Glossary
A
Annual Fees
This is a yearly fee charged by some credit card issuers (but not all) to use their credit card. It usually falls between $15 and $55.
Annual Percentage Rate (APR)
Loans are accompanied by interest that you pay in addition to the money you borrow. Your APR is the additional amount of money or interest that you owe for borrowing.
Annual Percentage Yield (APY)
When money is kept in a savings account, it earns additional money called dividends at a credit union. An APY is the percentage that is used in calculating how much you will earn in dividends.
Automated Teller Machine (ATM)
This machine allows you to access your account at any hour and perform basic transactions such as getting cash or putting money into your account.
B
Beneficiary
A person that you designate to receive the money in your account in the event of your passing.
Borrower
A person that borrows an amount of money from a lender and agrees to pay back that amount at a later time in small payments.
Budget
A spending plan that helps you organize your money and plan for the future. In a budget, you will calculate your monthly income as well as your total expenses and bills.
C
Capacity
This is determined by comparing a loan applicant's earning ability to the amount of debt he or she holds at that time. It calculates the borrower's ability to pay off debt with his or her income.
Cash Advance
This means that you can withdraw cash directly from your credit card at an ATM or at your credit union or bank.
Closed-End Loan
A specific type of loan that lets you borrow a certain amount of money over a certain period of time by making a series of monthly payments. Once the loan is paid back completely, it is closed.
Co-Signer
Someone who agrees in writing to repay the debt if the borrower fails to do so. The account displays on both the borrower's and the co-signer's credit reports.
Collateral
A borrower offers a piece of collateral to secure a loan. This could be a house, a car, or money. If the borrower does not make payments on their loan, their piece of collateral is seized.
Credit Card
A plastic card provided by a lender, allowing the cardholder to purchase goods and services or receive cash. The money is loaned to the cardholder, and he or she agrees to pay it back.
Credit Limit
On a credit card, a limit is given to the cardholder. This limit cannot be exceeded when purchasing goods and services.
Credit Report
A confidential report on your payment habits as reported by creditors (i.e., credit unions, banks, and credit card companies) to a credit reporting agency.
Credit Score
A three-digit number that allows credit unions and banks to determine how likely you are to repay a loan.
Credit Union
A non-profit financial cooperative that offers financial services to its member-owners, all of whom have met specific employment, residence, or other eligibility requirements.
D
Debit Card
A plastic card provided by a credit union or bank that offers you electronic access to the funds already in your account.
Debt
An amount of money owed to a person or an organization in repayment of borrowed funds or loans.
Deposit
Money is put into your account.
Derogatory Items
Negative items that may be present on your credit report and result in denial of your loan application (e.g., late payments and collections).
Dividends
These are portions of a company's earnings that are distributed to its member-owners or shareholders.
E
Expense
This is money spent or a cost required for bills, goods, or services.
F
Finance Charge
The amount of interest charged on a loan or credit card.
Fixed Rate
An annual percentage rate that does not change from month to month.
G
Grace Period
The time period you have to pay a bill in full and avoid any interest charges.
I
Installment Loans
These credit accounts involve a payment that is divided into equal monthly amounts to be paid over a period of time (e.g., auto loans and mortgages).
Interest Rate
A rate, expressed as a percentage, which is charged by a lender for borrowing money.
L
Lease
An agreement between a lender and a borrower where the borrower rents a property (e.g., a car or an apartment) for a certain period of time.
Lender
A financial institution (credit union, bank, or credit card company) or a person that lends money to a borrower.
Line of Credit
This source of funds is a revolving loan. It can be used to make a purchase, pay it back, and then use it again (e.g., credit cards).
Loan
An agreement in which a lender gives a borrower money with the expectation that the money will be paid back at a later date with interest.
M
Minimum Payment
On a loan, this is the absolute lowest payment that you can make by your due date.
N
Net Income
This is your earned income after taxes have been subtracted.
P
Personal Identification Number (PIN)
A PIN is a four-digit special number specifically assigned to you. It is used at ATMs and for certain types of transactions.
Point of Sale (POS) Transaction
This is a transaction made with your debit card requiring you to enter your four-digit PIN. After finalized, the funds are immediately withdrawn from your account.
Principal Balance
This is the original balance of your loan without any added interest.
R
Revolving Account
A line of credit automatically available up to a predetermined maximum limit (e.g., credit cards).
Risk-Based Pricing
A tool used by lenders to determine interest rates for loans based on the past payment behavior of an applicant: the higher your credit score, the lower (better) your interest rate will be.
S
Signature-Based Transactions
A type of transaction sometimes made with your debit and credit card by signing your name on the electronic card reader to finalize the transaction. Funds are withdrawn in 2-3 business days.
T
Term
The number of months over which your loan will be repaid. Typically offered on closed-end loans, such as auto loans.
Transaction Fee
Fees charged for using your credit line in ways other than a purchase (e.g., a cash advance from an ATM).
V
Variable Rate
An annual percentage rate that may change over time according to the contract with your lender.
W
Withdrawal
Money is deducted from your account.
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