Financial terms you should know

Financial Terms You Should Know

Improve your financial literacy by improving your financial vocabulary! Here are some financial terms to familiarize yourself with.  

Asset - Anything owned by an individual, a business, or a credit union which has commercial or exchange value. 

APR - APR stands for annual percentage rate, also commonly known as interest, and it represents the cost of borrowing on a yearly basis. 

Check hold -  A practice used by most financial institutions to ensure checks on deposit will, in fact, be paid by the drawee bank. It was developed to protect consumers and financial institutions from fraud and bounced checks. This system is employed by Southland. 

Collateral - Property belonging to the borrower that is signed over to the credit union to sell if the loan is not repaid. Collateral is typically physical property, such as a home or a car.

Certificate account - An instrument that is issued by the credit union in the name of the Member stating that a certain sum of money is on deposit and that the Member agrees to keep this money at the credit union for a certain period of time. Certificate Accounts vary widely in amount and term, and the rate of interest depends on both of these factors.

Creditworthiness - Creditworthiness is a term that refers to how much confidence a lender can have in a borrower’s ability to repay a loan. Creditworthiness is primarily determined by how well a borrower has managed previous debt obligations.

Credit report - a record of a borrower’s credit history. It is produced by the credit bureaus and typically consists of four sections: personal information, financial account history, history of credit applications, and public records. The information in a credit report is used to calculate a consumer’s credit score, which is one of the primary factors that lenders consider when evaluating a credit application.

Credit score - This three-digit number is determined based on the information in your credit reports. It helps lenders determine how likely you are to repay a loan. This may also be referred to as a FICO score. FICO is an acronym for the Fair Isaac Corporation, the company that came up with the methodology for calculating a credit score based on several factors, including payment history, length of credit history and total amount owed. The typical FICO score ranges from 300 to 850 and the higher the score, the better.

Credit utilization ratio - The amount of revolving credit you’re currently using divided by the total amount of revolving credit you have available. In other words, it’s how much you currently owe divided by your credit limit.

Income - Money received through sources such as employment, investments or business transactions. There are two ways to measure income: gross income and net income. Gross income is the total amount that’s earned before expenses, taxes and other costs. Net income is what remains after these expenses are deducted.

Interest - The percentage of a loan principal that lenders charge borrowers. There are two primary kinds of interest: simple interest and compound interest. Simple interest is calculated exclusively on the initial amount of money borrowed, while compound interest is calculated based on the loan principal plus the interest that accumulates each period.

Minimum balance - For accounts, the minimum balance is the minimum dollar amount that a Member must have in an account to receive some service benefit, such as keeping the account open or receiving interest. 

NCUA - The National Credit Union Association is an independent federal financial regulatory agency responsible for chartering, supervising, examining and insuring credit unions. Additionally, it insures the Member accounts of state-chartered credit unions which choose, or are required by state law, to have federal insurance.

Overdraft - An overdraft is a negative balance in an account caused by withdrawals that exceed the balance. Many financial institutions will charge an overdraft fee or automatically deduct money from another account you own.

For financial definitions related to credit cards, visit Southland’s article here. Also, make sure to follow Southland on Facebook, Instagram and Twitter. We post relevant financial term definitions, financial advice videos and more!