Important Credit Phrases and What They Mean – Part 2

Earlier this week, we went over several key credit industry terms and their definitions. We got great feedback, so I decided to do another several similar articles. The object is to demystify commonly used terms from the credit industry. Here is part two.

I9, R9 and O9 – Last week we defined the alpha portion of these. This week we’ll define the numeric portion. The “9” means that the account has been “charged off”, or written off. This is not good. In fact, a charged-off account is considered a seriously negative item on your credit report. It will have a serious negative impact to your credit scores for up to seven years. Avoid charge-offs if you can.

Credit Limit – This is the maximum amount that you can charge on a credit card. In most cases, the credit card issuer determines the number when you open the account and it’s based on your credit scores, among other things. If you have a very high credit limit, it generally means that you have good credit and have earned the high limit. If you try to charge over your credit limit then the issuer might decline your transaction. Or, they may approve the transaction but charge you an over-limit fee.

Bankruptcy Score – A bankruptcy score predicts whether or not you are likely to file for bankruptcy. There are many different types of bankruptcy scores, but the most commonly used actually predict whether or not you will file. Some will predict how much a lender would lose if you filed for bankruptcy.

Application Score – An application score takes information from your credit application and uses it to determine your scores. A FICO® score just uses information from your credit files. Be careful to always fill out all of the boxes on your credit applications. Application scores do not like blanks.

More next week!! If you have terms that you’d like me to define, please drop me a line. You can reach me at AskJohn@credit.com.

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

John Ulzheimer Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on Credit.com News & Advice.