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• D

Debt

A person’s debt is whatever money they owe, whether it be to an individual or company. Most people hold debt of some kind, even though we as a society have gotten into the habit of viewing “debt” as a bad thing. Your mortgage and car payment are debts, as well as credit card balances, the late fee you owe at the library, and your income tax when it comes due every year.

 

Debit Card

On first glance, it can be easy to confuse your credit cards with your debit card. Your debit card is issued by the financial institution with which you do your personal banking, and which holds your checking and/or savings accounts. A debit card is linked to your bank account, rather than being based on credit – purchases and transactions are made against money that you have in the bank already. Online debit cards (those that are linked into an active network) will post transactions almost immediately on your account, so that funds are withdrawn or at least pended in real time. Offline debit cards may take a day or two to process, but still are usually speedier than credit cards. A great deal of debit cards are branded with Visa or MasterCard logos, which means that they are accepted anywhere that these credit cards are. Debit/check cards are great for people who prefer not to rely upon credit, but still like the convenience of credit. Debit cards do not provide as many consumer protections and safeguards as credit cards, but they are still quite a bit safer than cash.

 

Debt Consolidation

Debt consolidation is one method used by consumers to handle debt that has grown out of control. Though this method, several debts are consolidated (rolled over / replaced / collected) into one single, larger loan. Debt consolidation is attractive in instances where the replacement loan will have a lower monthly payment and a longer repayment period, thanks to a better interest rate. A good example of this is when a consumer has balances on a handful of retail store cards, which are renowned for their lousy interest rates. Rather than pay interest of over twenty percent on these cards, a customer with great credit might opt to collect all these balances onto a single account of their choosing with a better rate and a lower minimum payment. Consolidation loans can be a great tool for debt management, but they are dangerous for consumers lacking the willpower to cut up the old cards so as to avoid running up new balances.

 

Debt-to-Income Ratio

One’s debt-to-income ratio is a crucial component of how your personal level of creditworthiness is calculated. The term is basically self-explanatory. How much of your personal income is required to pay off your obligations? The percentage of your pre-tax (gross) earnings that is used to make payments on your home, car, your loans, your credit cards, et cetera is weighed against your salary for a snapshot of how much more debt (if any) you can realistically afford to take on.

 

Debtor

In terms of sheer semantics, a “debtor” is anyone who carries debt (or owed money to someone). The word has fallen out of the vernacular in its purest usage, however, and now refers most frequently to someone who has filed for bankruptcy protection but has not yet had their obligations discharged.

 

Default

The state of default takes place when a consumer fails to uphold their end of the agreement between them and a lender to whom they are in debt – to wit, by failing to make payments as agreed upon. This encompasses several problems, such as making payments late, failing to meet the minimum payment, or not making a payment at all. Default may not be declared the first time one of these things happen, but you can bet that your creditor(s) will not tolerate such nonsense over an extended period of time. Being in default gives your creditor the right to raise your interest rate to the penalty rate, and will very likely leave a blemish on your credit report. Needless to say, default is definitely not a place you want to end up! If you know that you are going to have trouble paying your bill, see if you can hammer out a payment arrangement with your credit card company before your payment is due – you may be surprised by how accommodating they can be, especially if your history with them has been solid.

 

Discount Rate

The discount rate is the rate of interest at which Federal Reserve System members may borrow money for short periods of time in the event of reserve shortages. Banks generally only tap into Fed loans as an absolutely last resort, since doing so has historically been considered a strong sign that a bank is in major trouble. Banks prefer to borrow from one another, and to leave the Fed out of it.

 

Down Payment

A down payment is an amount of money put “down” as first, partial payment on a large purchase. A down payment is given for the seller’s confidence, to show that the buyer is vested in the purchase and intends to follow through with the full sale. A down payment may be made on an auto purchase or on a new home, to the tune of several thousand dollars. In the case of mortgages, home buyers will usually need to purchase mortgage insurance if they are not able to come up with at least a ten percent down payment on the purchase of the property.

 

Delinquency Rate

A delinquency rate is the penalty percentage rate you will pay on your credit card if the account falls delinquent a certain number of times over the course of a given time period – usually a year. This applies with credit cards sporting a low rate, whether standard or introductory. Naturally, you always should pay your credit card bill on time to avoid late charges and a host of other undesirable consequences. But make sure you always check out the delinquency rate for a card before you sign up for a new account – these rates must be listed on the card application. They can top twenty percent, so it is imperative that you know what you are getting into from the proverbial get-go.

 

• E

E-commerce

As the “E-“ prefix suggests, “E-commerce” is that which is conducted electronically, namely by use of computer technology and the Internet. An e-commerce system is one used by a merchant to facilitate the buying and selling of products and services over the internet. In the real world, e-commerce is truly the wave of the future.

 

Earned and Unearned Income

These terms refer to two unique sources of income. Earned income is money made in the form of earnings: job wages (a salary) or profits from a private business. Unearned income comes in forms that are – I bet you can guess this, dear reader – unearned. Examples of this include interest accrued, dividends paid, rental income, and/or pension benefits paid out.

 

EFT

This is the acronym for an Electronic Funds Transfer. An EFT is the withdrawal of funds from a consumer bank account, either from an automated teller machine (ATM) or for the purpose of paying bills online or by phone. In the age of e-commerce and online bill payment, EFTs are a very common form of payment.

 

Electronic Check Presentment

ECP is just another way that technology is eliminating paperwork and hassle from the business world. Through ECP, an electronic image of a paper check is captured at the point of sale. This image can then be presented for processing at the clearinghouse and then the bank, in lieu of the actual paper document.

 

Encryption

Encryption is something that is necessary in the age of ever-increasing electronic payment processing, so that customers’ personal information is safeguarded. This is a method of “scrambling” or otherwise distorting sensitive data so that it cannot be retrieved and utilized by anyone except the intended recipient. Encryption is used to hide a customer’s personal information and payment data from anyone but the seller of the item. Proper encryption methods are those utilized on both ends of the transaction: the sender and the receiver as well. When engaging in any form of e-commerce, whether it is online shopping or online bill payment, consumers should take care to deal exclusively with encrypted websites.

 

Equal Credit Opportunity Act

This is the landmark legislation that made it a federal crime to discriminate against anyone for credit approval on the basis of race, color, religion, national origin, sex, marital status, age, source of income or the exercise of any right under the Consumer Credit Protection Act. Creditors may only make credit decisions based on credit score and/or income criteria.

 

• F

“F” (Fixed)

When the letter “F” comes after an annual percentage rate, it represents a fixed rate and not an adjustable one.

 

Fair Credit Billing Act

The Fair Credit Billing Act is a subsection of the Federal Trade Commission Act, which was intended to assist consumers in dealing with any billing disputes that arose with their card issuers. It was also notable for restricting customer liability in the event of unauthorized and/or fraudulent credit card usage. The Fair Credit Billing Act’s purpose is to promote the accuracy of consumer credit report information, and also to ensure that this information is handled in a sensitive and confidential manner by those who need to use it. Consumers have the right to know and view everything that appears on their credit report, as well as to request that this information be corrected if necessary. Upon request, the Credit Reporting Agency must furnish a list of every party that has opened your credit report within the last twelve months, or two years in the case of employment inquiries.

 

Fair Credit Reporting Act

Like the Fair Credit Billing Act, the Fair Credit Reporting Act is a subsection of the Federal Trade Commission Act. This particular law has to do with maintaining the accuracy of information in consumer credit reports. Under this Act, credit reporting agencies are required to correct any inaccurate information that is noticed and reported in consumer credit reports. Any entity that provides information to a credit reporting agency is legally obliged under the Fair Credit Reporting Act to give nothing but accurate information. Additionally, this Act restricts the disclosure of sensitive consumer credit information to just those parties who have specified needs for it.

 

Fair Debt Collection Practices Act

This federal law officially prohibited consumer harassment from debt collectors, as well as malicious practices. The FDCPA limits what time of day collectors may call, what language they may use, and gives consumers some rights to determine how they may and may not be contacted in the effort of having a debt collected upon them. Debt collectors do not have unrestricted rights in attempting to collect what money is owed to them, although no facet of the Fair Debt Collection Practices Act excuses consumers from fully remitting what money they owe their creditors.

 

FDIC

The Federal Deposit Insurance Corporation is an agency of the federal government. Established after the mass bank closures of the Great Depression, the FDIC insures deposits made at bonded financial institutions up to the amount of one hundred thousand dollars, in the event that something should happen to the bank. All banks that are members of the Federal Reserve System are required by law to hold FDIC insurance on qualifying deposits, as well as every bank with a national charter.

 

Federal Reserve

The Federal Reserve, which is commonly called “the Fed” for short, is the central bank of the United States of America. It was established by Congressional order in 1913. The Fed determines our country’s monetary policy, as well as oversees the regulation of all national banks. The goal of the Federal Reserve is the flexibility and stability of the nation’s economy. The chairman and vice chairman of the Federal Reserve are appointed by the President to serve four-year terms. There are seven members of the Federal Reserve’s Board of Governors who are also presidentially appointed, and who serve terms of fourteen years apiece. The Board of Governors holds a supervisory position over the Fed’s overall actions, and also has a majority say in the monetary policy of the United States, since the members occupy the majority of the Federal Open Market Committee’s twelve seats.

 

Federal Advisory Council

There are twelve Federal Reserve Districts broken up geographically in the United States, each of which has an advisory group. Every advisory group elects a member to serve on the Federal Advisory Council. This board meets quarterly with the Board of Governors of the Federal Reserve to discuss current business and financial issues, as well as to represent their district in making recommendations for dealing with these matters.

 

Federal Funds Rate

The Federal Funds Rate is the rate of interest at which financial institutions lend money to one another, as opposed to the discount rate at which the Federal Reserve lends money to its member institutions. Depository institutions generally lend money to one another on an overnight basis. Under federal law, financial institutions must hold back a certain amount of consumers’ deposits on reserve, without the bank earning any interest on the money. Therefore, it is in banks’ best interest to never have too much interest-less cash held aside. They prefer to have just enough to keep them at the federal limit without going under, which is why banks are apt to exchange funds back and forth in the form of short-term loans as a means of keeping their levels where they need to be.

 

Federal Open Market Committee

The Federal Open Market Committee is a twelve-seat committee that convenes eight times a year to discuss the purchase and disposal of government securities on the open market. The guidelines that the Federal Open market Committee sets have a crucial real-life impact on consumers throughout the nation, since the decisions adjust both the federal funds rate and federal discount rate. Through a trickle-down effect, shifts in the federal funds rate and federal discount rate impact the rates that banks charge for credit, thereby increasing or decreasing consumer interest rates. The seven members of the Board of Governors take seven of the seats, the Federal Reserve Bank of New York president takes one, and the remaining four seats are filled by a quartet of the eleven nationwide reserve banks’ presidents.

 

Federal Savings and Loan Insurance Corporation

Exactly as the name suggests, the Federal Savings and Loan Insurance Corporation is a federal agency that insures the deposits made at federally-chartered and national savings and loan institutions, much in the way that the Federal Deposit Insurance Corporation insures the deposits made at consumer banks.

 

Federal Trade Commission

The Federal Trade Commission is a watchdog agency that is entrusted with administering and enforcing consumer protection laws and federal antitrust legislation. Important laws that fall under the oversight of the FTC include: the Equal Credit Opportunity Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the Fait Debt Collection Practices Act, the Home Ownership and Equity Protection Act, and the Truth-in-Lending Act. As a federal agency, the FTC is dedicated to serving consumers’ interests against big business and maintaining their rights.

 

FICO Score

The Fair Issac Corporation (FICO) created the algorithm for calculating the most commonly-used credit score today. When American consumers talk about their credit score, it is reasonable to believe that they are referring to their FICO score although several other scores are in use.

 

Fiduciary

A fiduciary is a party who manages someone else’s assets. An individual, company, or association may hold fiduciary responsibility in many different forms: as the executor of a will or estate, the receiver in bankruptcy filing, or as the person in charge of handling a minor’s finances until they come of age. A fiduciary may not illegally exploit the assets of which they are in charge for their own financial gain, but they are charged with making important financial decisions for the party they represent. The term is usually used along with “duty” to represent the charge that such a person has for the party they represent: a liquidator has fiduciary duty to the bankrupt company who hired them; a parent has fiduciary duty to their child; and a lawyer or stockbroker has fiduciary duty to their client.

 

Finance Charge

A finance charge is the cost charged for the use of a credit card. The interest fees charged for the billing cycle are expressed on your bill as the finance charge.

 

Float

The “float” period is the length of time between when a check is turned in as a form of payment by a consumer and the point at which it clears and is withdrawn from the customer’s account or is bounced by the bank. It is not meant to include however long it takes for the check’s recipient to bring it to the bank. Float times vary, and some merchants have managed to altogether eliminate this “cushion” by converting check transactions into electronic debits from customers’ accounts. The term is also used as a verb, as in “to float a check.” For years, money-strapped consumers have taken advantage of the fact that there is a period of time between when a check is turned in and when it clears, and used check to make purchases that they know they cannot afford. Usually this takes the form of writing a check two days before the customer’s pay check comes in with every intention of the item clearing the bank, but some scammers will write a totally worthless check with full knowledge that it will bounce and make off with the goods/service that they stole. Either action is illegal, and is referred to as “check kiting,” although it is rare that the first variety of check-writers will get punished beyond the crippling NSF/overdraft fees from their bank and returned item charges from the merchant in question. Trying to float a check is a risky business, since there is no longer a guarantee that checks will not clear immediately through electronic presentation. It’s really best not to write a check unless you know there is cash in the bank to clear it!

 

Floor

The floor is the lowest-possible rate on a line of credit with a variable rate, disregarding the low introductory period. Many credit cards will use the oft-fluctuating prime rate as an index, and the floor ensures that the minimum APR will never drop below a certain point, no matter what the prime rate is at. Basically, the floor is an example of credit card companies doing what they do best – making money.

 

Foreign Currency Surcharge

Credit card usage is fraught with ever so many niggling fees and charges. Basically, your credit card company will not shy away from nickel-and-diming you in every way possible to extract every possible cent from your checking account. The foreign currency surcharge is a prime example of this: it’s a charge from your credit card that comes from making purchases in a foreign currency. This can be quite expensive, so make sure you know what the foreign currency surcharge for your card is before you run off to explore the world and buy every little thing that catches your eye!

 

Free Period

“Free period” is another term for the grace period, a phrase with which many consumers are more familiar. Regardless of what you call it, this refers to the period between the date you make a transaction and your next billing date, assuming that you did not have a carryover balance residual from the last billing cycle. (Consumers who carry a balance do not get a grace period on purchases, meaning that finance charges are calculated from the date that a purchase is made.) The grace period is generally somewhere between twenty and thirty days. If your card is eligible for a free period, it is required that your card issuer send you a bill two weeks before your payment is due so that you do not fall late on your account.

 

Fresh Start

Per the Bankruptcy Code, a fresh start is what consumers start with after filing bankruptcy and having their debts dissolved. Never allow yourself to get jealous or assume that this fresh start is anything but a hard-won and well-deserved state of grace, given the hell that bankrupt individuals must go through before having their obligations discharged by the court.

 

• G

Gold Card

A Gold Card is generally considered to be a more elite credit card product than the standard plastic, one with more stringent consumer income requirements and also with a heftier line of credit. Generally the credit limit on a gold card is anywhere from twenty-five hundred to five thousand dollars, with customers required to make at least thirty-five thousand dollars annually. There are more advantages to a gold card than just the higher credit line, however: gold card members can expect to receive extra incentives and perks with membership, including extra purchase insurance, rental car coverage, and travel assistance tools.

 

Grace Period

See “free period.” A grace period is the length of time (usually twenty to thirty days) between a purchase and the billing date that is given to consumers in which to pay their credit card bill without interest. The grace period is not given to customers who carry a balance.

 

• H

Household Income

Another one of those terms that is patently self-explanatory. The household income field on a credit application is a crucial tool for lenders trying to determine the worthiness of two people for a joint loan of any kind, including a credit card. The household income is the combined income for all members of a household. It usually applies to the combined salaries of married persons applying together for a loan or credit card.

 

• I

Independent Bank

An independent bank is one that is owned and operated locally in the community in which it is located, as opposed to a big corporate bank with many locations that may be owned by a holding company. For obvious reasons, this sort of financial institution may also be called a community bank.

 

Index

An index is a published figure derived from market trading that has significance to the determination of a lending rate. The plural of “index” is “indices.” Some frequently-used indices are the prime rate (listed in The Wall Street Journal), the Federal Home Loan Bank 11th District Cost of Funds, and the one-year Treasure Constant Maturity Yield.

 

Indexed Rate

The indexed rate is an interest rate tied to a given index, plus the financial institution’s margin (profit) for the loan. If the index is ten percent, for example, and the margin is three-and-a-half percent, the indexed rate for the loan is thirteen and a half percent.

 

Interest

Interest is the charge for a borrower’s use of a lender’s money. Interest is calculated on the basis of a percentage of the money being loaned over a certain period of time. Basically, it is a fee for the use of a borrower’s assets, or a “rent” charge for whatever is being loaned out. Inversely, interest is also used as a term to refer to the fee paid by the borrower.

 

Interest Accrual Rate

The interest accrual rate is very simply the percentage that a borrower pays out for the loan of the borrower’s asset(s). It is generally expressed on the basis of an annualized figure.

 

Interest Rate Cap

An interest rate cap is any restriction on the rate of interest that may be charged upon a borrower during the life of a loan. There is a limit to how much your interest rate may either increase or decrease over time during rate adjustment periods.

 

Interstate Banking

Interstate banking is a term that refers to the expansion of banks across state lines when the institutions are held by bank holding companies and acquire existing banks to change over to their own brand.

 

Intro Rate

The introductory rate is a “teaser” meant to attract new customers and to get consumers to bring their balances (and business) over from competing lenders. It is a low rate charged on a temporary basis by a lender for the introductory period during which a consumer holds a new card account. After the intro period is over, the credit card interest rate switches over to the “normal” interest rate or indexed rate, depending on the account’s conditions.

 

Issuing Financial Institution

As the name suggests, the issuing financial institution is the bank that issues a credit card. This is the institution with which the consumer in question carries out their credit card business, and is issued a bill for purchases made on the account.