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Credit Card Dictionary
For more terms see: financial-dictionary.thefreedictionary.comSources: financial-dictionary.thefreedictionary.com, en.wikipedia.org
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Account Balance - The net of debits and credits for an account at the end of a reporting period. Acquirer - A firm or individual that is purchasing another firm or asset. Adjusted Balance Method - A finance/accounting method where costs are based on the amount(s) owing at the end of the current time period (once credits and payments are posted). Adoption Credit - A per-child tax credit for adopting a child under 18. Annual Percentage Rate - APR - The one year rate that is charged for borrowing (or made by investing). By law, credit card companies and loan issuers must show customers the APR. Asset-Backed Security - ABS - A financial security backed by a loan, lease or receivables against assets other than real estate and mortgage backed securities. As an investor, asset-backed securities are an alternative to investing in corporate debt. Asset-Based Lending - A business loan secured by collateral (assets). The loan, or line of credit, is secured by inventory, accounts receivable and/or other balance-sheet assets. Average Daily Balance Method - A finance/accounting method where costs (and interest) are based on the amount(s) owing at the end of each day. Average Up - The process of buying additional shares at higher prices. This raises the average price that the investor pays for all the shares. In the context of short selling, averaging up is achieved by selling additional shares at a price higher than that of the first transaction. Backdating - Dating any document by a date earlier than the one on which the document was originally drawn up. Back-End Ratio - A ratio that indicates what portion of a person's monthly income goes toward paying debts. It is calculated as an individual's total monthly debt, divided by gross monthly income and expressed as a percentage. Total monthly debt includes such expenses as mortgage payments (made up of PITI), credit-card payments, child support and other loan payments. Lenders use this ratio in conjunction with the front-end ratio to approve mortgages. Also known as "debt-to-income ratio". Backpricing - A pricing method used in specific futures contracts whereby the price of the commodity to be delivered is priced by the purchaser at some future date after entering into the position. Bad Debt - A debt that is not collectable and therefore worthless to the creditor. Bag Man - Any person in charge of organizing and collecting contributions to political parties or funds gathered for political reasons. Balance of Trade - BOT - The largest component of a country's balance of payments. It is the difference between exports and imports. Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy. A country has a trade deficit if it imports more than it exports, and the opposite scenario is a trade surplus. Bank wire - A computer message system linking major banks. It is used not for effecting payments, but as a mechanism to advise the receiving bank of some action that has occurred, e.g., the payment by a customer of funds into that bank's account. Bank - A commercial institution licensed as a receiver of deposits. Banks are mainly concerned with making and receiving payments as well as supplying short-term loans to individuals. Brand Equity - An intangible value-added aspect of particular goods otherwise not considered unique. Captive Finance Company - A subsidiary whose purpose is to provide financing to customers buying the parent company's product. Captive Fund - A fund that provides investment services solely to the one firm holding ownership. Cash Advance - A loan taken out against a line of credit or credit card, typically imposing higher-than-normal interest charges. Cash Budget - An estimation of the cash inflows and outflows for a business. Cash Charge - A charge off made by a company against earnings that requires an initial outlay of cash. Cash Commodity - The actual or physical commodity underlying a futures contract. Cash Conversion Cycle - The duration between the purchase of a firm's inventory and the collection of accounts receivable for the sale of that inventory. Also known as cash cycle. Chapter 7 - A bankruptcy proceeding where a company stops all operations and goes completely out of business. A trustee is appointed to liquidate (sell) the company's assets, and the money is used to pay off debt. Charge Card - A card that charges no interest but requires the user to pay his/her balance in full upon receipt of the statement, usually on a monthly basis. While it is similar to a credit card, the major benefit offered by a charge card is that it has much higher, often unlimited, spending limits. Chargeback - The charge a credit card merchant pays to a customer after the customer successfully disputes an item on his or her credit card statement. Chartered Bank - A financial institution whose primary roles are to accept and safeguard monetary deposits from individuals and organizations, and to lend money out. The details vary from country to country, but usually a chartered bank in operation has obtained government permission on some level to do business in the banking sector. Check Representment - A method whereby checks from accounts with insufficient funds are repeatedly deposited until funds are available. Check - A written, dated, and signed instrument that contains an unconditional order from the drawer that directs a bank to pay a definite sum of money to a payee. Checking Account - A deposit account for funds intended for quick turnover. Checking accounts offer very low interest on unused cash balances. Choice market - Applies mainly to international equities. Comps - Another term for "same store sales," which helps investors determine how well a company's brand is doing and how the stores are increasing revenue. Consumer Credit - A debt that someone incurs for the purpose of purchasing a good or service. Consumer goods - Goods not used in production but bought for personal or household use such as food, clothing, and entertainment. Convertibles - Securities, usually bonds or preferred shares, that can be converted into common stock. Cook the Books - A fraudulent activity done by some corporations to falsify their financial statements. Coupon - The interest rate stated on a bond when it's issued. The coupon is typically paid semiannually. CRC - In currencies, this is the abbreviation for the Costa Rican Colon. Creation Unit - A set of shares or securities that makes up one unit of the fund held by the trust that underlies an exchange-traded fund (ETF). One creation unit is the denomination of underlying assets that can be redeemed for a certain number of ETF shares. Credit Bureau - An agency that researches and collects individual credit information and sells it for a fee to creditors so they can make a decision on granting loans. Typical clients include banks, mortgage lenders, credit card companies and other financing companies. Also commonly referred to as consumer reporting agency or credit reporting agency. Credit Card - A card allowing someone to make a purchase on borrowed money. Credit cards are one of the most popular forms of payment for consumer goods and services in the United States. Credit Cliff - A slang term referring to the compounding of a company's credit deterioration caused by provisions such as financial covenants, or events that trigger a change in the company's credit rating. These can put pressure on the company's liquidity or its business to a material extent. Credit Crunch - An economic condition whereby investment capital is difficult to obtain. Banks and investors become weary of lending funds to corporations thereby driving up the price of debt products for borrowers. Credit Default Swap - A swap designed to transfer the credit exposure of fixed income products between parties. Credit Derivative - Privately held negotiable bilateral contracts that allow users to manage their exposure to credit risk. Credit derivatives are financial assets like forward contracts, swaps, and options for which the price is driven by the credit risk of economic agents (private investors or governments). Credit Enhancement - A method whereby a company attempts to improve its debt or credit worthiness. Credit Risk - The possibility of a loss occurring due to the financial failure to meet contractual debt obligations. Credit Union - Member-owned financial co-operative. These institutions are created and operated by its members and profits are shared amongst the owners. Debenture - An unsecured debt backed only by the credit worthiness of the borrower. Debit Card - An electronic card issued by a bank which allows bank clients access to their account to withdraw cash or pay for goods and services. This removes the need for bank clients to go to the bank to remove cash from their account as they can now just go to an ATM or pay electronically at merchant locations. This type of card, as a form of payment, also removes the need for checks as the debit card immediately transfers money from the client's account to the business account. Debit - An accounting entry which results in either an increase in assets or a decrease in liabilities on a company's balance sheet or in your bank account. Debt Bomb - This occurs when a major financial institution, such as a multinational bank, defaults on its obligations that causes disruption not only in the financial system of the institution's home country, but also in the global financial system as a whole. Debt Consolidation - The action of combining several loans or liabilities into one loan. Put another way, debt consolidation is the process of taking out a new loan to pay off a number of other debts. Most people who consolidate their debt are usually doing it to attain a lower interest rate, or the simplicity of a single loan. Also known as a "consolidation loan". Depression - A severe and prolonged recession characterized by inefficient economic productivity, high unemployment, and falling price levels. Enron - A U.S. energy-trading and utilities company that housed one of the biggest accounting frauds in history. Enron's executives employed accounting practices that falsely inflated the company's revenues, which, at the height of the scandal, made the firm become the seventh largest corporation in the United States. Once the fraud came to light, the company quickly unraveled and filed for Chapter 11 bankruptcy on Dec 2, 2001. Equity Accounting - A method of accounting whereby a corporation will document a portion of the undistributed profits for an affiliated company in which they own a position. Equity carve out - Usually occurs when a company decides to IPO one of their subsidiaries or divisions. The company usually only offers a minority share to the equity market. Also known as carve out. Equity Financing - The act of raising money for company activities by selling common or preferred stock to individual or institutional investors. In return for the money paid, shareholders receive ownership interests in the corporation. Fixed Annuity - An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal. Fixed Asset - A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be consumed or converted into cash any sooner than at least one year's time. Government Security - A government debt obligation (local or national) backed by the credit and taxing power of a country with very little risk of default. Guardian - An individual who has been given the legal responsibility to care for a child or adult who is incapable of taking care of themselves due to age or lack of capacity. The appointed individual is often responsible for both the taking care of the ward (the child or incapable adult) and their affairs. Home-Equity Loan - A consumer loan secured by a second mortgage, allowing home owners to borrow against their equity in the home. The loan is based on the difference between the homeowner's equity and the home's current market value. The mortgage also provides collateral for an asset-backed security issued by the lender and sometimes tax deductible interest payments for the borrower. Also known as "equity loan" or "second mortgage". Identity Theft - The crime of obtaining the personal or financial information of another person for the purpose of assuming that person's name to make transactions or purchases. Insurance Score - A rating computed and used by insurance companies that represents the probability of a client filing an insurance claim during his or her coverage. The score is based on the client's credit rating, and will impact the premiums he or she pays for the insurance coverage: a higher score will result in lower premiums, and vice versa. Inter-Vivos Trust - A trust created during the lifetime of the trustor. Judgment - A court order to pay a party a certain amount of money. Law of Supply - A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity of goods or services offered by suppliers increases, and vice versa. Letter of Credit - A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. Loan - When a lender gives money or property to a borrower, and the borrower agrees to return the property or repay the borrowed money along with interest, at a predetermined date in the future. Maintenance Margin - The minimum amount of equity that must be maintained in a margin account. In the context of the NYSE and NASD, after an investor has bought securities on margin, the minimum required level of margin is 25% of the total market value of the securities in the margin account. Keep in mind that this level is a minimum, and many brokerages have higher maintenance requirements of 30-40%. Also referred to as "minimum maintenance". Merchant Bank - A bank that deals mostly in (but is not limited to) international finance, long-term loans for companies and underwriting. Merchant banks do not provide regular banking services to the general public. National Registration Database - NRD - A Canadian database, launched in 2003 to replace the old paper form system, that allows security dealers and investment advisors to file registration forms electronically. Offline Debit Card - A card that combines characteristics of both a traditional (online) debit card and a credit card, allowing the cardholder to pay for goods and services directly from his or her bank account. As with a traditional debit card, a transaction using the offline debit card creates a debit against the cardholder's bank account. But unlike with a traditional debit card, no PIN is required during the transaction - all that is required is the user's signature. These cards are generally issued by credit card companies in association with the bank in which the account is held. Past Due Balance Method - A finance/accounting method that bases costs (and interest) on the amounts owing that are past due. Payment in Kind Bonds - A type of bond that pays interest in additional bonds, as opposed to cash payouts. Phishing - A method of identity theft carried out through the creation of a website that seems to represent a legitimate company. The visitors to the site, thinking they are buying something from a real business, submit their personal information to the site. The criminals then use the personal information for their own purposes, or sell the information to other criminal parties. Plus - Used to quote a price in 64ths. Previous Balance Method - A finance/accounting method that bases costs (and interest) on the amounts owing from the previous time period. Private Letter Ruling - PLR - An interpretation of statute or administrative rules and their application to a particular set of facts or circumstances. The private letter ruling addresses unusual or complex questions pertaining to a particular taxpayer and his or her tax situation. The purpose of the letter ruling is to advise the taxpayer regarding the tax treatment he or she can expect from the IRS in the circumstances specified by the ruling. Also known as "letter ruling" or "LTR". Purchasing Managers' Index (PMI) - An indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries, and the employment environment. Quiet Period - In terms of an IPO, the period where an issuer is subject to a SEC ban on promotional publicity. The quiet period usually lasts either 40 or 90 days from the IPO. Reloading - A term lenders commonly use to refer to the habits of borrowers taking out loans to repay the balance on other loans. Often reloading is done to take advantage of lower interest rates offered by other loans, and potential tax benefits. Savings Account - A deposit account intended for funds that are expected to stay in for the short term. A savings account offers lower returns than the market rates. Secured Bond - A type of bond that is secured by the issuer's pledge of a specific asset, which is a form of collateral on the loan. In the event of a default, the bond issuer passes title of the asset or the money that has been set aside onto the bondholders. Secured bonds can also be secured with a revenue stream that comes from the project that the bond issue was used to finance. Secured Card - A type of credit card that is backed by a savings account used as collateral on the credit available with the card. Money is deposited and held in the account backing the card. The limit will be based on both your previous credit history and the amount deposited in the account. The limit as a percent of the deposit tends to range between 50% and 100%. Secured Debt - Debt backed or secured by collateral to reduce the risk associated with lending. An example would be a mortgage, your house is considered collateral towards the debt. If you default on repayment, the bank seizes your house, sells it and uses the proceeds to pay back the debt. Skimming - An electronic method of capturing a victim's personal information used by identity thieves. The skimmer is a small device that scans a credit card and stores the information contained in the magnetic strip. Skimming can take place during a legitimate transaction at a business. Stock Savings Plan - In Canada, a plan wherein some provinces will provide a tax credit for provincial income taxes to residents who spend their income on certain investments. Supply Chain - The network created amongst different companies producing, handling, and/or distributing a specific product. Ticker Symbol - An arrangement of characters (usually letters) representing a particular security listed on an exchange or otherwise traded publicly. When a company issues securities to the public marketplace, it selects an available ticker symbol for its securities which investors use to place trade orders. Every listed security has a unique ticker symbol, facilitating the vast array of trade orders that flow through the financial markets every day. Trade Date - The date on which a security trade occurs. Trade Finance - The science that describes the management of money, banking, credit, investments, and assets for international trade transactions. Transaction - An agreement between a buyer and a seller for the exchange of goods or services for payment. Variable Interest Rate - An interest rate that moves up and down based on the changes of an underlying interest rate index. Winner's Curse - A financial theory that the winning participants within an auction will typically pay an overvalued price for the winning item. Wire Transfer - An electronic transfer of funds across a network administered by hundreds of banks around the world. |
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