US Financial Dictionary

US Financial Dictionary

Renee

Table of Contents

A

Account holder

The account holder is the person in whose name the bank or the credit account is opened. She is legally responsible for the maintenance of debt and balance in the account.

Account number

The account number is a 6 to 16 digit number that the bank allots to the customer and it acts as identification of the customer within the bank. Account numbers are meant to be complicated to eliminate the possibility that two persons will have the same number or that an identity thief will correctly guess a number

Automated Clearing House (ACH)

The Automated Clearing House, or ACH, is a network of financial institutions that processes many types of consumer payments, including debit and credit card transactions. Most consumers don’t interact directly with the system, but if you have a direct deposit of your check or make a monthly mortgage payment, you’re likely using the Automated Clearing House transaction network.

Annual fee

An annual fee is charged by a credit card company each year for use of a credit card. This is a separate fee from the interest rate on purchases. While annual fees were once common, they largely disappeared in the ’80s and ’90s, remaining only on a few classes of cards.

For example, a credit card company may charge a customer an annual fee of $50 in order to keep that customer's card active

Annual percentage return (APR)

Annual percentage return (APR) is the annualized interest which the lender would be charging on your dues. This does include any other fees or charges you have to pay for the loan.

Annual Percentage Yield (APY)

Annual Percentage Yield (APY) is the overall rate earned in a year or any investments, by considering the effects of compounding.

Suppose you deposit $1000 in your account giving you an annual interest rate of 5%, your balance at the end of the year would be $1050. This means you earned simple interest and your APV is similar to the interest rate. But if your bank decides to pay interest monthly, then the balance would be $1051.16. This makes you APV 5.16% and not 5%. As AVP is higher than the interest rate, the investment is compounded.

Authentication

Authentication is a process of verifying whether the authorized cardholder or user is making payments or someone else. These authentications have been made more secure in recent years with a security number on the card (CVV number).

Auto Debit

Auto Debit is an automatic payment service that facilitates payment of your credit card’s outstanding balance automatically from your savings account.

Average daily balance

Average daily balance is the average balance you carry over the credit cycle time period. It is used to calculate the interest payable on the outstanding balance, once you overshoot the grace period of no interest.

B

Bank Identification Number (BIN)

The bank identification number is the first 6 digits of your credit card number. It is used to identify the card-issuing company/institute.

Basis point

Basis points (BPS) refers to a common unit of measure for interest rates and other percentages in finance. A basis point is one-hundredth of a percentage. For example, 25 basis points mean 0.25%.

C

Card Issuer

Card Issuer is any financial institution, bank, credit union, or company that has issued you the credit or debit card issuer.

Cash Advance

A cash advance is like a short-term loan that you can either withdraw from the bank or the ATM using your credit card. This amount is deducted from your credit account and starts charging interest from the day of withdrawal itself. There is no grace or interest-free period.

Checking Account

A checking account is a deposit account held at a financial institution that allows withdrawals and deposits. Also called demand accounts or transactional accounts, checking accounts are very liquid and can be accessed using checks, automated teller machines, and electronic debits. A checking account differs from other bank accounts in that it often allows for numerous withdrawals and unlimited deposits, whereas saving accounts sometimes limit both.

Co-signer

A co-signer is a person with a good credit history, who signs an agreement to pay off the loan/credit card dues in case the other co-signee defaults. Generally, a person with a bad credit history or someone starting credit anew needs a co-signer, so that banks lend them money.

Collaterals

Collaterals are the assets that you put as security with the lender (bank) to prove that you will pay back whatever you owe. In case of default, the lender will take possession of the asset to fulfill its dues by selling the collateral.

Credit

Credit refers to one's ability to buy something in the present and pay in the future.

Credit Bureau

A credit bureau, also known in the U.S. as a “credit reporting company” or “credit reporting agency (CRA),” is an organization that collects individual credit information from various sources and calculates the credit score or credit rating. Equifax, Experian, and TransUnion are the main credit bureaus of national significance in the US.

Credit Limit

Credit Limit refers to the maximum amount of credit that you are authorized to spend through your card.

Credit history

Credit history is the history of your credit use. A record of whether you have paid your dues on time or not, history of bankruptcy or delinquency, etc. It is one of the major factors used in calculating your credit score.

Credit mix

Credit mix broadly refers to different types of loans that you have, like a credit account, education loan, auto loan, etc. Credit mix is an important factor in your credit score calculation with an overall weightage of 10%. It shows your ability to manage/handle different types of loans.

Credit monitoring service

Credit monitoring service monitors credit card accounts for suspicious activities and notifies the cardholder in case such an event occurs. Generally, this service is provided against a monthly or annual fee but some people may get it for free based on their bundled purchase of other services.

Credit Rating

A credit rating is an assessment of the creditworthiness of a borrower by credit bureaus based on his/her credit history, current income levels (ability to pay), employment, and other factors that influence a person’s ability to repay a debt.

Credit Report

Credit Report is a detailed report of an individual’s credit history, payment behavior, and credit inquiries as prepared by credit bureaus. This report is then used by lenders (banks) to evaluate loan applications and determine the creditworthiness of the applicants.

Credit Score

A US credit score is a number between 300 - 850 that is assigned to your credit profile based on detailed analysis by credit bureaus like Equifax, Experian, and TransUnion. It depicts your creditworthiness and is used by lenders to evaluate the risk in lending you.

D

Daily periodic rate (DPR)

A daily periodic rate (DPR) is just  the annual periodic rates expressed in daily terms.

Debit

Debit is an accounting term meaning a charge to an account. When money is taken out of a checking or savings account it is called a debit. A debit transaction can be done using a check, ATM withdrawal, or making payment at a POS (point of sale).

Debit card

A debit card withdraws money directly from your savings or checking account, unlike a credit card which creates a loan. To authorize a debit card transaction one needs to provide a PIN (personal identification number).

Default rate

Default rate is a very high-interest rate (penalty report) that the credit card issuers charge when the cardholder violates any of the credit terms, like paying off credit card dues on time. This default rate or penalty rate can be improved by making few consecutive timely payments.

Default

Default is a scenario where one has failed to make his/her payment on time.

Delinquent account

Delinquent account is  when one stops making payments against loans or credit cards on time. Then that account is termed as a delinquent account.

E

EMI

EMI stands for “Equated monthly installments”. When a large loan is taken and its repayment schedule is made with interest + principle equally divided across the decided repayment period.

End to end encryption

End to end encryption means that the payment or transaction that you make is encrypted along the entire payment processing chain and hence is very secure.

F

Federal Deposit Insurance Corporation (FDIC)

Federal Deposit Insurance Corporation (FDIC) is an independent agency backed by the United States government. When an FDIC insured bank or saving association fails, FDIC insures the account holder for the losses up to $250,000 per depositor, per insured bank, for each account ownership.

FICO score

FICO score is a credit score (between 300 - 850) created by Fair Isaac Corporation. It is widely used by lenders in the US to determine whether to extend credit to a borrower or not. It is one of the most popular and widely used measures for the creditworthiness of people in the US.

FinTech

FinTech is short for Financial Technology. Any company providing financial services using digital technology and the companies developing them will come under this name. A lot of FinTech companies are start-ups which develop a new technology or a better version of existing technology and tie up with the mainstream financial service providers.

Foreign transaction fees

Foreign transaction fees is the fee when an overseas payment is made to a foreign merchant. The card issuer charges a fee that is around 1%-3% of the value of the transaction and is paid in dollars.

Fraudulent transaction

A fraudulent transaction is the unauthorized use of a credit card or account without the consent of the owner.

G

Guarantor

Guarantor is a person who signs an agreement to pay off the credit card obligations in case the primary card holder defaults. Having a guarantor makes it easier for people with risky credit profiles to get a credit card as banks have a security to their funds.

It is similar to co-signer. In case of a default, the banks can turn to guarantors only after they have exhausted all other means of collecting the dues.

Grace period

Grace period is the time period during which the credit card issuer allows you to pay back your dues without paying interest or late fees.

H

Hard credit inquiry

A hard credit inquiry is when the lender whom you have applied for your credit review uses the report for their decision-making process. And multiple such inquiries are concerning for the lenders as you may be opening multiple accounts and risk overspending or inability to pay bills and hence it negatively impacts your credit score.

I

Identity theft

Identity theft known as ID theft in short, and is defined as the use of personal information to commit a fraud. The higher the amount of personal information leaked, greater the financial damage potential the fraud has. Identity theft can happen in many ways like, phishing, mistake, account hijacking, even relatives stealing personal information etc.

Inactive account

Inactive accounts are also known as dormant accounts. These accounts are the ones which are not in use or rarely used. Credit card companies generally close such accounts.

Interest rate

Interest rate is the percentage rate of interest charged when the balance outstanding or the unpaid dues on your credit card are not cleared on time. It is expressed either in monthly or yearly terms.

L

Lender

Lender refers to either person or an institution that gives you access to credit products like a credit card, loan, mortgages, etc.

Late payment charges

Late payment charges (LPC) refers to a charge consumers pay when they fail to make a payment on a debt such as a loan or a credit card, or any other type of financial agreement such as an insurance or rental contract by the due date.

If the balance outstanding (or unpaid dues) are not cleared even after the grace period, the credit card company levies a late payment fee. It is independent of the outstanding payment due and is separate from the interest charges being charged.

M

Merchant establishment

Merchant establishment is any individual, institution, or company that accepts payment through a credit card issued by a bank.

Minimum amount due

Minimum amount due or MAD is the absolute minimum amount that you need to pay to avoid late payment charges on your credit card and keep your credit account active.

O

Overlimit

Overlimit is when the balance (or amount spent) goes over the allowed credit limit. Many credit card companies allow this against overlimit fees.

Overlimit fee

Overlimit charge/fee is the fee that you are charged for allowing the balance to go overlimit.

P

Payment due date

Payment due date is the date on which payment towards your credit card or loan account is due. Payment done beyond the due date attracts penalty and interest charges.

Phishing

Phishing refers to an internet scam carried over email. Fraudsters send a link to people via email behind a garb of a legitimate business and try to capture their personal and financial information. It is always advised to check the URL for authenticity before filling in any personal or financial information on the web to prevent such fraud.

Principal

Principal is the base amount that has been lent to you via a credit card or loan.

R

Remittance

A sum of money sent in payment or as a gift

Revolving credit

Revolving credit is an agreement that permits an account holder to borrow money repeatedly up to a set dollar limit while repaying a portion of the current balance due in regular installments. Each payment, minus the interest and fees charged, replenishes the amount available to the account holder. A credit card is an example of revolving credit. You can use credit and make partial or complete payment to get access to the next credit cycle. Upon making partial payment before the grace period ends, the outstanding balance enters into the next credit cycle or gets “revolved” in the next credit cycle. This is called revolving credit and it attracts interest charges.

Routing number

A routing number is used to identify the bank. An eight or nine digit number used by a banking institution to designate a certain geographic area used to direct and sort inquiries and transactions to the correct district, usually shown at the bottom left of a check, just like the IFSC code does in India.

S

Savings account

A U.S. savings account is an interest-bearing deposit account held at a bank or other financial institution. Because savings accounts pay interest but keep your funds easy to access, they’re a good option for parking cash you’ll want in the short term or to cover an emergency. Savings accounts do have some limitations on how often you can withdraw funds.

Secured credit cards

Secured credit cards are collateral/security-backed credit cards and the credit limit allowed is generally equal to the value of the collateral. More often than not the security is an upfront fixed deposit.

Security Deposit

Security Deposit is the sum of money, deposited with the bank up-front, as security to get access to a secured credit card. It acts as a safeguard for the bank in case the borrower defaults on their payment.

Soft credit inquiry

A soft credit inquiry (also called soft pull) is done when the user wants to know their own credit or a financial institution wants to pre-approve an offer. The credit score is not impacted when a soft pull is done.

Statement

Statement is a document that records all the transactions that have taken place in your credit account.

SSN

Social Security number (SSN) is a nine-digit number issued to U.S citizens, permanent residents, and temporary (working) residents. The original purpose of the number was for the Social security administration to track the individuals, now the SSN has become a de facto national identification number for taxation and other purposes.

T

Total amount due

Total amount due is the sum total of all the transactions made during the period adds up to the outstanding balance. This is the net amount that you need to pay on your credit card.

U

Unsecured credit cards

Unsecured credit cards don’t need security or collateral, unlike secured cards. To own an unsecured credit card one has to have a good credit score and a source of income to prove your ability to repay the debt.

V

Virtual Card

Virtual Card is a  type of digital software that allows you to securely make credit or debit transactions using your computer or smartphone without having your actual credit or debit card

Z

Zolve

Zolve is your go-to financial institution when traveling to the US. Our aim is to create a financial system without borders. The process of opening your Zolve account and applying for a Zolve credit card is seamless, effortless, and hassle-free. For any questions and assistance please reach out to the Zolve team at +91-986742312323.