Reserve
A dedicated savings pool held separately from checking, set aside exclusively for genuine emergencies — job loss, medical events, or urgent essential repairs. Not a vacation fund.
HYSA (High-Yield Savings Account)
A savings account that pays significantly more interest than a standard savings account, typically offered by online banks. Used to hold your emergency reserve so it earns interest while remaining accessible.
FCRA (Fair Credit Reporting Act)
Federal law that governs how consumer credit information is collected, shared, and used. Gives you the right to dispute inaccurate information and limits how long negative items can stay on your report.
FDCPA (Fair Debt Collection Practices Act)
Federal law that limits how debt collectors can contact you and what they can say. Collectors cannot harass you, call at unreasonable hours, or make false statements. You can request in writing that they stop contacting you.
Amortization
The process of gradually paying off a loan through regular payments. Early payments on an amortized loan are mostly interest. As the balance decreases, more of each payment goes toward principal.