As someone who works in finance and gives debt advice for a living, I’ve gotten used to all of the acronyms that tend to go along with discussions about debt and credit cards. And I think that, as a result, I sometimes lose sight of just how confusing a lot of these terms can be to everyday people. That’s why I decided to kick off this month with a guide to some common credit-related acronyms.
So, if you’ve never quite been clear on the difference between FCRA and FCBA, or if you’ve always wondered what, exactly, FICO stands for, this post is for you.
AA Notice = Adverse Action Notice
If you are turned down for a line of credit because of information in your credit report, the company that turned you down is required let you know. The AA notice can be provided in writing or by phone, and the lender is required to tell you which credit reporting agency they used and to provide you with contact information for that agency.
APR = Annual Percentage Rate
This is the interest rate that a credit card company charges for carrying a balance on your credit card. If you pay your balance off in full every month, you don’t pay interest. But if you carry a balance, you are charged interest on the amount you owe. Your APR is determined by your credit score. If you’ve got a high credit score, it’s assumed that you’re likely to make payments on time and use your card responsibly – and, as a result, you end up with a low APR (around 10% or lower). If you’ve got bad credit (and an accompanying bad credit score), your APR will be much higher (think upwards of 15%).
CRA = Credit Reporting Agency
A credit reporting agency is exactly what it sounds like: It is an agency that collects information about your use (or misuse) of credit. CRAs get their information from credit card companies and banks, and that information is an important factor in determining your credit score. The three major CRAs are Experian, TransUnion, and Equifax.
CVV = Card Verification Value
If you do any online shopping, you’ve probably seen this acronym a few times: Your CVV is a set of three or four numbers that are usually located on the back of your credit card near the signature line. Retailers use your CVV as a way to verify your identity and curb credit card fraud – the idea being that, if it’s really you making a purchase, you’ll have your card nearby and be able to enter your CVV (a scammer who simply jotted down your credit card number, on the other hand, won’t have it).
DMP = Debt Management Plan
A DMP is a plan that helps people get out of debt and pay off their credit card balances. Debt management plans are formal arrangements set up by a credit counselor. The credit counselor negotiates with credit card companies to help you get lower payments or reduced interest rates that make it possible to pay off high-interest credit card debt.
For a more in-depth discussion of DMPs, check out this recent blog post.
ECOA = Equal Credit Opportunity Act
The Equal Credit Opportunity Act was passed in 1974 to help protect consumers from discriminatory lending practices.
FCRA = Fair Credit Reporting Act
The fair credit reporting act – or “FCRA” – regulates how your credit and debt information can be collected, used, and shared.
FDCPA = Fair Debt Collection Practices Act
Passed in 1977, the FDCPA establishes clear rules regarding third-party debt collectors – what they can say, what they can do, and what tactics they can use to try and collect a debt. The FDCPA also provides consumers with a way to report unfair and abusive debt collection practices or harassment by debt collectors.
FICO = Fair Isaac Corporation
You’ve probably heard of a “FICO score” before. Fair Isaac is a credit scoring system that has been around since the 1950s (the name “Fair Isaac” is a combination of the founders’ two last names: Bill Fair and Earl Isaac – although they officially changed the company name to “FICO” in the early 2000s). FICO’s three-digit credit scoring system runs from 300 to 800. Lenders look closely at your FICO score when they determine your eligibility for loans and credit cards. The higher your FICO score, the more likely it is that you’ll get the best interest rates and loan terms.
IIN = Issuer Identification Number
Your credit card is made up of 15 or 16 digits. The first six of these digits comprise the IIN, which identifies which bank issued your credit card. The digits following the IIN are unique to your account.
POS = Point of Sale
You might see this acronym on a credit card statement. “Point of sale” is basically a more technical term for “cash register.” A store’s point of sale is where cashiers ring up your purchases and swipe your credit card.
RFID = Radio Frequency Identification
If you’ve got a credit card or a debit card, chances are good that your bank or credit card lender has sent (or is getting ready to send) you a brand-new “chip” card. That little RFID chip stores your account information and it transmits that information – along with a randomly generated, single-use authorization code – to a special card reader when you make a purchase.
So, there you go: I hope this guide helps clear up some of the acronym-related confusion surrounding credit cards. And remember, if you ever need budgeting, savings, or debt management advice, help with debt is just a click away. Contact the Debt Guru team today for a free debt consultation.