Debt & Credit Terms Glossary: Plain Definitions for Confusing Language

APR (Annual Percentage Rate)

The yearly cost of borrowing money, expressed as a percentage. APR includes not just the interest rate but also certain fees, giving you a more complete picture of what a loan or credit card will actually cost you each year.

Charge-Off

A charge-off occurs when a creditor writes off a debt as unlikely to be collected, typically after 180 days of non-payment. It does not erase what you owe — the debt can still be collected or sold to a third party — but it is a serious negative mark on your credit report.

Derogatory Mark

Any negative item on a credit report that signals past credit problems, such as a late payment, charge-off, collection account, foreclosure, or bankruptcy. Derogatory marks generally remain on a credit report for seven years, though bankruptcies can remain for up to ten.

Credit Utilization Ratio

The percentage of your available revolving credit (such as credit cards) that you are currently using. For example, a $2,000 balance on a $10,000 combined credit limit equals 20% utilization. Lower utilization is generally associated with stronger credit scores.

DSCR (Debt Service Coverage Ratio)

A measure used by lenders — especially for business or real estate loans — to assess whether income is sufficient to cover debt payments. A DSCR above 1.0 means income exceeds debt obligations; below 1.0 signals a potential repayment risk.

Charge-Off Balance

The outstanding amount remaining on a debt at the time it was charged off by the creditor. This amount may still accrue interest and fees depending on the original agreement and applicable state law.

Hard Inquiry

A review of your credit report triggered by a formal credit application — such as applying for a mortgage, auto loan, or new credit card. Hard inquiries can lower your credit score slightly and typically remain on your report for two years.

Soft Inquiry

A credit check that does not affect your credit score. Examples include checking your own credit, pre-qualification checks by lenders, or background checks by employers. Soft inquiries are only visible to you, not to other lenders.

Debt-to-Income Ratio (DTI)

The percentage of your gross monthly income that goes toward monthly debt payments. Lenders use DTI to evaluate whether you can manage additional debt. A lower DTI generally improves your chances of loan approval.

Collection Account

An account that a creditor has turned over to a collection agency after the original debt went unpaid. The collection agency then attempts to recover the balance. Collection accounts are reported separately on your credit report and can significantly damage your credit score.

Judgment

A court ruling that legally confirms you owe a debt to a creditor. A judgment can give the creditor legal tools to collect — including wage garnishment or bank account levies — depending on state law.

Statute of Limitations (Debt)

The legally defined window during which a creditor or collector can sue you in court to collect a debt. This period varies by state and by debt type. Once it expires, the debt becomes 'time-barred,' though it may still appear on your credit report and collectors may still contact you.