Credit Union Glossary & Study Guide

A

Accrued Interest: Interest that has been earned but has not been paid out (disbursed).
Adjustable-Rate Mortgage (ARM): Variable rate mortgages that adjust during the life of the loan based on key economic movements. ARMs usually offer a lower initial interest rate than fixed-rate loans. The interest rate is generally lower than a traditional fixed mortgage. As rates increase, monthly payments increase. These are great mortgages when rates are low.
Annual Percentage Rate (APR): The interest rate paid on loans. Higher credit scores will receive lower rates, lower credit scores, higher rates.
Annual Percentage Yield (APY): Interest that has been earned but has not been paid out (disbursed).
ACH – Automated Clearing House: An electronic deposit or withdrawal from your share accounts such as direct deposit of members’ salaries and government benefit payments (e.g., social security, welfare, and veterans’ entitlements), member-initiated payments, and preauthorized transfers.
ATM – Automated Teller Machine: Perform basic transactions including deposits and withdrawals, loan payments, and transferring funds between accounts.
Available Balance: Perform basic transactions including deposits and withdrawals, loan payments, and transferring funds between accounts.
Available Credit: The balance of an account, less any merchant holds from pending debit card transactions, uncollected funds, or other restrictions against the account.

B

Balance Transfer: Moving an outstanding balance from one credit card to another. Usually to obtain a lower fee. Most balance transfers will incur a standard minimum fee or 3 or 5% of the balance to be transferred.
Budget: A budget is a plan on how much to save each week or month to make a purchase or to reach a savings goal.

C

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.
Charter Number: A unique number assigned to the credit union by NCUA, You can find a specific credit union’s charter number by visiting https://mapping.ncua.gov/ResearchCreditUnion.aspx.
Checking Account (Share Draft Account): Traditionally a place that direct deposit is sent to and bills are paid from. It is a transactional account, although some checking accounts will offer interest tied to a balance or cashback depending on your debit card usage.
Closing Costs: The expenses incurred by sellers and buyers in transferring ownership of 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. Credit Unions generally offer lower or reduced closing costs in comparison to banks.
Club Accounts: Holiday, Christmas, or Vacation Club Accounts allow members to save through the year for a specific reason. There is usually some threshold amount that they must deposit before accusing interest. It encourages consistent savings habits with automatic deposits that can be set up with payroll deduction. The balance will then roll over into the primary share savings or checking account at the end of the cycle.
Collateral: Assets that are offered to secure a loan or other credit. For example, if you obtain a real estate mortgage, the credit union’s collateral is typically your house. Collateral becomes subject to seizure on default.
Collateral Protection Insurance (CPI): A type of property insurance that protects the lender’s interest in the collateral securing a loan. It is not a substitute for comprehensive and collision coverage on a vehicle. If a borrower has a vehicle loan and fails to obtain or maintain the proper insurance coverage required by the loan agreement, the lender can purchase CPI and add the premium for it to the loan balance. In most cases, this action increases the loan payments to cover the cost of the insurance. CPI can also be added to a loan when vehicle insurance changes or lapses, or the vehicle title does not name the lender as a lienholder during the life of the loan.
Consumer Reporting Agency: There are three traditional agencies: Experian, TransUnion, and Equifax. Payment history and other individual credit information are reported here and can affect your credit score. Individuals can pull one free credit report annually at AnnualCreditReport.com.
Conventional Fixed-Rate Mortgage: 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 fixed 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”. Home insurance, and property taxes (escrow) can be calculated into the monthly payment as well.
Co-Signer: If a member will not qualify for a loan on their own, the credit union can request a co-signer. This person will be responsible for the loan if it is not paid.
Coverdell Education Savings Account: Formerly called education IRA. An education account that accumulates interest tax-free. You can also withdraw money from this account without penalty.
Credit Application: Also known as a loan application, which is given to a potential borrower to provide details about his or her creditworthiness, which includes details about the residence, employment, income, and existing debt. Sometimes, an application fee is charged to cover the cost of loan processing.
Credit Card: We all know this one! A credit card gives members access to purchasing power. Much like a line of credit, interest is incurred on the balance owed. A monthly payment is due. Late fees, over-the-credit-limit fees can be incurred. Secured credit cards are available for members who would like to use savings balances as collateral. This may be helpful for those who want to improve their credit.
Credit History: Found on the credit report this shows borrowing and repaying history. 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 can be charged on a credit card or the maximum amount that can be drawn from a line of credit.
Credit Score: A number, roughly between 300 and 800, that measures an individual’s creditworthiness. The most well-known type of credit score is the FICO® score. The score of 800 is the best rating you can achieve. Credit scores can contribute to credit lending decisions by loan underwriters.
Credit Union: A not-for-profit financial institution owned by its members and represented by a volunteer board of directors who are elected by the membership. Credit Unions are formed by people who join together to form a common bond. To become a member, you must meet the credit union’s field of membership requirements and open a share account.
Cut-Off Time: A time of day established by a financial institution for receipt of deposits and payments. After the cut-off time, deposits or payments are posted to your account on the next banking day.

D

Debit: Debits are transactions that lower the balance in your share account. They can be initiated with your debit card, ATM card, electronic transaction, wire transfer, written check, etc.
Debit Card: A debit card allows the account owner to access their funds in the checking account electronically. Debit cards may be used to obtain cash from ATMs or used for purchases. Funds are deducted immediately from the checking account.
Debt Collector: An employee of a financial institution who is dedicated to recovering funds lost due to account overdraft or unpaid lending products.
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. Interest is usually still accrued.
Delinquency: A debt that was not paid by the loan’s payment date.
Direct Deposit: A payment that is electronically deposited into an individual’s account at a depository institution.
Dividends: The money (interest) the credit union pays you for keeping your money in your savings account, also known as a share account.

E

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.
Exchange Rate: The amount a dollar is worth when you exchange it for money from another country. In other words, the price of one country’s currency is expressed in another country’s currency.

F

Fee: A source of non-interest income. Fees can be charged for various reasons. Late payments, insufficient funds, transactional, service, and more.
First Mortgage: The first mortgage in the first that will be repaid. Second mortgages are generally vacation or rental properties.
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.
Foreign Transaction Fee: A fee assessed by your financial institution for making a transaction at another financial institution or bank’s ATM.

G

Guarantor: A party who agrees to be responsible for the payment of another party’s debts should that party default.

H

Hold: Used to indicate that a certain amount of a member’s balance may not be withdrawn until an item has been collected.
Home Equity Line of Credit (HELOC): A line of credit secured by the equity in a member’s home. Typically used for home improvements, debt consolidation, and other major purchases.
Home Equity Loan (HEL): Similar to a HELOC, however the available amount of credit is disbursed as a lump sum with a specific monthly repayment schedule.

I

Inactive Account: An account that has no activity; neither deposits nor withdrawals posted to the account, for a significant period of time.
Individual Retirement Account (IRA): A retirement savings program for individuals to which yearly tax-deductible contributions can be made.
Insufficient Funds: When a member’s checking or share draft account balance is inadequate to pay a check or ACH presented for payment.
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 on deposits or accrued on loans.

J

Joint Account: An account owned by two or more persons. Either party can conduct transactions separately or together.

L

Lender: An individual, financial institution, or other entity that lends money with the expectation that the money will be returned with interest.
Line of Credit: A pre-approved loan authorization with a specific borrowing limit based on creditworthiness.
Loan-to-Value Ratio (LTV): The ratio of the loan principal to the appraised value.

M

Maturity: The date on which the principal balance of a loan becomes due and payable.
Membership: To have a savings account at a credit union, you must either be a member of an SEG, or live, work, study, volunteer, or worship in a specific area.
Minimum Balance: The amount of money required in an account to avoid fees or to keep the account active.
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.
Mortgage: Your home loan! There are many types of mortgages available.
Mortgage Loan: A loan made by a financial institution to a borrower for the financing of real estate property.
Mortgagee: The financial institution in a mortgage loan relationship.
Mortgagor: The borrower in a mortgage loan relationship.

N

National Credit Union Administration (NCUA): The Federal regulatory agency that charters and supervises Federal 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.
Loan-to-Value Ratio (LTV): The ratio of the loan principal to the appraised value.

O

Online Banking: The ability to access your accounts securely online anytime.
Overdraft: When a member spends more than their available balance on a checking account.

P

Payday Loans: A small-dollar, short-term loan that a borrower promises to repay out of their next paycheck.
Payee: The person or organization to whom a check, draft, or note is made payable.
Payment Due Date: The date on which a loan or installment payment is due.
Payoff: The complete repayment of a loan, including principal, interest, and any other amounts due.
Personal Identification Number (PIN): A secret code given to credit or debit cardholders enabling them to access their accounts.
Private Mortgage Insurance (PMI): Protects the lender against a loss if a borrower defaults on the loan.

R

Refinancing: A way of obtaining a better interest rate, lower monthly payments, or borrow cash on the equity in a property.
Refund: An amount paid back because of an overpayment.
Renewal: The act of restarting a financial product.
Retirement Accounts: An account that helps you plan for your retirement.
Return Item: A check that has been sent for payment and is returned unpaid.
Reverse Mortgage: A special home loan product for homeowners aged 62 or older.
Revolving Credit: Another name defining a credit card or line of credit amount.

S

Share Account: Credit unions call savings accounts share accounts.
Share Certificate: Like a CD, interest is earned over a set period of time.
Share Draft Account: Credit unions call checking accounts share draft accounts.
Statement: A summary of all transactions that occurred over the preceding cycle.
Stop Payment: Stop payments can be placed on share drafts, official checks, and ACH payments.

T

Terms: The conditions of an agreement between a financial institution and consumer.

V

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

W

Wire Transfer: An electronic transfer of money from one person to another.

Credit Union Charter Types

Seg-Based

A SEG-based credit union is one that serves numerous smaller employers. SEG stands for Select Employee Groups. Employees of the companies that are affiliated with the credit union are eligible for membership.

Community-Based

Community-based credit unions allow people to join who live in a particular geographically defined area such as a certain zip code, town or county.

TIP Charter

Trade Industry and Professional (TIP) allows single sponsor credit unions to apply to serve all segments of a particular trade, industry or profession.

Equal Housing Lender (EHL) vs. Equal Housing Opportunity (EHO)

One must be used when advertising real estate-related loans. It signifies that the Credit Union makes such loans without regard to race, color, religion, national origin, sex, handicap, or familial status. Federally chartered credit unions can use either the EHL or EHO; state chartered must use the EHO.

Direct vs. Indirect Lending

Banks participate in consumer lending by making direct loans to their customers. Banks can also establish a relationship with a third party, such as an auto or RV dealer. The first type of activity, direct lending, has traditional credit and consumer risks associated with any consumer loan. The second type of lending, indirect lending, creates the same risks but adds a layer of additional risks. Indirect lending typically takes one of two forms: (1) the dealer may originate loans to consumers, which the bank then purchases or (2) the dealer may forward the loan application to the bank, which then originates the loan. The risks are the same under both scenarios.

Direct Lending

A direct loan is a loan obtained directly from a financing institution without involving a third party. In many cases, consumers will work with their direct lender to finalize financing before going to the third party. Credit unions are an example of a direct lender.

Indirect Lending

An indirect loan is a loan which is obtained at a third-party location. In most cases, the financing is tied directly to the product and the third party where the product is obtained. Captive lenders such as Mercedes-Benz Financial Services and Volkswagen Credit are examples of indirect lenders.

Buying vs. Leasing a Car

	Buying	Leasing
The Money	Requires more money up front, and each month.	Costs less up front and each month, so you can afford a more expensive car.
The Bills	Can pay off your auto loan, which eliminates a monthly cost.	If you always lease, you’ll make car payments for life.
The Commitment	Have the freedom to sell or trade it in whenever.	A lease contract is difficult and expensive to break.
The Dollars & Cents	Usually costs less than leasing overall, over time.	You can get a tax break if you use the car for business purposes.
The Time	It’s yours to sell, total, or drive for 20 years.	Can upgrade to the newest model every couple of years.
Keep In Mind…	The car’s value depreciates as soon as you drive it off the lot.	You’ll owe fees for exceeding annual mileage limits or any damage to the car.

HELOC vs. HELOAN

	Home Equity Line of Credit	Home Equity Loan
How does it work?	Money is borrowed as you need it, like a credit card.	Borrow one large amount all at once (one lump sum).
Interest	Interest is generally a lower variable rate.	Fixed interest rates.
Monthly Payments	Monthly payment amount is based on the unpaid balance of the last advance and annual percentage rate. Minimum payments of $100.	Fixed monthly payments.
Most common way to use?	Better when you are not sure how much you will need to borrow for a project or have ongoing expenses.	Better when you have a specific purpose for the loan and a one-time need.

Fixed-Rate vs. Adjustable-Rate Mortgage

	Fixed-Rate	Adjustable-Rate
What’s the difference?	Monthly mortgage payments remain the same for the life of the loan — either 15 or 30 years.	Monthly mortgage payments will be the same for a set period of time, and then change annually thereafter.
Interest Rate	Whatever the current market rate is when you apply for the loan.	Initially lower than that of fixed-rate interest.
Interest Rate Change	Never, unless you refinance.	In a 5/1 ARM, the rate is fixed for 5 years and then changes once annually. Some lenders offer 3/1, 7/1 and 10/1 ARMs, meaning your rate could be fixed for 3, 7, or 10 years before adjustments.
Pros	Your monthly payments are predetermined making it easy to budget.	A lower initial interest rate will save you money. If interest rates fall after your initial fixed-rate period, your monthly payments can decrease.
Cons	You could have higher monthly payments than an ARM depending on your initial interest rate.	If interest rates rise, your monthly payments will rise. ARMs have a “cap” that limits how high or low your rate can go over the life of the loan.

Refinancing Tips

Lower interest rate and lower payment — refinancing to a lower interest rate will save you money on your monthly mortgage and on interest paid over the life of the loan.
Reduce the life of the mortgage (for example, refinancing from 30 to 20 years).
Reduce or shorten PMI (private mortgage insurance).
Take cash out for home improvements, college expenses, etc.
Take cash out to pay off other debts.
Move from an ARM to a fixed-rate mortgage.

What Makes Up a Credit Score

Amount of Debt

How much do you owe and how much of your available credit have you used?

Payment History

Have you paid your past credit accounts on time?

New Credit

How much of your available credit is new?

Credit Mix

What is your mix of credit cards, auto loans, student loans, mortgages, etc.?

Length of Credit History

How long have you been using credit?

Credit Score	Meaning	Paper
800 – 850	Exceptional	A+
740 – 799	Very Good	A – B
670 – 739	Good	B – C
580 – 669	Fair	C – D
300 – 579	Very Poor	—