CREDIT TERMS & DEFINITIONS
3-in-1 Credit Report:
Also called a Tri-merged credit report, this type of report includes your credit data from TransUnion, Equifax and Experian in a side-by-side format for easy comparison.
A note on your credit report that indicates other names used for your financial accounts. Sometimes marked as “Also Known As” or “AKA.” This can include maiden names or variations on the spelling and format of your full name.
The official website for obtaining your free credit report disclosures from the credit bureaus, Equifax, Experian and TransUnion. You have the right to request your credit reports online, by phone or by mail for free once every 12 months under FACT Act regulations. This free service can only be used once a year and does not include your credit scores.
A charge sometimes required by credit card companies for use of an account. Annual fees range between $10-50 a year and are most common with rewards cards or cards for subprime borrowers.
Anyone who uses your credit cards or credit accounts with your permission. More specifically, someone who has a credit card from your account with their name on it. An authorized user is not legally responsible for the debt. However, the account may appear on their credit report which means it may also be included in the authorized user’s credit score calculation.
A proceeding that legally releases a person from repaying a portion or all debts owed. Bankruptcy damages your credit for 7-10 years and should only be considered as a last resort if you cannot repay your debts. (See Chapter 7-13 Bankruptcy)
Chapter 7 Bankruptcy:
A type of consumer bankruptcy where your responsibility for your debts is cleared entirely. With this kind of bankruptcy you are not required to pay back debts you owe from before your filing. To qualify for a Chapter 7 bankruptcy your income must be below your state’s median income. Chapter 7 bankruptcy filing records remain on your credit report for 10 years and the record of each account included in your filing will remain on your report for 7 years.
Chapter 11 Bankruptcy:
A complex type of bankruptcy usually filed by businesses that wish to restructure their debts.
Chapter 12 Bankruptcy:
A type of bankruptcy specifically for farmers and fishermen. Similar to Chapter 13 bankruptcy but with a few special benefits.
Chapter 13 Bankruptcy:
A type of bankruptcy where the consumer must pay off some of their debts over time. Chapter 13 bankruptcy filing records remain on your credit report for 7 years from the discharge date or 10 years from the filing date if it is not discharged. Each account included in the filing will remain on your report for 7 years.
The individual who is requesting the loan and who will be responsible for paying it back.
The person who is issued a credit card and/or any authorized users.
When a creditor or lender writes off the balance of a delinquent debt, no longer expecting it to be repaid. A charge-off is also known as a bad debt. Charge-off records remain on your credit report for 7 years and will harm your credit score. After a debt is charged-off, it can be sold to a collections agency.
A credit reporting company that tracks your banking history and provides this data to banks when you apply for a new checking account. Negative records, such as bounced checks, can be kept in their database for up to five years. If there are errors on your ChexSystems record, you can contact the company to submit a dispute.
The amounts charged to a consumer when they are transferring ownership or borrowing against a property. Closing costs include lender, title and escrow fees and usually range from 3-6% of the purchase price.
An asset or property used as security against a loan. (See Secured Credit Card)
When a business sells your debt for a reduced amount to an agency in order to recover the amounts owed. Credit card debts, medical bills, cell phone bills, utility charges, library fees and video store fees are often sold to collections. Collection agencies attempt to recover past-due debts by contacting the borrower via phone and mail. Collection records can remain on your credit report for 7 years from the last 180 day late payment on the original debt. Your rights are defined by the Fair Debt Collection Practices Act.
Combined Loan-to-Value Ratio:
The total amount you are borrowing in mortgage debts divided by the home’s fair
market value. Someone with a $50,000 first mortgage and a $20,000 equity line secured against a $100,000 house would have a CLTV ratio of 70%.
An adjustable rate mortgage that can be converted to a fixed-rate mortgage under specified conditions.
An additional person who signs a loan document and takes equal responsibility for the debt. A borrower may want to use a co-signer if their credit or financial situation is not good enough to qualify for a loan on their own. A co-signer is legally responsible for the loan and the shared account will appear on their credit report.
Also known as credit reporting agencies, these companies collect information from creditors and lenders about consumer financial behavior. This data is then provided to businesses that want to evaluate how risky it would be to lend money to a potential borrower. Once a low-tech system of regional credit reporting agencies, the industry is now consolidated into the three national credit bureaus – Equifax, Experian and TransUnion.
A service that helps consumers repay their debts and improve their credit. Usually non-profit companies, most of these agencies offer helpful and affordable services. Consumers should be aware that there are also credit counseling agencies that are expensive, ineffective and even damaging to the client’s credit (see Credit Repair). Consumers should carefully review the company’s reputation and services before signing up.
Another term for your credit report. The term credit file is usually used to indicate the full record of your credit history maintained by a credit bureau. Your credit report may not include all the information in your credit file.
Another term for the information on your credit report. Your credit history is a record of how you have has repaid your credit obligations in the past.
Protection against loss of life, disability, unemployment, etc.. Pays or cancels your monthly payments for a time period, if consumer loses their job through not fault of their own. Polices and protection plans vary. Usually monthly fee is based on the amount of the credit card balance.
The total amount that a company will allow you to charge to a credit card or credit line. It’s best for your credit score to keep your credit card balances below 10% of your credit limit.
The individual records of consumer financial behavior kept by credit bureaus and provided to businesses when they want to evaluate potential borrowers. Credit reports include records on: consumer name, current and former addresses, employment, credit and loan histories, inquiries, collection records, and public records such as bankruptcy filings and tax liens.
A numerical evaluation of your credit history used by businesses to quickly understand how risky a borrower you are. Credit scores are calculated using complex mathematical formulas that look at your most current payment history, debts, credit history, inquiries and other factors from your credit report. Credit scores usually range from 300-850, the higher the score, the better. There are thousands of slightly different credit scoring formulas used by bankers, lenders, creditors, insurers and retailers. Each score can vary somewhat in how it evaluates your credit data.
A process of combining debts into one loan or repayment plan. Debt consolidation can be done on your own, with a financial institution or through a counseling service. Student loans are often consolidated in order to secure a lower interest rate. (See Debt Counseling and Debt Settlement)
A type of credit counseling that focuses specifically on helping people with debt issues. Instead of consolidating debts into one loan, debt counseling agencies negotiate with your creditors using pre-set agreements and spread your payments over a longer period in order to reduce the monthly amount due. Usually non-profit companies, most of these agencies offer helpful and affordable services. Consumers should be aware that there are also debt counseling agencies that are expensive, ineffective and even damaging to the client’s credit score (see Credit Repair).
Debt Management Plan:
A repayment plan that helps consumers pay off their debts over a set period of time with consolidated payments, often with reduced monthly payments, interest rates, and fees.
A process where you pay an agency to negotiate directly with your creditors in the hopes of making significantly reduced settlements for your debts. Working with a debt settlement company can result in damaged credit from numerous late payments and collection records. Consumers should fully investigate the practices, reputation and costs of working with a debt settlement company before signing up.
Credit utilization Ratio:
The amount of money you owe in outstanding debts compared to the total amount of credit you have available though all credit cards and credit lines. This ratio measures how much of your available credit you are using. The higher your debt to available credit ratio, the more risky you appear to potential lenders.
The percentage of your monthly pre-tax income that is used to pay off debts such as auto loans, student loans and credit card balances. Lenders look at two ratios: The front-end ratio is the percentage of monthly pre-tax earnings that are spent on house payments. In the back-end ratio, the borrower’s other debts are factored in along with the house payments.
The status of a debt account that has not been paid. Accounts are usually listed as being in default after they have been reported late (delinquent) several times. Defaults are a serious negative item on a credit report.
Any amount one still owes on a contract after the creditor sells the collateral and applies the proceeds to the unpaid obligation.
A term used for late payment or lack of payment on a loan, debt or credit card account. Accounts are usually referred to as 30, 60, 90 or 120 days delinquent because most lenders have monthly payment cycles. Delinquencies remain on your credit report for 7 years and are damaging to your credit score.
The process of submitting a request to the credit bureaus to have an error on your credit report corrected. Disputes are investigated and updates made to your credit report over a 30 day period. If your correction is made, you will receive a letter from the credit bureaus and a copy of your updated credit report. If your dispute is rejected, you will receive a letter explaining why the credit bureau could not verify the correction.
A court order that grants a divorce and outlines terms for child support, alimony and the separation of assets. While a divorce decree may define responsibility for shared debts (your spouse pays the car loan, you pay the mortgage) it does not legally separate responsibility for these accounts. In order to stop double responsibility and credit reporting of shared accounts, the debts must be closed or refinanced directly with the lender.
Double Billing Cycle:
The practice of 2-cycle billing was made illegal by the Credit CARD Act of 2009, which goes into effect in late February 2010. Some companies used to employ a double billing cycle, which means that while the due date on your statement refers to your minimum payment, the due date to pay off your entire balance is different. If that due date is two weeks earlier, and you pay off your entire balance on your card by the due date stated on your bill, then the company could still charge you interest for the two-week interim period.
A co-signer is legally responsible for the loan and the shared account will appear on their credit report. There are thousands of slightly different credit scoring formulas used by bankers, lenders, creditors, insurers and retailers. Each score can vary somewhat in how it evaluates your credit data.
Equal Credit Opportunity Act (ECOA):
A law that protects consumers from discrimination on the basis of race, sex, public assistance income, age, marital status, nationality or religion in the credit and lending process.
Equifax: One of the three national credit bureaus (also known as credit reporting agencies) that collects and provides consumer financial records. Sometimes seen on reports as CSC Credit Services.
Equity: The fair market value of a home minus the unpaid mortgage principal and liens. You build up equity in a home as you pay down your mortgage and as the property value increases. Also called the lendable value or net value.
Experian: One of the three national credit bureaus that collects and provides consumer financial records. Experian (formerly known as TRW) operates the ConsumerInfo, FreeCreditScore and CreditExpert brands.
The set number of years that a record will remain on your credit report as mandated by the FCRA. Most negative records stay on your credit report for 7-10 years. The shortest expiration term is two years for inquiry records. The longest expiration term is 15 years for paid tax liens or indefinitely for unpaid tax liens. Positive information can also stay on your credit report indefinitely.
Fair and Accurate Credit Transaction (FACT) Act:
The FACT Act was signed into law December 2003 and includes several consumer credit industry regulations. This law requires credit bureaus to provide all US residents with a free copy of their credit report once every 12 months. The law also includes new privacy regulations, identity theft protections and dispute procedure requirements. First passed in the 1970’s that promotes accuracy, confidentiality and proper use of information in the files kept by credit reporting agencies. This law specifies the expiration terms of records on your credit report, defines who can access your credit data and grants consumers the right to view and dispute their credit records.
The largest mortgage investor. A government-sponsored enterprise that buys mortgages from lenders, bundles them into investments and sells them on the secondary mortgage market. Formerly known as the Federal National Mortgage Association.
Federal Housing Administration (FHA):
A division of the Department of Housing and Urban Development (HUD) that provides mortgage insurance and sets construction and underwriting standards.
A specific credit score developed by Fair Isaac Corporation. There are thousands of slightly different credit scoring formulas used by bankers, lenders, creditors, insurers and retailers. Each score can vary somewhat in how it evaluates your credit data.
Consumers can request that the credit bureaus freeze their credit reports. This freeze
stops new credit from being issued in your name by blocking creditors, lenders, insurers and other companies from accessing your credit data. In some cases, a $10 fee for each credit bureau is required to process the file freeze. The freeze can also be temporarily or permanently undone for an additional fee.
The total cost of using credit. Besides interest charges, the finance charge may include other costs such as cash-advance fees.
The primary loan on a real estate property. This loan has priority over all other “secondary” loans.
Expenses that don’t change from month to month; any bill that is the same amount every month, like rent, mortgage payments, car payments, etc.
An interest rate for a credit card or loan that remains constant.
When a borrower is in default on a loan or mortgage, the creditor can enact a legal process to claim ownership of the collateral property. Foreclosure usually involves a forced sale of the property where the proceeds go toward paying off the debt.
If you suspect that you are a victim of identity theft, you may contact the credit bureaus to request that a 90-day fraud alert is placed on your credit reports. If you have been a victim of identity theft you only need to contact one bureau to have a temporary 90 day alert added to all three of your credit reports. This 90-day alert notifies potential creditors that your identity may have been stolen and suggests that they take extra steps to confirm your identity before opening a new account. If it turns out that your identity has been stolen, you can request an extended 7 year alert by providing documentation of the crime (such as a police report). There is also a special 1 year fraud alert available for military personnel on activity duty.
Formerly known as the Federal Home Loan Mortgage Corporation, this is a government-sponsored firm that buys mortgages from lenders, pools them with other loans and sells them to investors.
Front-End Ratio or Front Ratio:
A calculation of the percentage of your monthly pre-tax income that goes toward a house payment. The general rule is that your front ratio shouldn’t exceed 28%.
Garnishment: When a creditor receives legal permission to take a portion of your assets (bank account, salary, etc) to repay a delinquent debt.
Also known as the Government National Mortgage Association. A part of the Department of Housing and Urban Development that buys mortgages from lending institutions and pools them to form securities, which it then sells to investors.
Your total income, before any taxes or other deductions have been applied.
A record of a business request to see your credit report data for the purpose of an application for credit. Hard inquiries appear on your credit report each time you complete an application for a credit card, loan, cell phone, etc. Hard inquiries remain on your credit report for 2 years but are only included in your credit score for the first 12 months.
Home Equity Line of Credit:
Often called a HELOC, is an open-ended loan that is backed by the part of a home’s value that the borrower owns outright. This type of loan is used much like a credit card. This type of loan is used much like a credit card. Home equity lines of credit can be effective ways to borrow large sums of money with a relatively low interest rate. These types of loans should be used with caution. If a borrower is unable to pay back the loan for some reason (loss of job, illness, etc.) they risk losing the home they used as collateral.
The part of a home’s value that the mortgage borrower owns outright. This is the difference between the fair market value of the home and the principal balances of all mortgage loans.
Home Ownership and Equity Protection Act:
A law designed to discourage predatory lending in mortgages and home equity loans.
Housing Expense Ratio:
The percentage of your monthly pre-tax income that goes toward your house payment. The general rule is that this ratio shouldn’t exceed 28%. This is also known as the “front ratio.”
Individual Taxpayer Identification Number (ITIN):
This nine digit identification number is issued by the Internal Revenue Service to taxpayers who don’t have a Social Security number, such as people who are not US citizens. This number can be used to apply for credit and loans or to access credit reports.
Loan applications may require fully documented proof of an applicant’s income.
A record on your credit report that shows every time you, one of your creditors, or a potential creditor requests a copy of your credit report data. (See Soft Inquiry, Promotional Inquiry and Hard Inquiry).
A type of loan where the borrower makes the same payment each month. This includes personal loans and automotive loans. Mortgage loans are also installment accounts but are usually classified by the credit reporting system as real-estate accounts instead.
Interest Rate Cap:
A limit on how much a borrower’s percentage rate can increase or decrease at rate adjustment periods and over the life of the loan. Interest rate caps are used for Adjustable Rate Mortgage ARM loans where the rates can vary at certain points.
A measure of the cost of credit, expressed as a percent. For variable-rate credit card plans, the interest rate is explicitly tied to another interest rate. The interest rate on fixed-rate credit card plans, though not explicitly tied to changes in other interest rates, can also change over time.
The money a borrower pays for the ability to borrow from a lender or creditor. Interest is calculated as a percentage of the money borrowed and is paid over a specified time.
A type of loan where the repayment only covers the interest that accumulates on the loan balance and not the actual price of the property. The principal does not decrease with the payments. Interest-only loans usually have a term of 1-5 years.
A temporary, low interest rate offered on a credit card in order to attract customers. Under the CARD Act, an introductory rate must remain in effect for a minimum of 6 months before converting to a normal or variable rate.
An account shared by two or more people. Each person on the account is legally responsible for the debt and the account will be reported to each person’s credit report.
A decision from a judge on a civil action or lawsuit; usually an amount of money a person is required to pay to satisfy a debt or as a penalty. Judgment records remain on your credit report for 7 years and harm your credit score significantly.
The fee charged customers for paying late or less than the required minimum payment due by the due date.
A delinquent payment or failure to deliver a loan or debt payment on or before the time agreed. Late payments harm your credit score for up to 7 years and are usually penalized with late payment charges.
Late Payment Charge:
A fee charged by your creditor or lender when your payment is made after the date due. Late payment charges usually range from $10-50.
The individual or financial institution who will be providing the loan.
A legal claim against a person’s property, such as a car or a house, as security for a debt. A lien (pronounced “lean”) may be placed by a contractor who did work on your house or a mechanic who repaired your car and didn’t get paid. The property cannot be sold without paying the lien. Tax liens can remain on your credit report indefinitely if left unpaid or for 15 years from the date paid.
Loan Origination Fee:
A fee charged by a lender for underwriting a loan. The fee often is expressed in “points;” a point is 1% of the loan amount.
Loan Processing Fee:
A fee charged by a lender for accepting a loan application and gathering the supporting paperwork.
Loan-to-Value Ratio (LTV):
The percentage of a home’s price that is financed with a loan. On a $100,000 house, if the buyer makes a $20,000 down payment and borrows $80,000, the loan-to-value ratio is 80%. When refinancing a mortgage, the LTV ratio is calculated using the appraised value of the home, not the sale price. You will usually get the best deal if your LTV ratio is below 80%.
A mortgage that requires less income and/or assets verification than a conventional loan. Low-documentation loans are designed for entrepreneurs or self-employed borrowers – or for borrowers who cannot or choose not to reveal information about their incomes.
Secured loans that require a small down payment, usually less than 10%. Often, low-down mortgages are offered to special kinds of borrowers such as first-time buyers, police officers, veterans, etc. These kinds of loans sometimes require that private mortgage insurance (PMI) is purchased by the borrower.
A slang term for using up the entire credit limit on a credit card or a line of credit. Borrowing the maximum limit on credit cards hurts your credit score.
Merged Credit Report:
Also called a 3-in-1 Credit Report, this type of report shows your credit data from TransUnion, Equifax and Experian in a side-by-side format for easy comparison. Order a merged credit report.
The minimum amount that a credit card company requires you to pay toward your debt each month.
A person or company that originates home loans, sells them to investors (such as Fannie Mae) and processes monthly payments.
A person or company that matches lenders with borrowers who meet their criteria. A mortgage broker does not make the loan directly like a mortgage banker, but receives payment for their services.
The process of paying off and replacing an old loan with a new mortgage. Borrowers usually choose to refinance a mortgage to get a lower interest rate, lower their monthly payments, avoid a balloon payment or to take cash out of their equity.
Your income after taxes and other withholdings have been deducted, or your take-home pay.
A unit for measuring fees related to a loan; a point equals 1% of a mortgage loan. Some lenders charge “origination points” to cover the expense of making a loan. Some borrowers pay “discount points” to reduce the loan’s interest rate.
A document from a lender or broker that estimates how much a potential homebuyer could borrow based on current interest rates and a preliminary look at credit history. The letter is a not a binding agreement with a lender. Having a pre-approval letter can make it easier to shop for home and negotiate with sellers. It is better to have a pre-approval letter than an informal pre-qualification letter.
A fee that a lender charges a borrower who pays off their loan before the end of its scheduled term. Prepayment penalties are not charged by most standard lenders. Subprime borrowers should review the terms of their loan offers carefully to see if this fee is included.
A non-binding evaluation of a prospective borrower’s finances to determine how much he or she can borrow and on what terms. A pre-qualification letter is a less formal version of a pre-approval letter.
The amount of money borrowed with a loan or the amount of money owed, excluding interest.
Private Mortgage Insurance (PMI):
A form of insurance that protects the lender by paying the costs of foreclosing on a house if the borrower stops paying the loan. Private mortgage insurance usually is required if the down payment is less than 20% of the sale price.
A type of soft inquiry made by a creditor, lender or insurer in order to send you a pre-approved offer. Only limited credit data is made available for this type of inquiry and it does not harm your credit score.
Information that is available to any member of the public. Public records like a bankruptcy, tax lien, foreclosure, court judgment or overdue child support harm your credit report and credit score significantly.
Applying for credit with several lenders to find the best interest rate, usually for a mortgage or a car loan. If done within a short period of time, such as two weeks, it should have little impact on a person’s credit score.
An agreement by a bankrupt debtor to continue paying a dischargeable debt after the bankruptcy, usually to keep collateral or a mortgaged property that would otherwise be repossessed.
A process where a creditor can roll-back an account record with the credit bureaus. This is commonly used when cardholders request that late payment records are removed because they are incorrect or resulting from a special circumstance. However, re-aging can also be used illegally by collections agencies to make a debt account appear much younger than it actually is. Some collections agencies use this tactic to keep an account from expiring from your credit report in order to try to get you to pay the debt.
The period of a loan when a borrower is required to make payments. Usually applies to home equity lines of credit. During the repayment period, the borrower cannot take out any more money and must pay down the loan.
When a loan is significantly overdue, a creditor can claim property (cars, boats, equipment, etc.) that was used as collateral for the debt.
A mortgage that allows elderly borrowers to access their equity without selling their home. The lender makes payments to the borrower with a reverse mortgage. The loan is repaid from the proceeds of the estate when the borrower moves or passes away.
An account where your balance and monthly payment can fluctuate. Most credit cards are revolving accounts.
A credit arrangement that allows a customer to borrow repeatedly against a pre-approved line of credit when purchasing goods and services. The debt does not have a fixed payment amount.
Another term for a credit score. (FICO Score, Beacon Score and Empirica Score)
An easy to use chart that explains the rates, fees, terms and conditions of a credit account. Creditors are required to provide this on credit applications by the U.S. Truth in Lending Act and it usually appears on statements and other documents.
A complex mathematical formula that evaluates financial data to predict a borrower’s future behavior. Developed by the credit bureaus, banks and FICO, there are thousands of slightly different scoring models used to generate credit scores.
A loan using a home’s equity as collateral. A first mortgage must be repaid before a second mortgage in a sale.
Secured Credit Card:
A consumer credit account that requires the borrower to produce some form of collateral—usually a cash deposit equal to the amount of the credit limit on the card. Secured credit cards are easier to obtain than standard credit accounts and are helpful for borrowers with poor credit or no credit.
A loan that requires a piece of property (such as a house or car) to be used as collateral. This collateral provides security for the lender, since the property can be seized and sold if you don’t repay the debt.
A loan that is backed by collateral, such as an auto loan or a loan that finances the purchase of some appliances or furniture.
An agreement reached with a creditor to pay a debt for less than the total amount due. Settlements can be noted on your credit report and can negatively impact your credit score. The only time it is a good idea to settle a debt is if the debt has already gone to collections or is significantly past due. Settling a debt that is current and in good standing can have a severe negative impact on your credit score.
Social Security Number:
Also referred to as a SSN. This unique nine digit number is meant to track your Social Security savings but is also used by creditors, lenders, banks, insurers, hospitals, employers and numerous other businesses to identify your accounts. People who do not have a SSN, such as non-US citizens, use a nine digit Individual Taxpayer Identification Number (ITIN) instead.
A type of inquiry that does not harm your credit score. Soft inquires are recorded when a business accesses your credit data for a purpose other than an application for credit. Soft inquiries include your request to see your own credit report and employment-related requests. This type of inquiry is recorded by the credit bureaus but does not usually appear on a credit report purchased by you or a business.
A borrower who does not meet the qualifications for standard or “prime” credit and loan offers. Usually a subprime borrower has poor credit (a score under 650) due to late payments, collection accounts or public records. Lenders often grade them based on the severity of past credit problems, with categories ranging from “A-” to “D” or lower. Subprime borrowers can qualify for loans and credit, but usually at a higher interest rate or with special terms.
A claim against property, or assets, field by the taxing authority for unpaid taxes.
The official term for an account listed on a credit report. Each account’s details (including payment history, balances, limits and dates) are recorded in a separate tradeline.
Fees for various transactions. Like using your card for cash advances.
One of the three national credit bureaus that collects and provides consumer financial records. TransUnion operates the TrueCredit and FreeCreditProfile brands.
A former credit reporting agency that is now part of Experian.
Universal Default Clause:
A credit card policy that allows a creditor to increase your interest rates if you make a late payment on any account, not just on their account. Universal default clauses were banned under the CARD Act – credit card issuers are no longer allowed to use this practice to increase cardholder interest rates.
Universal Default Rate:
Outlawed by the Credit CARD Act of 2009, universal default was a policy some lenders/creditors used to punish borrowers who pay any creditor late. It was most commonly used by credit card companies and revealed in the fine print of their contracts with consumers.
A loan on which there is no collateral. Most credit card accounts are unsecured debt.
A loan that is not backed by collateral; it is guaranteed only by the borrower’s promise to repay.
The ratio between the credit limits on your accounts and the outstanding balances. This ratio shows lenders how much of your available credit you are using overall.
Expenses that are due each month but are not consistent in their amounts, like credit card bills, groceries, utility bills and gas.
A type of adjustable rate loan tied directly to the movement of some other economic index. For example, a variable rate might be prime rate plus 3%; it will adjust as the prime rate does.