Terminology

Account Agreement: An agreement that defines membership eligibility and conditions of your share accounts. It also defines many other important banking operations such as how to order a stop payment on share drafts, transaction limitations on your accounts, overdrafts fees, and what happens if your account becomes dormant. The agreement may disclose if the credit union has a security interest if your loan becomes delinquent or your share account becomes negative. The agreement also discloses if the credit union has a cross collateralization clause for your automobile, for example, it can hold the automobile for security for other loans you have with the credit union.

Account Holder: All persons designated and authorized to transact business on behalf of an account. Each account holder’s signature needs to be on file with the credit union. The signature authorizes that person to conduct business on behalf of the account without the other account holders consent.

Accrued Interest: Interest that has been earned, but not yet paid, to the account holder for a share account; or interest due, but not yet paid by a borrower on a loan.

Annual Percentage Rate (APR): The cost of credit on a yearly basis, expressed as a percentage.

Annual Percentage Yield (APY): A percentage rate reflecting the total amount of interest paid on a share account based on the interest rate and the frequency of compounding for a year.

Application: Under the Equal Credit Opportunity Act (ECOA), an oral or written request for a loan that is made in accordance with the procedures established by the financial institution for the type of loan requested.

Appraisal: An independent evaluation of your home or business to establish a value for a specific period of time.

Authorization: The issuance of approval, by a credit card issuer, merchant, or other affiliate, to complete a credit card transaction.

Automatic Bill Payment: An automated system generally found in home banking where an account holder has the ability to pay recurring bills. For example, the member will enter the payment information of the merchant into the bill payment system, and the system sends a payment either monthly or a one-time payment. The financial institution sends either a debit or a paper check depending upon the merchant’s capabilities.

ATM – Automated Teller Machine: A machine, activated by a magnetically encoded card or other medium that can process a variety of banking transactions. These transactions include accepting deposits and loan payments, providing withdrawals, and transferring funds between accounts.

Availability Date: The date, according to a financial institution’s policy, as to when funds deposited into an account will be available for withdrawal. The Expedited Funds Availability Act requires a financial institution to adhere to a specific schedule.

Available Balance: The balance of an account, less any merchant holds from pending debit card transactions, uncollected funds, or other restrictions against the account.

Available Credit: The difference between the credit limit assigned to a cardholder’s account or a line of credit indicating the remaining amount of funds to borrow on the account.

Balance Transfer: The process of moving an outstanding balance from one credit card to another. This transfer is usually done to obtain a lower interest rate on the outstanding balance. Transfers are sometimes subjected to a Balance Transfer Fee.

Bankruptcy: The legal proceedings by which the affairs of a bankrupt person are turned over to a trustee or receiver for administration under the bankruptcy laws. There are two types of bankruptcy:

Involuntary bankruptcy-one or more creditors of an insolvent debtor file a petition having the debtor declared bankrupt.

Voluntary bankruptcy-the debtor files a petition claiming inability to meet financial obligations and willingness to be declared bankrupt.

Beneficiary: A person who is entitled to receive the benefits or proceeds of a share account, will, trust, insurance policy, retirement plan, annuity, or other contract.

Billing Cycle: The time interval between the dates on which regular periodic statements are issued.

Canceled Check (Share Draft): A check that a financial institution paid, charged to the account holder’s account, and then endorsed. Once canceled, a check is no longer negotiable.

Cashier’s Check: A check drawn on the funds of the financial institution, not against the funds in a depositor’s account. However, the depositor paid for the cashier’s check with funds from their account. The primary benefit of a cashier’s check is that the recipient of the check is assured that the funds are available.

Certified Check: A personal check drawn by an individual that is certified (guaranteed) to be good. The face of the check bears the words “certified” or “accepted,” and is signed by an official of the financial institution issuing the check. The signature signifies that:

the signature of the drawer is genuine, and

sufficient funds are on deposit and earmarked for payment of the check.

Charge-off: The balance on a loan, or negative share draft account, that a financial institution no longer expects to be repaid and writes off as a bad debt.

Check (Share Draft): A written order instructing a financial institution to pay immediately on demand a specified amount of money from the member’s account to the person named on the check or, if a specific person is not named (e.g. written to “Cash”), to whoever bears the check to the institution for payment.

Checking Account (Share Draft Account): A demand deposit share account subject to withdrawal of funds by check. Credit unions refer to a checking account as a share draft account.

Closing Costs: The expenses incurred by sellers and buyers in transferring ownership in real property. The costs of closing may include an origination fee, discount points, attorneys’ fees, loan fees, title search and insurance, survey charge, recordation fees, and the credit report charge.

Collateral: Assets that are offered to secure a loan or other credit. For example, if you obtain a real estate mortgage, the credit’s collateral is typically your house. Collateral becomes subject to seizure on default.

Compound Interest: Compound interest is the interest paid on a deposit or share account, which is added to the account balance at the end of the dividend period. Compounding occurs during the next dividend period when you earn dividends or interest on the dividend credited to your account at the end of the prior dividend period.

Conventional Fixed Rate Mortgage: Mortgage loans other than those insured or guaranteed by a government agency such as the FHA (Federal Housing Administration), the VA (Veterans Administration), or the Rural Development Services (formerly known as the Farmers Home Administration or FmHA). A fixed-rate mortgage offers you a set interest rate and payments that do not change throughout the life, or “term,” of the loan. A conventional fixed-rate mortgage loan is fully paid off over a given number of years-usually 15, 20, or 30. A portion of each monthly payment goes towards paying back the money borrowed, the “principal”; the rest is “interest.”

Co-Signer: An individual who signs the note of another person as support for the credit of the primary signer and who becomes responsible for the obligation.

Credit Card: A credit card enables the account owner to conveniently make purchases electronically and be billed later. Most credit cards allow the balance to be carried over from one billing cycle to the next. However, the account owner will usually have to pay interest on that balance. The account owner will likely have to pay at least a certain amount of the balance due each billing cycle. Credit cards have a set credit limit that’s established when the account is opened, and may increase or decrease over time. The use of a credit card involves potential fees and penalties, depending on the cardholder’s payment history.

Credit History: A record of an individual’s or company’s past borrowing and repaying behavior maintained by an independent credit reporting agency. It will list personal or corporate information, including how long your credit lines remained open, history of late and current payments, the original amount and the outstanding balance, monthly payments, charged-off accounts, delinquent accounts, and accounts charged-off in bankruptcy.

Credit Limit: The maximum amount of credit that is available on a credit card or other line of credit loan.

Credit Repair Organization: Generally, a person or organization that sells, provides, performs, or assists in improving a member’s credit record, credit history, or credit rating (or says that that they will do so) in exchange for a fee or other payment. It also includes a person or organization providing advice or assistance about how to improve a member’s credit record, credit history, or credit rating.

Credit Report: A detailed report of an individual’s credit history prepared by a credit reporting agency and used by a financial institution in determining a loan applicant’s creditworthiness.

Credit Score: A number, roughly between 300 and 800, measuring an individual’s credit worthiness. The most well-known type of credit score is the FICO® score. This score is derived from a mathematical formula that assigns numerical values to various pieces of information in your credit report. The score of 800 is the best rating you can receive. Financial institutions may use a credit score to help determine whether you qualify for a particular credit card, loan, or service.

Debit: A debit may be an account entry representing money you owe a lender or money that has been taken from your deposit account.

Debit Card: A debit card allows the account owner to access their funds electronically. Debit cards may be used to obtain cash from automated teller machines, or purchase goods or services using point-of-sale systems. The use of a debit card involves immediate debiting and/or crediting of consumers’ accounts.

Debt-to-Income Ratio (DTI): The percentage of a member’s monthly gross income that goes toward paying installment debts. Generally, the higher the ratio, the lower is your capacity to repay the loan. The DTI is calculated by dividing total monthly debts by total monthly gross income.

Deferred Payment: A payment postponed until a future date.

Delinquency: A debt that was not paid by the loan’s payment date

Deposit Slip: A deposit slip is a small paper form that a bank customer includes when depositing funds into a bank account. A deposit slip, by definition, contains the date, the name of the depositor, the depositor’s account number, and the amounts being deposited.

Direct Deposit: A payment that is electronically deposited into an individual’s account at a depository institution.

Dividends: The money the credit union pays you for keeping your money in your savings account, also known as a share account.

Early Withdrawal Penalty: A charge that is given to holders of fixed –term investments if they withdraw their money before maturity.

Earnest Money: Money given to a seller by a buyer to demonstrate the buyer’s good faith. If the deal falls through, the deposit is usually forfeited.

Electronic Banking: A service that allows an account holder to obtain account information, and manage certain banking transactions, through a personal computer or other electronic device via the financial institution’s Website on the Internet. (This is also known as Internet or online banking.)

Electronic Funds Transfer (EFT): The transfer of money between accounts by consumer electronic systems, such as automated teller machines (ATMs) and electronic payment of bills, rather than by check or cash. (Wire transfers, checks, drafts, and paper instruments do not fall into this category.)

Escrow: The holding of money or documents by a neutral third party before closing on a property. It can also be funds held in reserve by a financial institution or mortgage company to pay taxes, insurance, and other mortgage-related items when due.

First Mortgage: A real estate loan, which is in a first lien position, taking priority over all other liens. In case of a foreclosure, the first mortgage will be repaid before any other mortgages.

Fixed Rate Loan: Loans that have a fixed rate of interest. Both the interest rate and the monthly payments (for principal and interest) stay the same during the life of the loan.

Foreclosure: The legal process by which a property may be sold and the proceeds of the sale applied to the mortgage debt. A foreclosure occurs when the loan becomes delinquent because payments have not been made or when the homeowner is in default for a reason other than the failure to make timely mortgage payments.

Fraud Alert: One of several security measures placed on a credit report for identity theft management and prevention. It is a key provision of the Fair and Accurate Credit Transactions Act of 2003 allowing a consumer to place a fraud alert on their credit record. A consumer would use this option if they believe they were a victim of identity theft. The alert requires any creditor that is asked to extend credit to contact the consumer by phone and verify that the credit application was not made by an identity thief.

Frozen Account: An account on which funds may not be withdrawn, and/or deposited, until a lien is satisfied and a court order or other legal process makes the account available for withdrawal (e.g., the account of a deceased person is frozen pending a court order distributing the funds to the new lawful owners). An account may also be frozen when there is a dispute regarding the true ownership of an account. The financial institution will freeze the account to preserve the existing funds until legal action can determine the lawful owner.

Garnishment/Garnish: A legal process allowing a financial institution to remove funds from your deposit or share account to satisfy a debt that you have not paid. If you owe money to a person or company, they can obtain a court order directing your financial institution to take money out of your account to pay off your debt. Not all states allow garnishment actions.

Hold: Used to indicate that a certain amount of a member’s balance may not be withdrawn until an item has been collected, or until a specific check or debit is posted.

Home Equity Line of Credit (HELOC): A line of credit secured by the equity in a member’s home. It is typically used for home improvements, debt consolidation, and other major purchases. Interest paid on the loan is generally tax deductible (consult a tax advisor to be sure). The funds may be accessed by writing checks against the line of credit or by getting a cash advance.

Insufficient Funds: When a member’s checking or share draft account balance is inadequate to pay a check or ACH presented for payment.

Insured Shares: Deposits held in federal and most state chartered credit unions that are guaranteed by the National Credit Union Share Insurance Fund (NCUSIF) against loss due to credit union failure.

Interest: The term interest is used to describe the cost of using money, a right, share, or title in property.

Interest Rate: The rate paid by a borrower to a financial institution in exchange for the use of the financial institution’s money for a certain period of time. Interest is paid on loans or on debt instruments, such as notes or bonds, either at regular intervals or as part of a lump sum payment when the issue matures.

Joint Account: An account owned by two or more persons. Either party can conduct transactions separately or together as set forth in the deposit account contract. In addition, some states allow one owner of the account to use the share balance as collateral in case of default.

Late Charge: The fee charged for delinquent payment on an installment loan, usually expressed as a percentage of the loan balance or payment. Also, a penalty imposed by a card issuer against a cardholder’s account for failing to make minimum payments.

Lien: Legal claim against a property. Once the property is sold, the lien holder is then paid the amount that is owed.

Line of Credit: A pre-approved loan authorization with a specific borrowing limit based on creditworthiness. A line of credit allows borrowers to obtain a number of loans without re-applying each time as long as the total of borrowed funds does not exceed the credit limit.

Loan Fee: A fee charged by a lender to make a loan (in addition to the interest charged to the borrower).

Loan Proceeds: The net amount of funds a financial institution disburses under the terms of a loan, and which the borrower then owes.

Local Check: A check payable by, at, or through a financial institution in the same check processing region as the location of the branch of the depository institution. The depository institution is the institution into which the check was deposited. As of February 27, 2010, the Federal Reserve consolidated its checking processing centers into one processing center. Therefore, all checks are now considered local.

Maturity: The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

Membership: To have a savings account at a credit union, you must belong to a group of people with a common bond. As a member of a credit union, you also become an owner of the credit union. Because you are an owner, your savings account is called a regular share account.

Minimum Balance: The amount of money required to be on deposit in an account to qualify the member for special services or to waive a service charge.

Minimum Payment: The minimum dollar amount that must be paid each month on a loan, line of credit, or other debt.

Money Market Share Account: A savings account that generally offers a higher rate of interest in exchange for larger than normal deposits. Insured by the NCUSIF, these accounts have limits on the number of transactions allowed and may require higher balances to receive the higher rate of interest.

Mortgage: A contract or debt instrument used in a real estate transaction where the property is the collateral for the loan. A mortgage gives the lender a right to take possession of the property if the borrower fails to pay off the loan.

National Credit Union Administration (NCUA): The Federal regulatory agency that charters and supervises Federal credit unions. NCUA also administers the National Credit Union Share Insurance Fund, which insures the deposits of federally insured credit unions (both Federal credit unions and state-chartered credit unions.)

Non-Sufficient Funds (NSF): The status of an account that does not have enough money in it to cover one or more transactions. NSF also describes the fee incurred from a check that cannot be honored or does not clear because of insufficient funds in the checking account. NSF checks are often known as bad checks, bounced checks, or returned checks.

Official Check: Check drawn on a financial institution and signed by an authorized financial institution official. (Also known as a cashier’s check.)

Online Banking: A service that allows an account holder to obtain account information and manage certain banking transactions through a personal computer, or other electronic device, via the financial institution’s Internet web site. (This is also known as Internet, electronic, or home banking.)

Outstanding Check: A check written by a member that has not yet been presented for payment to the financial institution.

Overdraft: When the amount of money withdrawn from a checking or share draft account that is greater than the amount actually available in the account, the excess is known as an overdraft and the account is said to be overdrawn.

Personal Identification Number (PIN): Generally, a four-character number or word, the PIN is the secret code given to credit or debit cardholders enabling them to access their accounts. The code is either randomly assigned by the financial institution or selected by the consumer. It is intended to prevent unauthorized use of the card while accessing a financial service terminal.

Point of Sale (POS): 1) The location at which a transaction takes place. 2) Systems that allow consumers to effect transfers of funds from their deposit accounts and other financial transactions at retail establishments.

Principal Balance: The outstanding balance on a loan, excluding interest and fees.

Private Mortgage Insurance (PMI): Protects the lender against a loss if a borrower defaults on the loan. It is a payment usually required of a borrower for loans in which a down payment is less than 20 percent of the sales price, or in a refinancing, when the amount financed is greater than 80 percent of the appraised value. When you acquire 20 percent equity in your home, PMI is cancelled. Depending on the size of your mortgage and down payment, these premiums can add $100 to $200 per month or more to your payments.

Refinancing: A way of obtaining a better interest rate, lower monthly payments, or borrow cash on the equity in a property that has built up on a loan. A second loan is taken out to pay off the first, higher-rate loan.

Return Item: A negotiable instrument, principally a check that has been sent to a financial institution for collection and payment and is returned unpaid by the sending financial institution.

Revolving Credit: A credit agreement (typically a credit card) that allows a customer to borrow against a preapproved credit line when purchasing goods and services. The borrower is only billed for the amount that is actually borrowed plus any interest due. (Also called a charge account or open-end credit.)

Service Charge: A charge assessed by a depository institution for processing transactions and maintaining accounts.

Settlement (or Closing) Costs: Fees paid at a loan closing. It may include: application fees, title examination, abstract of title, title insurance, property survey fees; as well as fees for preparing deeds, mortgages, and the settlement documents. There may be: attorneys’ fees, recording fees, the estimated cost of taxes and insurance, and the notary, appraisal, and credit reporting fees.

Share Account: Credit unions call savings accounts share accounts because at a credit union you are a part owner of the credit union. For example, if you own a piece of a company you own a share of stock. If you have an account at a credit union, you have a share account.

Share Draft Account: Credit unions call checking accounts share draft accounts. Share draft accounts are a transaction accounts.

Stale-Dated Check: A check/share draft presented to a paying financial institution 180 days (6 months) or more after the original issue date. Financial institutions are not required by the Uniform Commercial Code to honor stale-dated checks/share drafts and can return them to the issuing financial institution unpaid. The maker of a check/share draft can discourage late presentment by writing the words “not good after X days” on the back of the check.

Statement: A summary of all transactions that occurred over the preceding month and could be associated with a deposit account or loan account.

Stop Payment: An order not to pay a check or share draft that has been issued but not yet cashed. If requested soon enough, the check will not be debited to the payer’s account. Most financial institutions charge a fee for this service.

Term: “Loan terms” refers to the terms and conditions involved when borrowing money. This can include the loan’s repayment period, the interest rate and fees associated with the loan, penalty fees borrowers might be charged, and any other special conditions that may apply.

Variable Rate: Any interest rate or dividend that changes on a periodic basis.

Wire Transfer: An electronic transfer of money from one person to another. A more narrow technical meaning, referring to one certain method of transferring funds, which usually involves an electronic transfer of funds from one credit union account to another.