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Debtor — the person who owes money to someone.
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Creditor — someone you owe money to.
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Credit — the purchase of goods or services in the present with a promise to pay in the future, with money you still plan to earn.
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Cost of Borrowing — the cost to you to borrow money — includes interest, fees and any other costs associated with the loan.
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Credit Bureau — a company that is licensed to collect and compile information about your financial behaviour. The information comes from a variety of credit granting sources as well as public records information. In turn, they sell the information, in the form of a credit report, to those authorised to obtain it.
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Credit Rating — an evaluation of the likelihood of a borrower to default on a loan. Credit reporting companies provide information about your financial behaviour to lenders to help them decide whether or not to lend you money.
The information may include your payment history, a list of current and past credit accounts and their balances, employment and personal information and a history of past credit problems. Learn more about how your credit rating and credit score are calculated.
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Credit Report — a summary that provides information to potential lenders of the risk involved in extending credit and the probability of repayment. It is created when you start to apply for credit. Contains personal information, to whom and how often you apply for credit, how regularly you make payments and public records (court judgements).
Each lender gives you a rating depending on your “performance” with them. Equifax and TransUnion are the two largest credit reporting agencies in Canada. Learn how to get a free copy of your credit report.
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Debt Consolidation Loan — a loan obtained for the purpose of paying out other debts. Learn more about what a debt consolidation loan is and how it works.
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Debt Repayment Plan — this is another term used to refer to a Debt Management Program (see the description above). These repayment plans are typically a significant source of debt relief for Canadians with credit card debt.
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Debt Settlement — repaying a debt for an amount less than originally owed after a lower repayment amount is negotiated. This typically requires a lump sum of money to pay off or settle the debt once an amount is settled on. Some for-profit companies try to persuade people to enter a debt settlement program with monthly payments. However, a major government study shows that less than 10 percent of these programs are successful and rarely help people save any money. Many non-profit credit counselling organisations offer reputable debt settlement negotiation services.
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Debt Settlement Services — a service offered by an organization that provides debt settlements. Two kinds of debt settlement services are offered: 1) settling your debts with a lump sum of money, or 2) saving up enough money to settle your debts and then attempting to negotiate settlements.
Settling debt with a lump sum of money is the most successful way of settling debt and is offered by many credit counselling agencies across Canada. Settling debt by saving up the money first is a method advertised predominately by American for-profit debt settlement companies. A major government study estimated that more than 90 percent of people who attempt to settle their debts in this manner are unsuccessful and often end up deeper in debt in the process.
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