Some of us are old enough to remember the civics lessons in high school that taught us how to balance a checkbook. For the rest of us, we need a guide to enter and understand the world of money management.
Check out these definitions below to learn more about the terms you’ve heard and some you haven’t. If you’re itching for more, visit mycreditunion.gov.
The act of evaluating and setting the value of a specific piece of personal or real property.
The issuance of approval, by a credit card issuer, merchant, or other affiliate, to complete a credit card transaction.
Automated Teller Machine (ATM):
A machine, activated by a magnetically encoded card or other medium, that can process a variety of banking transactions like accepting deposits and loan payments, providing withdrawals, and transferring funds between accounts.
The legal proceedings by which the affairs of a bankrupt person are turned over to a trustee or receiver for administration under the bankruptcy laws. Involuntary bankruptcy occurs when one or more creditors file a petition to have the debtor declared bankrupt. During voluntary bankruptcy, the debtor files a petition claiming inability to meet financial obligations and willingness to be declared bankrupt.
A check drawn on the funds of the bank, not against the funds in a depositor’s account purchased with funds from a personal account. The recipient of the check is assured that the funds are available.
Certificate of Deposit:
A negotiable instrument issued by a bank in exchange for funds deposited, usually bearing interest.
A demand deposit account subject to withdrawal of funds by check.
The expenses incurred by sellers and buyers in transferring ownership in real property. The costs of closing may include the origination fee, discount points, attorneys’ fees, loan fees, title search and insurance, survey charge, recordation fees, and the credit report charge.
Conventional Fixed-Rate Mortgage:
A fixed-rate mortgage offers you a set interest rate and payments that do not change throughout the life, or “term,” of the loan. A conventional fixed-rate loan is fully paid off over a given number of years-usually 15, 20, or 30. A portion of each monthly payment goes towards paying back the money borrowed, the “principal”; the rest is “interest.”
An individual who signs the note of another person as support for the credit of the primary signer and who becomes responsible for the obligation.
The maximum amount of credit that is available on a credit card or other line of credit account.
Credit Repair Organization:
A person or organization that sells, provides, performs, or assists in improving a consumer’s credit record, credit history or credit rating (or says that that they will do so) in exchange for a fee or other payment, except when advice is provided by a non-profit organization.
A number, roughly between 300 and 800, that measures an individual’s credit worthiness. Banks use a credit score to help determine whether you qualify for a particular credit card, loan, or service.
Debt-to-Income Ratio (DTI):
The percentage of a consumer’s monthly gross income that goes toward paying debts. Generally, the higher the ratio, the higher the perceived risk. Loans with higher risk are generally priced at a higher interest rate.
A financial instrument held by a third party on behalf of the other two parties in a transaction. The funds are held by the escrow service until it receives the appropriate written or oral instructions, or until obligations have been fulfilled.
A loan for which interest rate and payments remain the same over the life of the loan. The consumer makes equal monthly payments of principal and interest until the debt is paid in full.
A legal process in which collateral property may be sold to help repay the loan in default.
Individual Retirement Account (IRA):
A retirement savings program for individuals to which yearly tax-deductible contributions up to a specified limit can be made. The amount contributed is not taxed until withdrawn. Withdrawal is not permitted without penalty until the individual reaches age 59 1/2.
The amount paid by a borrower to a lender in exchange for use of the lender’s money for a certain period of time. Interest is paid on loans at regular intervals or as a lump-sum payment upon maturity.
The date on which the principal balance of a loan or other financial instrument becomes due and payable.
A small-dollar, short-term loan that a borrower promises to repay out of their next paycheck or deposit of funds.
The process of analyzing two records, finding any cause for differences, and bringing the two records into agreement. Example: Comparing an up-to-date checkbook register with a monthly statement.
A way of obtaining a better interest rate, lowering monthly payments, or borrowing cash on the equity in a property that has built up on a loan. A second loan is taken out to pay off the first, higher-rate loan.
A reverse mortgage is a special home loan product that allows a homeowner aged 62 or older the ability to access equity accumulated in their home. The home itself will be the source of repayment. The loan must be repaid when the borrower dies, sells the home, or no longer lives there as principal residence.
Safe (or Safety) Deposit Box:
A type of safe usually located inside a bank vault and rented to customers to store valuable items.
Loans made, insured, or guaranteed under any program authorized by the Higher Education Act. Loan funds are used by the borrower for education purposes.