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Debt-to-Available-Credit Ratio
The amount of available credit a person has on all credit lines compared to the amount of outstanding debt. High ratios indicate more risk to lenders.
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Debt-to-Income Ratio
The portion of one's debt as compared to the amount of one's income.
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Debt
Money a borrower owes to a lender. A person can incur debt from many different sources, such as credit cards, department store cards and loans. Debt is typically classified into two categories: secured and unsecured. A debt is secured when the debtor's asset may be controlled by the creditor if the debtor fails to make payments. An unsecured debt does not use collateral and carries a higher interest rate than secured debt because the creditor takes on more risk. Some examples of secured and unsecured debts:
| Unsecured Debt | Secured Debt |
|---|---|
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Debtor
A person who owes money. Debtor's include those who borrow money for home mortgages and car loans, as well as those who've accumulated credit card debt.
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Default
The failure to fulfill financial obligations on a loan, credit card or any debt security. A mark on a person's credit report as an indication of bad credit.
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Delinquent
An overdue payment, or failure to repay a financial liability. The delinquency appears as a negative item on a credit report.
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Discharge of Debts
The cancellation of a consumer's financial liabilities that occurs through bankruptcy.
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Disposable Income
The portion of personal income that can be spent at the person's discretion. In general, the greater one's income, the greater their availability of disposable income. Disposable income is not necessarily spent frivolously.
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Equity
The dollar difference between the fair market value of an asset and debts claimed against it.
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Escrow
An account in which the assets are held by a third party until specific conditions or repayments are met.
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