Credit & Finance Glossary for Canadians
Understanding credit and financial terms is the first step to taking control of your finances. This comprehensive glossary covers over 85 essential credit and finance terms every Canadian should know, from APR to wage garnishment.
A
APR (Annual Percentage Rate)
The yearly interest rate charged on outstanding balances. In Canada, lenders must disclose APR under the Bank Act and provincial consumer protection laws.
Amortization
The process of paying off a debt through regular equal payments over a set period. Each payment covers interest and a portion of the principal balance.
Annual Credit Report
A free credit report you can request from Equifax and TransUnion once per year by mail. Online access may require a paid subscription.
Annual Fee
A yearly charge by a credit card issuer for the privilege of using the card. Some cards waive this fee for the first year or permanently.
Authorized User
A person added to someone else's credit card account who can make purchases. The primary cardholder is responsible for all charges.
B
Bad Credit
A credit score generally below 560 in Canada, indicating high risk to lenders. Results from missed payments, high utilization, collections, or bankruptcies.
Balance Transfer
Moving an existing credit card balance to another card, often to take advantage of a lower interest rate or promotional 0% APR offer.
Bankruptcy
A legal process under Canada's Bankruptcy and Insolvency Act where an insolvent person surrenders assets to a Licensed Insolvency Trustee to eliminate most debts.
Beacon Score
A credit score model previously used by Equifax Canada, now largely replaced by newer scoring models. Ranges from 300 to 900.
Bridge Financing
A short-term loan that helps homeowners finance the purchase of a new home before selling their current one. Typically provided for a few weeks to months.
C
CMHC (Canada Mortgage and Housing Corporation)
A federal Crown corporation that provides mortgage loan insurance for homebuyers with less than 20% down payment, enabling access to homeownership.
Charge-Off
When a creditor writes off a debt as unlikely to be collected, typically after 180 days of non-payment. The debt still exists and may be sent to collections.
Co-Signer
A person who agrees to repay a loan if the primary borrower defaults. Co-signing affects the co-signer's credit and debt-to-income ratio.
Collections
When an unpaid debt is sent to a third-party collection agency. Collection accounts remain on your Canadian credit report for six years from the date of last activity.
Consumer Proposal
A legally binding agreement between you and your creditors to repay a portion of your debt over up to five years, administered by a Licensed Insolvency Trustee.
Credit Agreement
The legal contract between a borrower and lender that outlines the terms of the credit, including interest rate, fees, and repayment schedule.
Credit Application
A formal request to a lender for credit. Requires personal and financial information and typically triggers a hard inquiry on your credit report.
Credit Bureau
An organization that collects and maintains consumer credit information. Canada's two national bureaus are Equifax Canada and TransUnion Canada.
Credit Counselling
Professional guidance from a certified counsellor who helps you manage debt, create a budget, and explore repayment options. Available through non-profit agencies across Canada.
Credit Freeze
A security measure that restricts access to your credit report, preventing new accounts from being opened in your name. Available through Equifax and TransUnion in Canada.
Credit Insurance
Insurance that pays some or all of your outstanding credit balance if you become unable to make payments due to death, disability, or job loss.
Credit Limit
The maximum amount a lender allows you to borrow on a credit account. Using more than 30% of your limit can negatively impact your credit score.
Credit Mix
The variety of credit accounts in your report, including revolving credit (credit cards) and installment loans (mortgages, car loans). A healthy mix improves your score.
Credit Monitoring
A service that tracks changes to your credit report and alerts you to new inquiries, accounts, or suspicious activity. Available from both credit bureaus in Canada.
Credit Repair
The process of improving a damaged credit score by correcting errors on your report, paying down debt, and establishing positive credit habits.
Credit Report
A detailed record of your credit history maintained by Equifax Canada and TransUnion Canada. Includes payment history, credit accounts, inquiries, and public records.
Credit Score
A three-digit number (300-900 in Canada) that represents your creditworthiness. Calculated using payment history, utilization, credit age, mix, and new inquiries.
Credit Utilization
The percentage of available credit you're using. Calculated by dividing your total balances by your total credit limits. Below 30% is recommended.
D
Debt Avalanche
A debt repayment strategy where you make minimum payments on all debts while putting extra money toward the debt with the highest interest rate first.
Debt Consolidation
Combining multiple debts into a single loan or payment, often at a lower interest rate. Common methods include consolidation loans and balance transfer cards.
Debt Management Plan (DMP)
A structured repayment plan arranged by a credit counselling agency where you make one monthly payment that's distributed to your creditors.
Debt Settlement
Negotiating with creditors to accept less than the full amount owed. Can resolve debts but may negatively impact your credit score.
Debt Snowball
A debt repayment strategy where you pay off debts from smallest to largest balance, regardless of interest rate, to build momentum.
Debt-to-Income Ratio
The percentage of your gross monthly income that goes toward debt payments. Canadian lenders typically prefer a ratio below 36%.
Default
Failure to repay a debt according to the terms of the loan agreement. Defaults are reported to credit bureaus and significantly damage your credit score.
Discharge
The legal release of a debtor from the obligation to repay debts included in a bankruptcy. Typically occurs 9-21 months after filing in Canada.
Down Payment
The initial upfront payment when purchasing a home. In Canada, the minimum down payment is 5% for homes under $500,000, with scaled requirements above that.
E
Equifax
One of Canada's two national credit bureaus. Maintains credit files on over 28 million Canadians and provides credit scores to lenders and consumers.
Excellent Credit
A credit score of 725 or above in Canada. Qualifies you for the best interest rates, premium credit cards, and most favorable loan terms.
F
FCAC (Financial Consumer Agency of Canada)
A federal agency that protects Canadian consumers of financial products and services and educates them about their rights and responsibilities.
FICO Score
A credit scoring model developed by Fair Isaac Corporation, used by some Canadian lenders alongside bureau-specific scores.
Fair Credit
A credit score typically between 560 and 659 in Canada. You may qualify for credit but at higher interest rates and with fewer options.
Fixed Interest Rate
An interest rate that remains the same for the entire term of a loan or mortgage. Provides predictable payments but may be higher than variable rates initially.
Foreclosure
The legal process where a lender takes possession of a property after the borrower defaults on the mortgage. Court proceedings are required in most Canadian provinces.
Fraud Alert
A notice placed on your credit file warning lenders to take extra steps to verify your identity before granting credit. Lasts for six years in Canada.
G
Garnishment
A legal process where a creditor obtains a court order to deduct money directly from your wages or bank account to repay a debt.
Good Credit
A credit score between 660 and 724 in Canada. Opens access to most credit products with competitive interest rates.
Grace Period
The time between the end of a billing cycle and the payment due date during which no interest accrues on new purchases, if the previous balance was paid in full.
H
HELOC (Home Equity Line of Credit)
A revolving line of credit secured by your home equity. In Canada, you can borrow up to 65% of your home's value through a HELOC.
Hard Inquiry
A credit check that occurs when you apply for credit. Hard inquiries can lower your credit score by a few points and stay on your report for three years.
Home Equity
The difference between your home's market value and the outstanding balance on your mortgage. Can be accessed through a HELOC or home equity loan.
I
I-Rating
A credit rating system used on Canadian credit reports for installment loans (I1 is best, I9 is worst). Similar to R-ratings but for fixed payment loans.
Identity Theft
When someone uses your personal information without permission to commit fraud, open accounts, or make purchases. Canadians can report identity theft to the Canadian Anti-Fraud Centre.
Installment Loan
A loan repaid in equal scheduled payments over a set period. Examples include mortgages, car loans, and personal loans.
Interest Rate
The percentage charged by a lender for borrowing money, expressed as an annual percentage of the outstanding balance.
J
Joint Account
A credit account shared by two or more people who are equally responsible for the debt. Activity is reported on all account holders' credit reports.
L
Late Payment
A payment made after the due date. Late payments reported to credit bureaus (typically 30+ days late) can significantly damage your credit score.
Licensed Insolvency Trustee (LIT)
A federally regulated professional who administers consumer proposals and bankruptcies in Canada. The only professionals authorized to file these proceedings.
Lien
A legal claim on property as security for a debt. Common types include mortgage liens, tax liens, and mechanic's liens.
Line of Credit
A flexible borrowing arrangement where a lender provides access to a set amount of funds that can be borrowed, repaid, and borrowed again.
M
Micro-Loan
A small loan typically under $5,000, often used for emergency expenses or small business purposes. May have higher interest rates than traditional loans.
Minimum Payment
The smallest amount you must pay each month to keep your credit account in good standing. Typically 2-3% of the balance or a fixed minimum.
Mortgage
A loan used to purchase real estate, secured by the property itself. In Canada, mortgage terms typically range from 1 to 5 years with amortization periods up to 25 years.
Mortgage Pre-Approval
A lender's conditional commitment to lend you a specific amount for a home purchase, valid for a set period, usually 90-120 days.
Mortgage Stress Test
A federal requirement in Canada where borrowers must qualify at a higher interest rate than their actual rate to ensure they can handle potential rate increases.
N
Negative Information
Adverse entries on your credit report including late payments, collections, bankruptcies, and consumer proposals. Most negative items remain for 6-7 years in Canada.
O
OSAP (Ontario Student Assistance Program)
Ontario's student financial aid program. Student loan payments and defaults are reported to credit bureaus and affect credit scores.
Orderly Payment of Debts (OPD)
A debt repayment program available in Alberta, Saskatchewan, and PEI that consolidates debts at 5% interest through the court system.
P
Payday Loan
A short-term, high-interest loan typically due on your next payday. Regulated provincially in Canada with maximum borrowing cost limits varying by province.
Power of Sale
A process used in some Canadian provinces where a lender can sell a mortgaged property without going to court when the borrower defaults on the mortgage.
Pre-Approved
A preliminary credit offer based on a soft credit check. Pre-approval does not guarantee final approval, which requires a full application and hard inquiry.
Prime Rate
The benchmark interest rate set by Canadian banks, influenced by the Bank of Canada's overnight rate. Variable-rate loans are typically priced as prime plus or minus a percentage.
Principal
The original amount of money borrowed, excluding interest. Monthly loan payments typically include both principal and interest components.
Public Record
Legal financial information on your credit report including bankruptcies, consumer proposals, judgments, and registered liens.
R
R-Rating
A credit rating system used on Canadian credit reports for revolving accounts (R1 is best, R9 is worst). For example, R1 means payments made on time.
Revolving Credit
A type of credit that allows repeated borrowing up to a set limit, such as credit cards and lines of credit. No fixed repayment schedule.
S
Secured Credit Card
A credit card backed by a cash deposit that serves as collateral and typically sets the credit limit. Used to build or rebuild credit history.
Secured Loan
A loan backed by collateral (an asset like a car or home). If the borrower defaults, the lender can seize the collateral to recover the debt.
Soft Inquiry
A credit check that does not affect your credit score. Examples include checking your own credit, employer checks, and pre-approval screenings.
Student Loan
Loans provided by federal and provincial governments to help students pay for post-secondary education. In Canada, student loan debt receives special treatment in bankruptcy.
Surplus Income
In Canadian bankruptcy, the amount you must pay based on income above a government-set threshold. Calculated monthly and paid to your trustee.
T
Term
The length of time for a loan agreement or mortgage contract. In Canada, mortgage terms are typically 1-5 years, while the amortization period can be up to 25 years.
Tradeline
Any credit account listed on your credit report, including credit cards, loans, and lines of credit. Each tradeline includes payment history and account status.
TransUnion
One of Canada's two national credit bureaus. Maintains credit files on millions of Canadians and provides credit scores and reports to lenders and consumers.
U
Unsecured Loan
A loan not backed by collateral, approved based on the borrower's creditworthiness. Personal loans and credit cards are common examples.
Utilization Ratio
The percentage of your total available credit that you're currently using. A key factor in credit score calculations — keeping it below 30% is recommended.
V
Variable Interest Rate
An interest rate that fluctuates based on market conditions, typically tied to the prime rate. Payments or interest portions change as rates move up or down.
Voluntary Surrender
When a borrower voluntarily returns a financed asset (like a vehicle) to the lender. The remaining balance after sale of the asset may still be owed.
W
Wage Garnishment
A court-ordered deduction from your paycheck to repay a debt. In most Canadian provinces, there are limits on the percentage that can be garnished.
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