We've organized the most common financial terms and explained them in simple, friendly ways.
A type of credit card award that allows users to earn a percentage (typically 1% to 5%) of their purchase amount, which can be applied toward their balance or transferred to an outside account.
An alternative to traditional bank accounts, a cash management account (CMA) allows a user to make payments and earn interest, and is typically offered from online providers or mobile banking apps.
Permanent (e.g., whole life) insurance policies include a cash value investment, separate from the death benefit. Part of the premium payment is deposited into an account that earns interest over time, which can also be withdrawn from or borrowed against.
Beyond the purchase price of a home, a buyer will typically pay 3-6% of the total purchase price on closing costs, which consists of: origination/underwriting fees, real estate commissions, taxes, insurance premiums, inspection, title filings, and more.
Any time a financial product allows for two borrowers who are both responsible for paying off the debt, typical of a mortgage.
In the event an applicant for a financial product does not have sufficient creditworthiness to become approved, a co-signer with a more established credit history (e.g., a parent for a young adult) is added to back the borrower.
Collateral is the asset that is being used to secure a specific loan, whether it is the house for a mortgage or car for an auto loan, in the event the borrower defaults on the loan and the collateral must be seized.
Beyond the minimum requirement of liability insurance, a driver can also obtain collision coverage for damage to their vehicle, whether it’s caused by another car, a single vehicle crash, etc. Collision coverage is typically limited to the car’s estimated (i.e., blue book) value.
Typical of credit cards, this is the interest accrued on top of interest that is levied onto a principal debt balance. Essentially, it is "interest on interest" and the opposite of simple interest, which is common of most loan types.
With comprehensive coverage, a driver is covered for multiple scenarios other than a collision, which can include: vehicle theft, vandalism, fire, and damage caused by natural disasters.
In the US, these are agencies that collect all of the information that goes into building credit reports and formulating credit scores. They collect the information from creditors (i.e., lenders and credit card issuers) and also have access to other personal financial information from businesses and government organizations. The three major US credit bureaus are: Equifax, Experian, and TransUnion.
Perks offered by credit card issuers to incentivize spending and promote brand loyalty. Rewards can include cash being redeposited into a cardholder's account, the accumulation of bonus points that can be redeemed for certain services, or access to special events/locations.
A record of an individual's credit history from a number of sources, including creditors, banks, businesses, and government organizations. Credit reports are used to assist in the underwriting process, and are compiled by credit bureaus like Equifax, Experian, and TransUnion.
A number rating (typically in the range of 300 to 850) that assesses a consumer's creditworthiness. Credit scoring models, from companies like FICO and VantageScore, are primarily based on information in credit reports, sourced from the three main credit bureaus (Equifax, Experian, and TransUnion).
The percentage of a credit card user's total revolving debt (or credit balance) on all of their active accounts, in comparison to their total available credit.
As credit score and history are important factors in an underwriter’s process, a credit-based insurance score is assigned to an applicant, with a higher score helping the applicant receive a better rate on their policy.