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Glossary
Glossary
Glossary | |
| Terms that are on use on this site. | |
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| There are 82 entries in the glossary. | |
| Pages: 1 | |
| Term | Definition |
| Accumulated Dividend | A dividend due to stockholders of cumulative preferred stock that has not been paid to them. Until the dividend is paid, it is carried on the corporation's books as a liability. |
| ACH | Automated Clearing House. This is a national network that allows for transferring funds electronically between businesses, consumers and financial institutions. |
| Adjustable Rate Mortgage (ARM) | A home loan where the interest rate is changed periodically based on a standard financial index. ARM's offer lower initial interest rates with the risk of rates increasing in the future. In comparison, a fixed rate mortgage (FRM's) offers a higher rate that will not change for the length of the loan. ARMs often have caps on how much the interest rate can rise or fall. |
| Adjusted Basis | The base price that is used to assess capital gains and losses when a security is sold. When net proceeds are used for tax purposes, the commissions are deducted at the time of sale. If any stock splits have occurred since the original purchase, the stock's price needs to be adjusted to obtain a correct adjusted basis. |
| Aggressive Growth Fund | A mutual fund that buys shares in small or speculative growth companies to achieve maximum capital appreciation. |
| Alternative Mortgage | Any home loan that is not a standard fixed-rate mortgage. This includes ARM's, reverse mortgages and jumbo mortgages. |
| American Stock Exchange (AMEX) | The second largest stock exchange in the US is located in the financial district of New York City at 86 Trinity Place. As a general rule, the securities traded on the AMEX are those of small to mid-size corporations. The AMEX also trades options of many NYSE securities and some OTC securities. |
| Annual Percentage Rate (APR) | The interest rate being charged on a debt, expressed as a yearly rate. Credit cards often have several different APR's - one for purchases, one for cash advances and one for balance transfers. Some lenders may increase the APR if a payment is late. |
| Annual Report | A report that companies send their shareholders on an annual basis that outlines earnings and other information. |
| Annuity | A contract between a life insurance company and an individual that guarantees income for a defined period, usually starting at retirement, to the person on whose life the contract is based. In exchange, the individual agrees to make periodic payment to the insurance company. All capital in the annuity grows tax-deferred. |
| Application Fee | Amount a lender charges to process loan application documents. Quality lenders do not charge these fees (though they may charge many others). |
| Appraised Value | An educated opinion of how much a property is worth. An appraiser considers the price of similar homes in the area, the condition of the home and the features of the property to estimate the value. |
| Asset | Assets are things owned by a person that have cash value. This can include homes, cars, boats, savings and investments. |
| Asset Allocation | The allotment of investment funds amongst various types of assets such as cash equivalents, stock, fixed-income investments, real estate, and precious metals. It also applies to sub-classifications such as industry groupings of common stocks and government, municipal, and corporate bonds. Asset allocation affects both risk and return. |
| Back-End Load | A fee that an investor pays when redeeming (withdrawing) funds from an investment--also called "deferred sales charge." The fee is usually dependent on how long the investment is held--the longer the time period, the smaller the fee. Mutual funds and annuities are the most common investments with back-end loads. |
| Back-End Ratio or Back Ratio | The sum of your monthly mortgage payment and all other monthly debts (credit cards, car payments, student loans, etc.) divided by your monthly pre-tax income. Traditionally, lenders wouldn't give people loans that increased this ratio past 36%, but they often do now. |
| Balance Transfer | The process of moving all or part of the outstanding balance on one credit card to another account. Credit card companies often offer special rates for balance transfers. |
| Balloon Payment | A loan where the payments don't pay off the principal in full by the end of the term. When the loan term expires (usually after 5-7 years), the borrower must pay a balloon payment for the remaining amount or refinance. Balloon loans sometimes include convertible options that allow the remaining amount to automatically be transferred into a long-term mortgage. |
| Bankruptcy | A proceeding that legally releases a person from repaying a portion or all debts owed. Bankruptcy damages your credit for 7-10 years and should only be considered as a last resort if you cannot repay your debts. |
| Bear Market | Any period of time where the overall stock market value decreases. |
| Bi-Weekly Mortgage | A mortgage that schedules payments every two weeks instead of the standard monthly payment. The 26 bi-weekly payments are each equal to one-half of a monthly payment. The result is that the mortgage is paid off sooner. |
| Bull Market | Any period of time where the overall stock market value increases. |
| Charge-Off | When a creditor or lender writes off the balance of a delinquent debt, no longer expecting it to be repaid. A charge-off is also known as a bad debt. Charge-off records remain on your credit report for 7 years and will harm your credit score. After a debt is charged-off, it can be sold to a collections agency. |
| ChexSystems | A credit reporting company that tracks your banking history and provides this data to banks when you apply for a new checking account. Negative records, such as bounced checks, can be kept in their database for up to five years. If there are errors on your ChexSystems record, you can contact the company to submit a dispute. |
| Closing Costs | The amounts charged to a consumer when they are transferring ownership or borrowing against a property. Closing costs include lender, title and escrow fees and usually range from 3-6% of the purchase price. |
| Co-Signer | An additional person who signs a loan document and takes equal responsibility for the debt. A borrower may want to use a co-signer if their credit or financial situation is not good enough to qualify for a loan on their own. A co-signer is legally responsible for the loan and the shared account will appear on their credit report. Having a co-signer is only helpful if the co-signer's credit or financial standing is better than the primary lender. |
| Collateral | An asset or property used as security against a loan. |
| Collections | When a business sells your debt for a reduced amount to an agency in order to recover the amounts owed. Credit card debts, medical bills, cell phone bills, utility charges, library fees and video store fees are often sold to collections. Collection agencies attempt to recover past-due debts by contacting the borrower via phone and mail. Collection records can remain on your redit report for 7 years from the last 180 day late payment on the original debt. |
| Commodity | A crop, metal or other substance that is traded. |
| Compound Interest | Interest paid on your interest plus the value of your initial investment (principle). |
| Credit Bureaus | Also known as credit reporting agencies, these companies collect information from creditors and lenders about consumer financial behavior. This data is then provided to businesses that want to evaluate how risky it would be to lend money to a potential borrower. Once a low-tech system of regional credit reporting agencies, the industry is now consolidated into the three national credit bureaus - Equifax, Experian and TransUnion. FICO is not a credit bureau; instead they are company that develops credit scoring formulas. |
| Credit Counseling | A service that helps consumers repay their debts and improve their credit. Usually non-profit companies, most of these agencies offer helpful and affordable services. Consumers should be aware that there are also credit counseling agencies that are expensive, ineffective and even damaging to the client's credit (see Credit Repair). Consumers should carefully review the company's reputation and services before signing up. |
| Credit History | Another term for the information on your credit report. Your credit history is a record of how you have has repaid your credit obligations in the past. |
| Credit Limit | The total amount that a company will allow you to charge to a credit card or credit line. It's best for your credit score to keep your credit card balances below 35% of your credit limit. If you spend more than your credit limit, you will be charged an "overage fee" of about $10-50. |
| Credit Report | The individual records of consumer financial behavior kept by credit bureaus and provided to businesses when they want to evaluate potential borrowers. Credit reports include records on: consumer name, current and former addresses, employment, credit and loan histories, inquiries, collection records, and public records such as bankruptcy filings and tax liens. |
| Credit Score | A numerical evaluation of your credit history used by businesses to quickly understand how risky a borrower you are. Credit scores are calculated using complex mathematical formulas that look at your most current payment history, debts, credit history, inquiries and other factors from your credit report. Credit scores usually range from 300-850, with 680 or higher considered to be "good" credit scores. There are thousands of slightly different credit scoring formulas (including FICO, Beacon and Empirca scores) usd by bankers, lenders, creditors, insurers and retailers. Each score can vary somewhat in how it evaluates your credit data. |
| Debt Consolidation | A process of combining debts into one loan or repayment plan. Debt consolidation can be done on your own, with a financial institution or through a counseling service. Student loans are often consolidated in order to secure a lower interest rate. |
| Debt Counseling | A type of credit counseling that focuses specifically on helping people with debt issues. Instead of consolidating debts into one loan, debt counseling agencies negotiate with your creditors using pre-set agreements and spread your payments over a longer period in order to reduce the monthly amount due. Usually non-profit companies, most of these agencies offer helpful and affordable services. Consumers should be aware that there are also debt counseling agencies that are expensive, ineffective and even damaging to the client's credit score (see Credit Repair). |
| Debt Ratio | Total debt divided by total assets. |
| Debt-to-Income Ratio | The percentage of your monthly pre-tax income that is used to pay off debts such as auto loans, student loans and credit card balances. Lenders look at two ratios: The front-end ratio is the percentage of monthly pre-tax earnings that are spent on house payments. In the back-end ratio, the borrower's other debts are factored in along with the house payments. |
| Dispute | The process of submitting a request to the credit bureaus to have an error on your credit report corrected. Disputes are investigated and updates made to your credit report over a 30 day period. If your correction is made, you will receive a letter from the credit bureaus and a copy of your updated credit report. If your dispute is rejected, you will receive a letter explaining why the credit bureau could not verify the correction. |
| Diversification | Investing in various securities/companies to minimize risk of loss. |
| Dividend | This is a portion of a companies profit that is distributed to shareholders, usually on a quarterly basis. |
| Dollar Cost Averaging | Method of purchasing securities by investing a fixed amount of money at set intervals. The investor buys more shares when the price is low and fewer shares when the price is high, thus reducing the average cost. |
| Entrepreneur | A person who organizes, manages, or otherwise operates a business venture. A self-starter who enjoys building businesses. |
| Hard Inquiry | A record of a business request to see your credit report data for the purpose of an application for credit. Hard inquiries appear on your credit report each time you complete an application for a credit card, loan, cell phone, etc. Hard inquiries can remain on your credit report for up to 2 years and can cause your credit score to drop slightly. |
| Home Equity Line of Credit | An open-ended loan that is backed by the part of a home's value that the borrower owns outright. This type of loan is used much like a credit card. Home equity lines of credit can be effective ways to borrow large sums of money with a relatively low interest rate. These types of loans should be used with caution. If a borrower is unable to pay back the loan for some reason (loss of job, illness, etc.) they risk loosing the home they used as collateral. |
| Housing Expense Ratio | The percentage of your monthly pre-tax income that goes toward your house payment. The general rule is that this ratio shouldn't exceed 28%. This is also known as the "front ratio."
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| Inquiry | An item on your credit report that shows that someone with a "permissible purpose" under FCRA regulations has previously requested a copy of your credit report data. |
| Installment Account | A type of loan where the borrower makes the same payment each month. This includes personal loans and utomotive loans. Mortgage loans are also installment accounts but are usually classified by the credit reporting system as real-estate accounts instead. |
| Interest Rate | A measure of the cost of credit, expressed as a percent. For variable-rate credit card plans, the interest rate is explicitly tied to another interest rate. The interest rate on fixed-rate credit card plans, though not explicitly tied to changes in other interest rates, can also change over time. |
| Interest-Only Loan | A type of loan where the repayment only covers the interest that accumulates on the loan balance and not the actual price of the property. The principal does not decrease with the payments. Interest-only loans usually have a term of 1-5 years. |
| Introductory Rate | A temporary, low interest rate offered on a credit card in order to attract customers. This low rate usually lasts for about six months before converting to a normal fixed or variable rate. With some offers, the introductory rate can be revoked or terminated early if you make a late payment or violate some other terms of the account. |
| IPO | Initial Public Offering, a process where a corporation offers stock to the general public. |
| IRA | Individual Retirement Account, a tax advantaged account for saving money intended to assist individuals in ensuring their own retirement. (see: Roth IRA; Traditional IRA) |
| Judgment | A decision from a judge on a civil action or lawsuit; usually an amount of money a person is required to pay to satisfy a debt or as a penalty. Judgment records remain on your credit report for 7 years and harm your credit score significantly. |
| Liability | Anything that depreciates in value or costs you money such as debt, vehicles, TV, DVD player, or loans. |
| Lien | A legal claim against a person's property, such as a car or a house, as security for a debt. A lien (pronounced "lean") may be placed by a contractor who did work on your house or a mechanic who repaired your car and didn't get paid. The property cannot be sold without paying the lien. Tax liens can remain on your credit report indefinitely if left unpaid or for 15 years from the date paid. |
| Loan Origination Fee | A fee charged by a lender for underwriting a loan. The fee often is expressed in "points;" a point is 1% of the loan amount. |
| Loan-to-Value Ratio (LTV) | The percentage of a home's price that is financed with a loan. On a $100,000 house, if the buyer makes a $20,000 down payment and borrows $80,000, the loan-to-value ratio is 80%. When refinancing a mortgage, the LTV ratio is calculated using the appraised value of the home, not the sale price. You will usually get the best deal if your LTV ratio is below 80%. |
| Market Research | Process of gathering and analyzing data about a particular business or industry to test the viability for entry or investment. |
| Money Market | Money markets are for borrowing and lending money for three years or less. The securities in a money market can be U.S. government bonds, Treasury bills and commercial paper from banks and companies. |
| Mortgage Banker | A person or company that originates home loans, sells them to investors (such as Fannie Mae) and processes monthly payments. |
| Mortgage Broker | A person or company that matches lenders with borrowers who meet their criteria. A mortgage broker does not make the loan directly like a mortgage banker, but receives payment for their services. (See Broker Premium) |
| Mortgage Interest Expense | A tax term for the interest paid on a loan that is fully deductible, up to certain limits, when you itemize income taxes. |
| Net Worth | Your total assests minus your liabilities. |
| Portfolio | A grouping of investments. |
| Prepayment Penalty | A fee that a lender charges a borrower who pays off their loan before the end of its scheduled term. Prepayment penalties are not charged by most standard lenders. Subprime borrowers should review the terms of their loan offers carefully to see if this fee is included. |
| Private Mortgage Insurance (PMI) | A form of insurance that protects the lender by paying the costs of foreclosing on a house if the borrower stops paying the loan. Private mortgage insurance usually is required if the down payment is less than 20% of the sale price. |
| REIT | Real Estate Investment Trust, a holding entity for real estate that often pays good dividends |
| Repossession | When a loan is significantly overdue, a creditor can claim property (cars, boats, equipment, etc.) that was used as collateral for the debt. |
| Revenue | Income from the sale of products or services. |
| Revolving Account | An account where your balance and monthly payment can fluctuate. Most credit cards are revolving accounts. |
| Scoring Model | A complex mathematical formula that evaluates financial data to predict a borrower's future behavior. Developed by the credit bureaus, banks and FICO, there are thousands of slightly different scoring models used to generate credit scores. |
| SEC | Securities & Exchange Commission, a U.S. federal agency that regulates the stock markets and investments. |
| Second Mortgage | A loan using a home's equity as collateral. A first mortgage must be repaid before a second mortgage in a sale. |
| Soft Inquiry | A type of inquiry that does not harm your credit score. Soft inquires are recorded when a business accesses your credit data for a purpose other than an application for credit. Soft inquiries include your request to see your own credit report and employment-related requests. This type of inquiry is recorded by the credit bureaus but does not usually appear on a credit report purchased by you or a business. |
| Subprime Borrower | A borrower who does not meet the qualifications for standard credit and loan offers. Usually a subprime borrower has poor credit (a score under 650) due to late payments, collection accounts or public records. Lenders often grade them based on the severity of past credit problems, with categories ranging from "A-" to "D" or lower. Subprime borrowers can qualify for loans and credit, but usually at a higher interest rate or with special terms. |
| Universal Default Clause | A credit card policy that allows a creditor to increase your interest rates if you make a late payment on any account, not just on their account. For example, your rates could increase dramatically on your credit card if you make a late payment on an unrelated loan. Your creditors track your payment history with other accounts by checking your credit report. |
| Unsecured Debt | A loan on which there is no collateral. Most credit card accounts are unsecured debt. |
| Volatility | The price fluctuation of a particular investment. |
| Volume | The amount of shares that are bought and sold during a trading day. |
| Glossary V2.0 | |
