Credit Basics
Foundational consumer-credit terms that explain how borrowing works before readers dive into reports, scores, or collections.
Credit basics pages explain the foundation of a credit relationship before a borrower starts comparing scores, disputes, or collections outcomes. This section is where readers should learn the language of borrowing cost, account capacity, payment expectations, and the difference between reusable and fixed-term credit.
These pages are especially useful when a person knows a term from a card agreement or loan offer but does not yet understand how it fits into the larger credit system.
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In this section
- Credit
Credit is the ability to borrow money or purchasing power now and repay it later under agreed terms.
- Credit Limit
Credit limit means the maximum amount a borrower can owe on a revolving account at one time.
- Available Credit
Available credit is the unused portion of a revolving account's limit.
- Credit Agreement
Credit agreement means the contract that sets the borrowing rules, pricing, payment duties, and default terms for a credit account.
- Finance Charge
Finance charge means the borrowing cost attached to a credit transaction, including interest and some lender-imposed charges.
- Minimum Payment
Smallest payment due by the due date to keep a revolving account from being treated as late.
- Simple Interest
Simple interest means interest calculated from principal and a stated rate, without compounding interest on prior interest charges.
- Fixed-Rate
Fixed-rate means the stated interest rate stays the same for the defined period covered by the agreement instead of moving with an index.
- Variable-Rate
Variable-rate means the interest rate can move up or down under the agreement, often based on an index such as the prime rate.
- Annual Percentage Rate (APR)
Annual percentage rate (APR) is the annualized borrowing-cost measure attached to a credit product.
- Borrower
Borrower means the person who receives credit and is responsible for repaying it under the agreement.
- Open-End Credit
Open-end credit means reusable borrowing that stays open after repayment and lets the balance rise and fall within a credit limit.
- Closed-End Credit
Closed-end credit means credit extended for one defined amount that is repaid over time and then ends when the balance reaches zero.
- Amount Financed
Amount financed means the net amount of credit actually provided to the borrower or on the borrower’s behalf in a closed-end credit transaction.
- Creditor
Creditor means the party that is owed repayment on a credit obligation.
- Total of Payments
Total of payments means the full amount the borrower will pay over the scheduled life of a closed-end loan if payments are made as agreed.
- Joint Account
Joint account means a credit account shared by two account holders who both have rights to use the account and responsibility for the debt.
- Lender
Lender means the institution or company that extends credit or funds to a borrower.
- Joint Applicant
Joint applicant means a person who applies for credit together with another applicant and is evaluated as part of the shared credit request.
- Consumer Credit
Consumer credit means credit used for personal, family, or household purposes rather than business borrowing.
- Consumer Debt
Consumer debt means debt owed for personal, family, or household purposes rather than business borrowing.
- Cosigner
Cosigner means someone who agrees to share legal responsibility for a debt if the primary borrower does not repay.
Revised on Friday, April 24, 2026