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Credit dictionary

ANNUAL PERCENTAGE RATE or APR
The rate of interest charged by a creditor on an annual basis. It is expressed as a percentage of the money owed. The Annual percentage rate indicates what it costs to revolve a balance on the account. Interest is not added during a grace period. Also known as interest rate, or rate.
AVAILABLE CREDIT
The amount of credit available before the credit limit is reached. It is a dollar amount; for revolving credit it is the difference between the credit limit or original loan amount for installment loans and the current balance. Also known as open to buy or unused credit.
BANKRUPTCY
The process by which a person becomes bankrupt. There are two common types of personal bankruptcy: Chapter 7 and Chapter 13. Chapter 7 is a “straight bankruptcy” and gets rid of all debts (except some taxes and maybe alimony payments) at the price of a total liquidation of assets. Chapter 13 is a “wage earner repayment plan” and allows a borrower with a reliable income to pay off bills over a 36 to 60 month period. When a person files for bankruptcy, a record of the filing appears on the borrower’s credit report for up to 10 years. A bankruptcy record on a credit file severely damages the person’s credit rating—the more recent the filing, the worst.
CHARGE-OFF
A debt that is declared by the creditor as being uncollectible. This means the lender considers the money it loaned to the borrower is lost. Lenders use this as a last resort, once all collection efforts have failed. A bankruptcy filing often results in several accounts becoming charged-off. Charge-off s usually lower credit ratings. Also known as bad debt, charged-off account, charged-off balance, charged to loss, charged to profit and loss.
CREDIT BUREAU
A company that records a consumer’s credit history and sells it to prospective lenders to help them evaluate the consumer’s creditworthiness. Credit bureaus provide critical information used by lenders to review credit applications. Credit information is also sometimes used to make hiring and renting decisions. The three major credit reporting agencies in the United States are Equifax, Experian, and TransUnion. In addition to the three national credit bureaus.
CREDIT SCORE
A number used by lenders as an indication of how likely a consumer is to repay his/her loans. Credit scores are generated by a credit scoring model utilizing the data from a credit report. Lenders have been using credit scores for more than 30 years, and there is a multitude of credit scores used in the credit industry. Also known as credit ratig.
CREDIT SCORING SYSTEM
A complex mathematical formula used to assess a consumer’s creditworthiness from his/her credit report. The formula is developed using statistical techniques and millions of credit profiles. The model generates a credit score used by lenders to make consistent and objective credit decisions. While the credit bureaus all have several credit scoring models in their systems, many large lenders develop their own proprietary models.
CREDIT TERMS
The terms associated with a credit account. They include APR, credit limit, payment schedule, and fees (such as late payment, over-limit, cash advance, etc.). These terms are set by the lender and are a function of a consumer’s credit rating, such that a consumer with a better credit score usually has lower APRs and fees.
CREDITWORTHINESS
A measure of a consumer’s past and future ability and willingness to repay his/her debt. It is usually determined by a credit scoring system based on credit history.
Collection
Status that indicates that an account has been sent to a special department or an agency in order to try to collect some of the past-due money owed to a lender. Accounts are typically sent to collection when they become delinquent by 120 days (sometimes 90 days) or more. Accounts in collection have a special mention on the borrower’s credit report (as a collection status, special comment, narrative, remarks, or collection segment ID). A collection record on a credit file typically lowers the person’s credit rating.
DEFAULT
Failing to comply with the terms of a loan contract by missing one or more monthly payments. Defaulting on an account makes it become delinquent.
DELINQUENT
The payment status of accounts with a past due amount. Paying late or missing payments makes the account become delinquent. A special payment status is assigned to the account to indicate how many payments are late: an account that is 30 days delinquent has missed one month of payment; an account that is 60 days delinquent has missed two consecutive months of payment, etc. The lender may charge a higher APR to delinquent accounts, particularly for serious delinquencies such as 90 days or more. Delinquent is the opposite of current. Also known as in default, late, past due.
DEROGATORY
A negative reference appearing on credit reports, such as public records and severe delinquencies. An account gets a derogatory status when the consumer repeatedly fails to make the required payments and the account is turned over for special handling, such as collections, charge-off, repossession, etc.
DISPUTE
1 To question the accuracy of information on a credit profile. Disputes are usually initiated by consumers in writing, and have to be investigated with the lender and maybe the credit bureau(s).
2 To question the accuracy of a specific charge on a billing statement. Disputes have to be investigated jointly with the lender and the merchant associated with the charge and the lender. The account holder does not have to pay the disputed items until the dispute is resolved; however, he/she still has to pay the minimum payment on the rest of the bill.
EQUIFAX or EFX
One of the three national credit bureaus. Equifax Credit Information Services Inc., commonly known as Equifax, is headquartered in Atlanta, Georgia, and was formerly known as CBI.
EXPERIAN or EXP
One of the three national credit bureaus. Experian Information Solutions Inc., commonly known as Experian, is headquartered in Orange, California, and was formerly known as TRW.
FORECLOSURE
A legal procedure, initiated by a creditor, that has the purpose of having the property sold to collect on a loan in serious delinquency. Foreclosure can only happen in secured loans since it is the collateral that is used to repay the creditor. This typically happens for mortgages when three or more payments have been missed. Foreclosure is one of the types of derogatory information that appears on credit files (and lowers credit ratings).
HARD INQUIRY
A request for a credit report that generates an inquiry in the person’s credit data. This type of request must be authorized by the consumer. Hard inquiries are typical of lenders who use the information for making a credit decision, but insurance companies and rental agencies also may make a hard inquiry. Since hard inquiries result in a new inquiry being added to the credit report, they may lower credit ratings. Also known as business pull, hard hit, hard pull.
HIGH RISK
A person with a low credit rating, typically someone with either limited credit history or a troubled one. Many lenders will hesitate to lend to such people, and lenders who do typically charge a hefty price for it (through APR and fees).
INQUIRY
The record of a request for a credit report. Most inquiries are made by prospective lenders for the explicit purpose of making a credit decision. However, insurance companies, potential employers, or rental housing agencies may also
request credit reports as long as the consumer authorizes them. By filling out an application, consumers typically authorize the company to pull their credit report from one or more credit bureaus. In some cases, consumers can access their credit file for personal purposes without generating an inquiry.

Inquiries are recorded in a special section of a credit report, with the name of the inquirer. Some consumers like to review this information regularly to ensure that they do not accumulate too many inquiries, since inquiries may lower credit ratings.
INSTALLMENT LOAN
Installment loans have a fixed payment schedule that borrowers agree to when obtaining the loan. Often, monthly payments (called “installments”) are constant for the whole duration (or “term”) of the loan. Examples of installment loans are car loans, mortgages, student loans, and personal loans. The opposite of an installment loan is a revolving loan.
JUDGMENT
An official court decision. Judgments may be listed as public records on a consumer’s credit reports, particularly if they relate to debt owed to lenders. Such records lower credit ratings.
LATE PAYMENT
A payment received by the lender after the due date. This violates the credit contract and may result in late fees and a higher APR.
MORTGAGE
A loan obtained for the purpose of buying property or secured by equity in property. This is a secured installment loan where the property acts as collateral. The term of a fixed-rate mortgage generally runs from 10 to 30 years, after which the loan is paid. Adjustable rate mortgages may be as short as one year. CreditXpert considers first mortgages, second mortgages, home equity loans, and home improvement loans as mortgages.
LOAN-TO-VALUE RATIO
The ratio between the amount of an installment loan and the value of the property (often the collateral securing the loan). If this ratio is greater than 100 percent, the amount of the loan is more than the value of the property.
PAYMENT HISTORY
The period of time since the first reported payment status on an account. The length of this period may be much shorter than the length of time since the account was opened, and lenders occasionally do not report any payment history for an account at all. Payment history usually does not exceed 48 months on Trans Union data, 25 months on Experian, and 24 months on Equifax, because these are the maximum lengths of the payment patterns for each bureau.
PAYMENT PATTERN
A series of numbers displaying month-by-month information for the past 24 months for each account present in the credit report. This information includes payment status, and therefore any delinquencies (both past and present) within that timeframe. This is one of the most important pieces of information used for credit scoring.
PUBLIC RECORD
Information obtained by the credit bureaus from federal, state, and local court records, such as bankruptcies, foreclosures, judgments, and tax liens. Public records are included in a special section of a credit report, and they typically lower credit ratings. Public records stay on credit reports for seven years or longer (Chapter 7 bankruptcy remains for 10 years, while tax liens vary by state).
REVOLVING ACCOUNT
A credit account that allows the borrower to pay only a portion of the balance each month, while continuing to use the account for further purchases. The balance on the account will fluctuate depending on usage, and minimum monthly payments on the account will be calculated as a small percentage (usually two percent) of the balance. Revolving accounts typically have credit limits that may not be exceeded, and interest on the balance is charged if it is not paid in full every month. Examples of revolving accounts include credit cards and department store cards. Note: The balance on the account will be zero until a purchase or cash advance is made.
REPOSSESSION
A legal procedure by which the lender reclaims the collateral property on a loan in serious delinquency. It can be initiated by the creditor or the borrower. Other legal actions may follow a repossession, and a balance may be charged-off as uncollectible. This information is recorded on credit reports and typically lowers credit ratings.
SOFT INQUIRY
A request for a credit report that does not generate an inquiry in the person’s credit data. This is typical of consumers requesting their own report for information purposes. Such requests cannot be used by lenders for making credit decisions. Note: Some companies that provide reports directly to consumers use a hard inquiry process (also referred to as a business pull).
TAX LIENS
A lien imposed on property by law to secure payment of taxes. Tax liens may be imposed for delinquent taxes owed on real property or personal property, or as a result of failure to pay income taxes or other taxes.
THIN FILE
A credit report that contains very little account information, usually because there are no or few accounts with no or limited history. Individuals with thin files tend to have a low credit rating.
TRADELINE
A record in a credit report that provides information on a credit account, a public record, or an inquiry. Each credit account has its own corresponding trade line in the report, and the information provided includes payment and credit usage. Also see credit account, collection account, inquiry, public record.
TRANS UNION (TUC)
One of the three national credit bureaus, Trans Union Credit Information Company (commonly known as Trans Union), is headquartered in Chicago, Illinois.
UNPAID DEROGATORY
A broad term for derogatory payment statuses other than bankruptcies, charge-offs, collections, foreclosures, payment plans, and repossessions. An unpaid derogatory may be an account settled for less than the full balance, a workout plan offered by a lender rather than arranged through a court, or an account holder who defaulted without giving the lender a new address.
UNSECURED LOAN
A loan solely based on a consumer’s promise to repay, without a cash deposit or other collateral as a guarantee. Most credit cards are unsecured debt, which explains why the APR on credit cards tends to be higher than the APR on secured loans such as auto loans and mortgages.
WELL-ESTABLISHED CREDIT HISTORY
A credit report that contains a long history of credit activity; for example, a report for a consumer who has used credit cards or has had loans for 20 years or more.
 
 
 
 
 
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