Budget & Credit Glossary

Note to Reader: This Glossary of Terms was prepared by the Center for Financial Certifications™ with additions made to it by 1 $ Wiser. They are included here for your reference.

 

A B C D E F G H I J K L M N O P Q R S T U V W Y Z Other

 

A

Acceleration Clause — Clause contained in a loan agreement, which allows the lender to speed up the rate of the loan’s payment terms. In case of default on a loan, this clause allows the lender to require immediate payment of the loan in full.

Ad Hoc — For the specific purpose, case, or situation at hand and for no other.

Adjustable Rate Loan — A loan in which the interest rate can change during the repayment term (opposite of fixed rate); also called variable rate loan.

Adverse Action Notice — A notice informing one that credit, employment, insurance, or other benefits based on information in a credit report have been denied. The notice should indicate which credit reporting agency was used, and how to contact them.

Annual Percentage Rate (APR) — The yearly cost of using credit, including interest, mortgage insurance, and the origination fee (points), expressed as a percentage. It is also the annual percentage rate is the rate of interest paid by your financial institution if you have an interest bearing account.

Annuities — An insurance industry investment product. These contracts between an individual and an insurance contract are set up so that the holder deposits a sum of money with the insurance company and they in turn make monthly payments to the holder.

Application —The process of a borrower asking for the extension of credit from a creditor.

Asset — Any item of economic value owned by an individual.

ATM Card — A bank issued card that allows you to access your bank accounts at an Automatic Teller Machine (ATM). These usually can only be used at ATMs.

Auto Insurance — An insurance policy to insure the value of a consumer’s automobile. Many states require a minimum insurance coverage to register vehicles.

Automatic Stay — An injunction that automatically stops lawsuits, foreclosures, garnishments, and all collection activity against the debtor the moment a bankruptcy petition is filed.

Average Daily Balance — A calculation for determining finance charges on charges accounts, or credit accounts. The calculation method is to total up the daily account balances for a certain period of time, and divide by the number of days in that time period.

 

B

Balloon Payment — The final lump-sum payment made on a loan, which is typically the last payment; most commonly found in mortgages.

Bank — A publicly traded corporation; banks are chartered by the state or federal government and offer checking/savings accounts as well as make loans.

Bankcard — A bank-issued card, typically tied to a consumer’s account at the bank. It serves to act as a debit card, as funds are directly debited from the holder’s checking or savings account when the card is used. It can also be used to access funds from the consumer’s bank account through an ATM.

Bank Fees — Money the bank charges you for services the bank provides. These vary from time to time and from institution to institution.

Bankruptcy — (1) The condition of being financially insolvent (2) The administration of an insolvent debtor’s property by the court for the benefit of the debtor’s creditors. Chapter 7 bankruptcy is a liquidation proceeding, available to individuals, married couples, partnerships and corporations. Chapter 13 bankruptcy is a repayment plan for individuals with debts falling below statutory levels which provides for repayment of some or all of the debts out of future income over three to five years.

Bond — A certificate of debt issued by either a corporation or a government. Borrower — An individual who signs a promissory note and assumes liability to repay under the terms of that note. (Also called a debtor)

Buy-Here, Pay-Here — Auto dealer financing for high-risk applicants.

 

C

Certificate of Deposit (CD) — A deposit account that pays a higher interest rate than a savings account.

Chargeback — When a merchant is required to reverse a charge on a credit card holder’s account.

Charged Off— When a loan becomes uncollectible and is written off the books as an asset usually 120 days delinquent for closed-end loan and 180 days delinquent for open-end loans. The fact that an account has been charged off does not mean the creditor can no longer attempt to collect the funds due.

Check— A piece of paper on which is written an amount you give to another individual or company which allows them to obtain money from your account with a bank or credit union. Traditionally this piece of paper was physically transferred from the recipient’s bank to your bank, then your bank sent the amount of money specified on the check to the recipient’s bank.

Check 21— A federal law, known as Check 21 (effective October 28, 2004), makes it easier for banks to electronically transfer check images instead of physically transfer paper checks. Check 21 permits banks to replace original checks with "substitute checks." Substitute checks are special paper copies of the front and back of the original check. They can be processed as if they were original checks. The front of a substitute check should state: "This is a legal copy of your check. You can use it the same way you would use the original check." You can use a substitute check as proof of payment just as you would use an original check.

Check Card— An instrument (card) that allows you make purchases against your checking account without actually writing a check. This is more commonly referred to as a Debit Card.

Collateral — Assets pledged by a borrower to secure a loan or other credit, and subject to seizure in the event of default. (Also called security)

Commercial Credit — A bank loan to a business.

Consumer Credit — A loan from a bank, credit union or finance company to an individual consumer.

Cosigner — An individual other than the borrower who signs a promissory note and thereby assumes equal liability for it.

Credit — A contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some later date.

Credit— When used in reference to your bank account, a credit is an amount added to your account. For example, a deposit you made to your account or interest earned on your account paid to you by the financial institution.

Credit Bureau — An agency which collects and sells information about the creditworthiness of individuals. (Also called credit reporting agency)

Credit Card Accountability Act – A federal law which regulates fees, interest rates, penalties, and other charges a creditor may levy against a consumer.

Credit Counseling Agency — An agency (may be for-profit or nonprofit) that offers education, counseling and budget analysis to consumers

Credit Line — The dollar amount a consumer has available to use either on a credit card or on a line of credit (money lent, but not yet used).

Credit Repair Organizations Act — A federal law which regulates credit repair businesses.

Credit Report — A report which will contains information about a person’s credit history.

Credit Reporting Agency — Agency which collects and sells information about the creditworthiness of individuals. (Also called credit bureau)

Credit Score — A measure of credit risk calculated from a credit report using a standardized formula.

Credit Scoring — A statistical technique used to determine whether to extend credit to a borrower.

Credit Union — A nonprofit financial institution that offers its members checking/savings accounts as well as loans.

Creditor — A person or organization which extends credit to others. (Also called lender)

Current Balance— The current balance is the total amount in your account as of a give date. The current balance shown on a month end account statement reflects all debits and credits which have been processed as of close of business on the date of the statement.

 

D

Debt — A liability or obligation in the form of a loan, owed by one person to another person and required to be paid by a specified date.

Debt Consolidation — A loan, usually secured with the equity in a home, used to pay off other, higher interest debts resulting in one monthly payment.

Debit— When used in reference to your bank account, a debit is an amount deducted or withdrawn from your account. For example, your account is debited in the amount of a check you write. Payments made with a debit card, ATM cash withdrawals, and bank fees are other examples of debits.

Debit Card— An instrument (card) issued by your financial institution that allows you make purchases against your checking account without actually writing a check. A debit card often has a Visa or MasterCard logo attached to it. This indicates that it can be used where ever Visa or MasterCard are accepted. The presence of this logo should not be confused with a credit card.

Debt Management Program (DMP) — A program in which an agency works with a debtor and the debtor’s creditors to come up with a repayment plan. The agency receives payment from the debtor and then distributes the money to the creditors. Creditors will occasionally make concessions, such as a reduced interest rate, waiving of fees or re-aging of accounts.

Debt Negotiation — An arrangement under which an agency negotiates with creditors on a debtor’s behalf to reduce the amount of money owed. The agency usually retains a monthly fee, percentage of the money saved or both. The money saved in such a program can be considered taxable income by the IRS. (Also called Debt Settlement)

Debt Settlement — An arrangement under which an agency negotiates with creditors on a debtor’s behalf to reduce the amount of money owed. The agency usually retains a monthly fee, percentage of the money saved or both. The money saved in such a program can be considered taxable income by the IRS. (Also called Debt Negotiation)

Debtor — An individual who signs a promissory note and assumes liability to repay under the terms of that note. (Also called a borrower)

Default — Failure to promptly pay interest or principal when due, according to the terms of a debt contract; default generally occurs after a period of delinquency.

Delinquent — Failure to make a contractual payment on time; delinquency is generally reported on a credit report in 30-day increments.

Deposit — The act of adding additional funds to your account.

Disability Insurance — An insurance plan designed to supplement an individual’s income if unable to work.

Discretionary Expenses – Expenditures which are not essential for sustaining life or for obtaining and maintaining employment.

 

E

Electronic Check — Sometimes, when you write a check to buy something at a store or to pay a bill, your check is used as a source of information to make a one-time electronic payment from your account. In this procedure, called "electronic check conversion," your paper check will not be processed as a check. Instead, the payment will be debited from your account as an electronic fund transfer. You must receive a notice if a merchant or anyone else you are paying plans to use your check for electronic check conversion. For example, if you are at a store, you may see the notice on a sign, or you may be asked to sign a written notice. If you mail a check to pay a bill, you may see the notice on an insert with your monthly bill, or the notice may be on the bill itself.

Equal Credit Opportunity Act — A federal law prohibiting lenders from discriminating on the basis of the borrower’s race, color, national origin, religion, age, sex, marital status, or public assistance program participation.

Escrow — When money is held in trust by a third party, usually to secure the terms of a loan. This is typically found in one’s mortgage payment, whereby the payment is held to meet property taxes and insurance premiums.

 

F

Fair and Accurate Credit Transactions (FACT) Act — A federal law designed, in part, to reduce identity theft and assist victims in recovering from fraud.

Fair Credit Billing Act — A federal law establishing procedures for resolving errors regarding credit card transactions and the transfer of electronic funds.

Fair Credit Reporting Act — A federal law designed to promote accuracy and to ensure the privacy of information used in a credit report.

Fair Debt Collection Practices Act — A federal law prohibiting debt collectors from engaging in unfair, deceptive, or abusive practices.

Federal Deposit Insurance Corporation- Also known as the FDIC, this government agency was created in 1933 in response to the many bank failures in the 1920’s and 1930’s. Money deposited in banks and/or thrift institutions is insured for $100,000 per depositor (only if the institution is FDIC insured). Retirement accounts carry higher insurance coverage.

Federal Trade Commission — Also known as the FTC, this government agency has oversight for the FCRA, ECOA, the FACT Act as well as other credit-related regulations.

FICO — Fair, Isaac Corporation, the inventor of credit scoring models.

Finance Charge — This is any fee or charge representing the total cost of credit or borrowing. It includes interest and other charges such as transaction fees.

Finance Company — A company which makes loans to individuals.

Fixed Expenses – Expenditures which are the same every month and are usually tied to a contract or other legal agreement.

Fixed Rate Loan — A loan in which the interest rate does not change during the entire term of the loan. (Opposite of adjustable rate)

Foreclosure — Typically refers to a legal proceeding initiated by a creditor to take possession of property for which the mortgage has been defaulted.

 

G

Good Faith — Business transactions conducted with honorable intent.

Government Bond — A bond issued by the United States Treasury.

Grace Period — The time between the date of a credit card purchase and the date interest charges start to accrue.

Gross Income – The amount of income earned before any sums are deducted from it, for example, income tax withholding.

 

H

Health Insurance — An insurance policy to cover against health claims. There are various types such as a Health Maintenance Organization (HMO), Preferred Provider Organization (PPO) and Health Savings Account (HSA).

Health Savings Account (HSA) —A savings account with tax benefits that can be used for paying medical expenses.

Homeowners Insurance — An insurance plan that covers the value of real estate. Most mortgage companies require homeowners to insure the value of the home to protect against loss while there is a mortgage in place.

 

I

Installment Loan —A loan that is repaid with a fixed number of periodic, equal-sized payments.

Interest Rate-The fee charged by a lender to borrower money, expressed as an annual percentage of the principal.

Individual Retirement Accounts (IRA) — An account that allows individuals to personally save for retirement.

Interest — Money paid to you by the bank if you allow the bank to use your money.

 

J

Judgment — When the court determines the existence of indebtedness or any other legal liability.

Junk Bond — A bond that carries a higher than average risk of default and has been given a poor rating by a bond rating company.

 

K

Keogh — Retirement accounts for self-employed individuals.

 

L

Lender — A person or organization which extends credit to others. (Also called a creditor)

Liabilities — The monetary obligations that you owe to others.

Lien — An official claim or charge against collateral for funds owed.

Life Insurance — An insurance policy to cover against loss of life. There are various types of polices such as term and permanent insurance.

 

M

Making Homes Affordable – A federal program to modify or refinance a home mortgage to make monthly payments more affordable.

Money Market Account — A type of savings account that pays higher interest rates but requires a minimum balance and restricts the number of withdrawals.

Mortgage — A security agreement in which a house is pledged for a loan.

Mutual Funds — A fund where people pool together their monies to invest together; typically professionally managed and management fees are charged.

 

N

NASDAQ — Largest OTC exchange (original abbreviation stands for National Association of Securities Dealers Automated Quotations).

National Conference of Commissioners on Uniform State Laws (NCCUSL) — Organized in 1892, NCCUSL is a nonprofit unincorporated association, comprised of state commissioners on uniform laws from each state, the District of Columbia, the Commonwealth of Puerto Rico, and the U.S. Virgin Islands. Bar membership is the only requirement, and there are no salaries or fees paid to members. The mission of NCCUSL is to promote uniformity by drafting and proposing specific statutes in areas of the law where uniformity between states is desirable. A uniform law is not effective until passed by each state legislature.

NCUA – National Credit Union Association.

Net Income – The amount of money actually received after all funds (such as federal withholding for income tax) have been deducted from the total amount earned.

Net Worth — The resulting value after subtracting your liabilities from your assets.

NYSE — New York Stock Exchange, the largest equity exchange in the world.

 

O

Overdraft Fees – Also known as Non-Sufficient Funds (NSF) fees are fees charged by financial institutions when they pay out more money on your behalf than you have in your account.

Over the Counter (OTC) — The NASDAQ stock exchange is an example of an OTC exchange. Most stocks in the US are traded on the OTC.

 

P

Pawn Shop-Lends money and holds some of the borrower’s personal goods as collateral.

Payday Loan — A short term loan with high interest rates.

Pension Plan — A retirement plan set by an employer for its employees.

Periodic Expenses – Expenditures which occur periodically such as vehicle maintenance.

Personal Liability Umbrella Insurance — An insurance policy to cover in excess of homeowner or auto insurance policies. It is typically used to raise coverage to higher limits.

PIN — A personal identification number. This is your banking “password”. Some banks allow you to select your own PIN. Others assign it to you.

Promissory Note — A legal document signed by a borrower promising to repay a loan under agreed-upon terms.

Pro Bono — Without compensation; for the public good.

 

Q

Qualified Retirement Plan — Employer-sponsored, tax-deferred retirement plans to which employees can contribute.

 

R

Re-aging — Bringing an account current. Bank guidelines vary on their re-aging processes (i.e., some re-age once in a 12-month period; some once in a five-year period).

Real Property — Land, houses, condos. (Also called Real Estate.)

Renters Insurance — An insurance policy renters can take out to cover the value of their personal belongings while renting a home or apartment.

Revolving Credit — An agreement by a bank to lend a specific amount to a borrower and to allow that amount to be borrowed again once it has been repaid.

Roth IRA — An IRA which you deposit after tax dollars.

 

S

Savings Account — A deposit account that pays interest and allows for unlimited deposits and withdrawals.

Secured — Backed by a pledge of collateral. (Opposite of unsecured)

Security Assets – Assets ledged by a borrower to secure a loan. (Also called collateral)

Security Agreement — A loan document pledging an asset as collateral for a loan.

Servicemembers Civil Relief Act of 2003 — Previously known as the Soldiers’ and Sailors’ Relief Act of 1940. This act offers short-term financial and legal relief to military members as they enter active duty.

Simplified Employee Pension (SEP) — A retirement plan for self-employed individuals (and their employees) who have less than 25 employees.

Social Security Tax — A tax withheld from an employee’s pay to fund the Social Security Retirement System. If you’re self-employed you contribute the full percentage, if you are employed you contribute half and your employer the other half.

Statute of Limitation - The number of years that must elaspe after which an individual can no longer be charged for a debt (or crime). In the case of debts, each state sets the amount of time a creditor or debt collector can try to recover a debt. The time starts from the date of the first missed payment. The amount of time can vary for different types of debt. Check https://www.credit.com/debt/statutes-of-limitations/ for your state's details.

Stocks — Instruments that signify ownership in a corporation. There can be different classes such as common stock or preferred.

Student Loans – Loans taken out to finance educational expenses such as tuition, fees, and books.

 

T

Telephone Consumer Protection Act – A federal law to protect consumers against telephone solicitations.

Truth in Lending — A federal law requiring lenders to fully disclose in writing the terms and conditions of a mortgage, including the annual percentage rate and other charges. (Also called Regulation Z.)

 

U

U.S. Savings Bonds — Bonds issued by the United States government.

Uniform Debt-Management Services Act — This act provides for regulation in both the credit counseling and debt settlement industries. As it is a uniform act, to be affective, it needs to be passed by each individual state

Unsecured — Backed only by the integrity of the borrower, not by collateral.

 

V

Vantage Score System —A credit reporting system designed by the three major credit data reporting companies. The new system aims to make credit scores less confusing, and bases the scores on letters as opposed to numbers.

Variable Expenses – Expenditures which occur on a regular basis, but which vary in amount such as groceries.

Variable Rate Loan — A loan in which the interest rate can change during the term of the loan (as opposed to a fixed rate loan); also called an adjustable rate loan.

 

W

Will — A legal document which states your wishes for disposition of your belongings upon your death.

 

Y

Yield — The rate of return on an investment.

 

Z

Zero-Coupon Bond — Bonds which pay interest only upon their maturity.

 

Other

401(k) — A plan offered by corporations to their employees to set aside tax-deferred money for retirement.

403(b) — A plan offered by nonprofit organizations and universities to their employees to set aside tax-deferred money for retirement.

457 Plans — A plan slightly different from a 401(k) in that it is offered to state and governmental employees, but there are never employer matches made.

 

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