Credit Basics Vocabulary

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Credit

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Amount of money a creditor is willing to loan another to purchase goods and services, based on trust and the expectation that the money will be repaid as promised with interest.

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Principal

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The amount of money someone is willing to loan you. Also, the amount that is still owed on a loan.

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Interest

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Payment for use of someone else’s money; usually expressed as an annual rate in terms of a percent of the principal.

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Lender

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One who lends; may be an individual, a business or a government.

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Borrower

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An individual, business or government that has received and used something belonging to somebody else, with the intention of returning or repaying it - often with interest in the case of borrowed money.

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Capacity

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Ability to repay a loan from present income; one of three factors in credit scoring.

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Character

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Refers to trustworthiness; one of three factors in credit scoring (e.g., paying bills on time shows financial responsibility). Creditworthiness indicating a responsible attitude towards living up to agreements.

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Credit Card

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Card that enables holder to charge expenses for purchases or to get money, often with interest; synonymous with “buy now, pay later.”

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Credit Limit

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The maximum amount of credit a lender will extend to a customer.

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Credit Worthiness

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A measure of one’s ability and willingness to repay a loan.