Skip to Content
Parents camping with their two children symbolizing that they have a lot of financial planning to prepare for in the future
Planning your financial future

Credit glossary: Terms you should know

Having trouble understanding how credit works? Here's a credit glossary to cover some of the common terms you should know.

When it comes to understanding credit, it's easy to feel a little bit overwhelmed. There are a lot of terms that can leave you scratching your head. But since credit can have a significant impact on your finances, it's essential to understand basic credit terms and definitions.

This glossary of credit terms is here to help. Below, you'll find definitions for some common credit terms.

Credit glossary

Credit bureau

A credit bureau is a credit reporting agency. It collects credit information on individuals and businesses and then generates reports which are used to create credit scores. In the United States, there are three main credit bureaus: Experian, TransUnion and Equifax.

Credit history

Your credit history is what's found on your credit report. Often the terms are interchangeable. It's a summary of all of your credit obligations from your past, including late payments, payment history, tax liens and more.

Credit inquiry

A credit inquiry happens when an entity, such as a credit card company or bank, checks your credit report. Soft inquiries (when you check your own score or a credit card company checks to give you a pre-approval offer) don't impact your credit. However, hard inquiries, which are pulled when you apply for a credit card, mortgage or loan, do impact your credit score. Having too many hard inquiries in a short time frame can have a negative impact.

Credit limit

Your credit limit is a term typically used for credit cards, but also applies to lines of credit loans. It's the total amount of credit you're given. In calculating of your credit score, a high credit limit with a low balance can help improve your score.

Credit report

Your credit report is an overview of your financial history. Beyond basic information such as your address and employment history, it highlights your credit card debts, loans — such as car and mortgage notes — collection records on overdue bills and public bankruptcies or tax liens (if you have any). You can check your credit report for free once a year, which is a good idea so you can see if there are any errors you need to dispute.

Credit score

Your credit score is a number, ranging from 280-850, depending on the credit bureau. It's calculated using a complex algorithm based on a variety of factors from your credit report, including how much debt you have and your payment history. While the number will vary slightly depending on the formula used, the number indicates your creditworthiness to potential lenders.

Debt to credit ratio

Your debt to credit ratio is an important factor for your credit score and your overall financial health. It's an equation that takes the total amount of credit you're using and divides it by the total amount of credit that's available to you. This is a key part of your credit score, so having a low ratio, ideally under 30%, can help improve your credit.

FICO Score

A FICO Score is one type of credit score that's calculated by the Fair Isaac Corporation, which is used by lenders to assess your credit risk. Your FICO Score is used by the majority of lenders today and provides a range from 300-850.

Interest rate

An interest rate is what a lender charges — expressed as a percentage — for the borrower to use the money loaned. For example, a mortgage lender will charge an interest rate on the loan that the borrower must pay.

Late payment

A late payment is when you miss the agreed upon deadline for submitting a payment on a loan, including credit card, car or mortgage. A history of late payments can impact your credit score, and payments over 30 days late can appear on your credit report.

Having good credit is a key part of your financial well-being, so it's important to understand how it works. Check out these frequently asked questions about credit to learn more.


WEB.2023316.07.20

Arrows linking indicating relationship

Related Articles

Happy mom and dad swing daughter between them in front of big, new house

Financial advice on lottery winnings and other big financial decisions

Learn more
Four young adults sitting out a couch, each holding a mobile phone.

6 personal financial planning tips everyone should know

Learn more
A man working intently on his computer.

Are payday loans the best solution?

Learn more

All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

Learning Center articles may describe services and financial products not offered by Protective Life or its subsidiaries. Descriptions of financial products contained in Learning Center articles are not intended to represent those offered by Protective Life or its subsidiaries.

Neither Protective Life nor its representatives offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax-related decisions. For information about Protective Life and its products and services, visit www.protective.com.

Companies and organizations linked from Learning Center articles have no affiliation with Protective Life or its subsidiaries.