Credit Rating

Definition

• A judgement of someone's ability to repay debts, based on current and projected income and history of payment of past debts. Sometimes expressed as a number called a credit score.

Notes
A metric to measure the credit worthiness of a debtor.

Synonyms
beacon score, credit score, FICO score, credit worthiness

Acronyms
CR

Related Terms and Acronyms

• Approval — Definition,
  • An assessment made by a lender of a borrower's ability to pay for a home and a confirmation of the amount the borrower may obtain.
• Bad Credit Loan — Definition,
  • A loan taken out by someone with bad credit.
• Bad Debt — Definition,
  • Money that cannot be collected is considered bad debt. Businesses can deduct bad debts under certain circumstances. If a bad debt is personal, it can also be deducted in some instances as a short-term capital loss.
• Credit Bureau (CB) — Acronym, Very Important,
  • A company that collects and sells information about how people handle credit. It issues credit reports that list how individuals manage their debts and make payments, how much untapped credit they have available and whether they have applied for any loans. The reports are made available to individuals and to creditors who profess to have a legitimate need for the information.
  ➥ Company that determines one's credit worthiness.
• Credit Card (CC) — Acronym, Very Important,
  • A plastic card with a coded magnetic stripe that, when signed, entitles its bearer to a revolving line of credit, with a credit limit and interest rate determined by the borrower's income and credit report.
  ➥ A payment card that gives customers access to a revolving line of credit.
• Credit Report (CR) — Acronym, Very Important,
  • A report on a loan applicant's willingness and ability to make payments in a timely manner in the past. This report is provided to the bank by an outside agency.
  ➥ A report that outlines the credit worthiness of an individual or entity.
• Credit Reporting Agency (CRA) — Acronym,
  • An organization that prepares reports that are used by lenders to determine a potential borrower's credit history. The agency obtains data for these reports from a credit repository as well as from other sources.
• Credit Risk — Definition,
  • The risk of loss assumed under a financial contract that a borrower or a counter-party to a loan or other credit-related contract may default or fail to fulfill its obligations.
• Credit Score — Definition,
  • Also referred to as a 'Beacon Score' is a number, between 300 and 900, that reflects a person's credit history. Lenders calculate this number using a computer system as part of the process for assigning rates and terms to the loans they grant.
• Debt — Definition,
  • Money one person or firm owes to another person or firm.
• Equifax (EF) — Company Est. 1899, Canada, Important,
  • A major credit bureau company in Canada along with Trans Union.
• Experian (XP) — Company, Canada,
  • One of the Big Three credit bureaus, along with Equifax and Trans Union, Experian not normally used in Canada.
• Gross Debt Service (GDS) — Acronym, Very Important,
  • The total monthly mortgage (or rent) payments, property taxes, utilities and maintenance fees as a percentage of gross monthly income.
  ➥ Used by mortgage lender underwriters to determine one's ability to qualify for a mortgage loan.
• Joint Credit — Definition,
  • Credit that is issued to two people based their credit reports and their combined assets and incomes. The repayment of joint credit is the responsibility of both parties.
• Liabilities — Definition,
  • A borrower's debts and legal obligations.
• Low-documentation Loan — Definition,
  • A mortgage that requires less income or asset verification than conventional loans. Low-documentation loans are designed for the entrepreneur or self-employed, for recent immigrants, or for borrowers who cannot or choose not to reveal their financial information. A substantial down payment and excellent credit history are generally required. This type of loan will also yield a higher interest rate.
• Non-Resident Alien (NRA) — Acronym,
  • A person who is not a permanent resident or a citizen of Canada, and who is generally taxed on income from Canadian resources.
• Pre-qualification — Definition,
  • An informal process in which a lender will offer an opinion on how much money you may be able to borrow. This opinion is based entirely on the financial information you provide and is neither binding nor necessarily accurate because lenders have not yet verified your financial information.
• Qualifying Ratios — Definition,
  • As calculated by lenders, the percentage of income that is spent on housing debt and combined household debt. The first qualifying ratio, called the gross debt service or GDS is up to and including a maximum of 32% of the combined gross family income. The second qualifying ratio is the Total debt service or TDS is up to and including 40% of gross income.
• Resident Alien — Definition,
  • A person who is a legal permanent resident, but not a citizen, of Canada.
• Revolving Credit — Definition,
  • A line of credit that does not have a specified repayment schedule but may require a minimum payment to cover interest and contribute to paying off principal. Typical of credit card loans, chequing account cash reserve or overdraft accounts that have pre-approved lines of credit.
• Sub-prime Borrower — Definition,
  • A borrower with a less-than-perfect credit report due to late payments or a default on debt payments.
• Total Debt Service (TDS) — Acronym, Important,
  • The ratio of a borrower's total monthly debt payments to his or her monthly gross income. Lenders use this ratio to determine how much of a loan a borrower is qualified for.
• TransUnion (TU) — Acronym,
  • One of the major Canadian credit bureau companies along with Equifax.
  ➥ See TransUnion Canada.
• Underwriting (UW) — Acronym, Important,
  • The analysis of risk involved in making a mortgage loan to determine whether the risk is acceptable to the lender. Underwriting involves evaluating the property as outlined in the appraisal report, and also evaluating the borrower's ability and willingness to repay the loan.
  • Assessing individuals for eligibility and issuing and distributing a financial product such as insurance, equity capital or credit.