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ALL U.S. Credit Union - Positively Different

How's Your Financial Vocabulary?

January 30, 2019 - by Patrick Redo

In order to improve your financial wellness it is necessary to understand your financial literacy vocabulary.  Do you know the difference between a credit score and a credit report?  A debit and a credit card?  A routing and bank account number?  Below we have highlighted some of the most common financial terminology to help improve your financial literacy.

BUDGET:  A tool that can be used to track income and expenses within a certain period of time.  Managing your budget can show you where your money is going.  Clickto see other money saving techniques.  

CREDIT SCORE:  A number assigned to individuals that determines their creditworthiness.  Lenders use it to estimate how likely a person would be to pay back a requested loan. Scores range from 300-850, 850 being a perfect score.  The higher your score the more access you have to lending opportunities at lower rates. We recommend aiming for a score above 720, which is based upon your credit history and your credit report.

CREDIT REPORT:  A collection of a person’s entire credit history. Everyone is permitted to view a free copy of their report at each of the three major credit bureaus.  It is recommended to routinely check your credit repot for mistakes or fraud that should be reported.  You can get a free copy of your personal credit report an annualcreditreport.com.

DEPOSIT ACCOUNT:  A liquid type of checking account available at most banks and credit unions.  These types of accounts make it very easy to access your funds through withdrawals at the financial institution, ATM or debit card.

ACH TRANSFERS:  ACH stands for Automatic Clearing House, which is an electronic network used by banks and credit unions to make financial transfers in the U.S.  This type of network is mainly used for direct deposits and direct payments from bank to bank.  

DEBIT CARD:  A card that is attached directly to checking accounts. You can pay with a debit card, which pulls funds directly from a checking account to make purchases or pay bills.  These cards are a substitute to paying with cash, checks or credit cards. 

CREDIT CARD:  This other plastic card is also issued by a financial institution, which allows you to make purchases or pay bills up to a certain amount and pay back that same amount at a later date with interest.  

EMV OR CHIP TECHNOLOGY: A secure transaction that utilizes encrypted chips to reduce fraud on those plastic cards listed above.  These cards come with a small chip that can be inserted into a point-of-sale machine to complete a payment transaction.  Each transaction is coded uniquely by the chip.

PIN NUMBER:  A personal identification number used to validate the identity of a person for electronic transactions.  It is simply an extra layer of security.

ROUTING NUMBER:  This is a 9-digit number that is located on the bottom left of a personal or business check.  It is sometimes called the electronic address that is unique to the financial institution.  

DIRECT DEPOSIT:  An Automated Clearing House (ACH) transaction, where your payment is electronically transferred to a bank account.  This type of payment could be a paycheck, pension check, social security payment, etc.  This type of transaction can be used in lieu of a paper check.

OVERDRAFT:  An overdraft is when you attempt a transaction that would exceed the balance in your account.  Usually the bank or credit union extends a temporary line of credit that allows the transaction to be completed.  Be aware, if an overdraft does occur you are expected to bring the account balance up to a positive number but also pay the service fee.

SHARE ACCOUNT (SAVINGS ACCOUNT):  A basic account that earns interest on the money in the account.  At a traditional bank these accounts are called savings accounts and at credit unions they are called share accounts because they represent a member’s stake in their ownership.

ANNUAL PERCENTAGE RATE (APR):  Shows the annual cost of interest over the principal amount of a loan.  As an example, if the APR on a loan is 8.99% you can calculate that 8.99% of the loan amount would be paid in interest.  The APR helps compare rates at different banks.

ANNUAL PERCENTAGE YIELD (APY):  The APY shows how much interest will be earned.  It uses a very basic calculation to approximate the annual rate of return based on the balance in the account for a full year.  

PRINCIPAL:  The initial amount given to a borrower, excluding the interest owed during repayment of the loan.  

INTEREST:  The fee you pay for borrowing the money.  When a loan is taken out, you’ll not only owe the loan amount but also an additional percentage of the money, which is the interest.

VARIABLE INTEREST RATE: Interest rate that changes periodically based on economic conditions.  

FIXED INTEREST RATE: An interest rate that never changes during the life of the loan.  

If we missed any terms that you would like to know, tell us in the comments.  Try out our free loan calculator tool (https://alluscu.com/fc.cfm?calculator=simpleloan).  Just enter in loan rates and terms and see how much you may spend in interest over time. You can also use the tool to compare loans from other credit unions and banks.  

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IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT

To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. What this means for you: When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver's license or other identifying documents.