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Using credit and charge cards wisely is essential to staying out of debt. These terms and definitions may be useful as you evaluate offers and use credit to purchase goods and services.
APR: The annual percentage rate is the amount of interest paid on a loan. The smaller the number, the lower the interest rate.
APY: The annual percentage yield is the amount of money savings accounts will earn over a one-year period from credit unions and banks.
ATM: With an ATM card issued by your financial institution, an automatic teller machine allows you to access your accounts to deposit, withdraw or transfer money. You may also determine account balances.
Activity: All transactions that have occurred on an account. These include: charges, returns, cash advances, interest and payments.
Advance-free Loan: A loan where the lending institution deducts all finance charges and fees prior to releasing the principal to the borrower.
Annual Fee: Some credit card companies charge an annual fee. This amount is in addition to any interest on unpaid balances. A person’s credit score may impact the fee.
Automatic Payment: Many banks will deduct the interest, or minimum amount due, on a loan directly from your checking or savings account. This method allows you to avoid a late fee, but assures the lending institution of collecting on this loan for a long time. Paying more than the minimum due each month will repay this debt at a faster rate.
Average Daily Balance: The bank calculates the interest on a debt by totaling the amount owed for each day in their billing cycle and divides this number by number of days in the billing period.
Balance: The total amount of money in a checking or savings account or the amount due on a credit card or loan.
Bankruptcy: When debts exceed assets, filing for bankruptcy may forgive some obligations. There are laws and regulations that govern when and how someone can declare bankruptcy and the extent to which their debts are covered.
Billing Cycle: The number of days between your last and current bill.
Charge Off Amount: The value of the debt that is uncollectible. Even if an amount is categorized as a “charge off,” it does not disappear from your record. The amount and the date(s) of the bad debt will be listed on your credit report for up to seven years.
Charge Off Date: The date a debt is considered uncollectible. It’s the most serious offense to appear in your credit file.
Check: Written authorization for a financial institution to release funds from your checking account.
Check or Debit Card: Used like cash or a check, swiping the card at a merchant or ATM automatically deducts funds from your checking account.
Check Hold: Deposited funds temporarily held by a financial institution until the establishment on which they were drawn releases them.
Closing Date: The final day in the billing cycle charges are posted on an account.
Collection Agency: When payments are not made to credit card companies or financial institutions, the debt may be sent to a collection agency. These organizations will try to have you pay the overdue balance. Non-payment could be reflected on your credit report as a “collection account.” Collection agencies must operate within the letter of the law and maintain certain standards. They must identify themselves as a bill collector when they call you. They cannot call you at work. They cannot threaten you or become violent. They cannot use profanity.
Co-sign: If you sign a credit agreement along with someone else, and they default on the payments, the lending institution will look to you to repay the debt.
Credit Bureau: A credit bureau collects and maintains information about your payment practices. When you apply for credit, they release information about your credit history. There are three major credit reporting agencies: Experian (www.experian.com), Trans Union (www.transunion.com) and Equifax (www.equifax.com). You are entitled to a free copy of your credit report from each of these agencies once a year. You can obtain it on line at www.annualcreditreport.com, by calling 877-322-8228 or writing to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.
Credit Counseling: Services who advise people on using credit and/or reducing debt.
Credit Report: The three credit bureaus above maintain data on your credit history including current and closed accounts as well as your payment record. Check it annually for accuracy and report discrepancies to the appropriate credit bureau
Credit or FICO Score: This number reflects information in your credit file maintained by the credit bureaus. Financial institutions use your score to determine whether to issue credit and the amount of interest to charge you. The higher the score, the better credit risk you are. Scores above 760 receive the lowest rates. Scores under 600 result in high interest rates.
Debit Card: These cards are used like cash to pay for goods and services. Once the card is scanned, funds are deducted from the account linked to the card.
Default: When credit card companies or lending institutions do not receive payment for debts owed, the cardholder is deemed to be in default.
Deferred Payment: Credit card companies sometimes allow customers to skip a month and pay at a future date. Interest on unpaid balances will still accrue.
Delinquency fee: Payment not received by the due date will result in a delinquency assessment.
Effective Date: The date money is deposited or withdrawn from an account.
Finance Charge: These charges may also be labeled interest, service or transaction fees.
Finance Companies: A business which loans money to people who typically do not qualify for conventional credit. Interest rates are generally higher than those of banks or credit unions.
Home Equity Loan: A loan against a home’s value minus the outstanding mortgage balance.
Identity Theft: When your personal information is stolen and used by another person.
Interest: The percentage charged on money that has been borrowed a well as money earned on interest-bearing accounts.
Late Fees: Late fees are charged when an account is not partially paid or paid in full by the due date.
Loan Principal: The unpaid balance on a loan. As payments are made, the principal is reduced. Interest continues to be charged on the outstanding principal until the loan is repaid in full.
Mortgage: A loan for a house and the land it sits on.
Non-Sufficient Funds: When a check is written against an account without enough money to cover it. Fees are generally assessed when this occurs.
Overdraft: A sum of money a financial institution will lend an account holder to cover transactions written on an account with insufficient funds.
Over the Limit Fees: The dollar amount a credit card company charges if the cardholder exceeds his/her credit limit.
Paid Charge Off: This is the terminology used on your credit report when a bad debt is considered paid. It is less damaging than being listed as a “charge off” but is still considered a severe infraction.
PIN: Your personal identification code to access accounts at an ATM or debit card.
Revolving Credit: An agreement allowing individuals to pay all or part of a loan or credit card bill.
Secured Credit: Repayment is guaranteed by a consumer against savings or property.
Service Charge: A fee or a fine levied by a financial institution.
Stop Payment: When you ask your bank not to cash a check that has been written.
Term: The period a loan is in effect and must be repaid.
Transaction Fee: A charge made when certain activities occur such as a withdrawal at an ATM not affiliated with your bank.
Treasurer’s Check: A check that is guaranteed by a financial institution. These are also called Bank Checks or Cashier’s Checks.
Unsecured Loan: A loan issued without a re-payment guarantee.
Variable Interest Rate: The interest charged according to changes in the banking industry such as when prime fluctuates.
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