US Money Words, Explained
The US financial system runs on a vocabulary nobody teaches you. These are the words that come up most often in a first year here, defined in plain language, with why each one matters when you are starting from zero.
APR (Annual Percentage Rate)
APR is the yearly cost of borrowing money, expressed as a percentage. On a credit card it is the interest rate charged on any balance you do not pay off in full.
Why it matters
APR is the single number that decides how expensive a card is. A newcomer offered a first credit card is often offered a high one, and the difference between 18% and 29% on a carried balance is hundreds of dollars a year.
Credit card interest is not charged once a year. The APR is divided down to a monthly or daily rate and applied to your balance repeatedly, which is why a balance can grow even while you are paying something every month.
A card can have several APRs at once: one for purchases, a higher one for cash advances, and a promotional one that expires. The penalty APR, which some issuers apply after a late payment, is usually the highest of all.
Related: Compound interest, Grace period, Minimum payment
Credit score
A credit score is a three-digit number, usually between 300 and 850, that predicts how likely you are to repay borrowed money on time. It is calculated from the information in your credit report.
Why it matters
In the US the credit score is read far outside of lending. Landlords, insurers, utility companies and some employers look at it, so a missing or low score raises the cost of ordinary life, not just the cost of borrowing.
There is no single credit score. Different companies calculate different scores from the same underlying data, which is why the number you see in one app rarely matches the number a lender sees.
Payment history is the largest input, at roughly 35% of a FICO score, followed by how much of your available credit you are using. Both are things you control month to month.
Related: Credit report, FICO score, Credit utilization
Credit report
A credit report is the file a credit bureau keeps on your borrowing: which accounts you hold, your balances, your payment history, and any collections or public records. Your credit score is calculated from it.
Why it matters
A newcomer usually has no file at all, which is different from having a bad one. Lenders cannot assess an empty file, so applications are declined not because you look risky but because you look unknown.
Three nationwide bureaus keep these files in the US: Equifax, Experian and TransUnion. They do not share data automatically, so an account can appear on one report and not another.
You are entitled to check your own reports, and doing so does not affect your score. Checking regularly is the only way to catch an error or an account that is not yours.
Related: Credit score, Hard inquiry (hard pull), FICO score
Credit utilization
Credit utilization is the share of your available credit that you are currently using. A $300 balance on a card with a $1,000 limit is 30% utilization.
Why it matters
It is the second largest factor in most credit scores and the fastest one to change. Paying a balance down before the statement closes can move a score within a single month, which no other lever does.
Utilization is measured both per card and across all your cards. A single card near its limit can hurt even when your overall usage is low.
The figure that gets reported is usually the balance on your statement date, not the balance after you pay. Paying before the statement closes is what lowers the number the bureaus see.
Related: Credit limit, Credit score, Minimum payment
FICO score
A FICO score is a specific brand of credit score, created by the Fair Isaac Corporation, and the one most US lenders actually use when deciding on an application.
Why it matters
Free apps often show a VantageScore rather than a FICO score, and the two can differ by a lot. Knowing which one you are looking at prevents an unpleasant surprise at the point of application.
FICO publishes several versions and several industry-specific variants, so a mortgage lender and a car dealer may pull different FICO numbers on the same day.
A score generally appears about six months after your first account starts reporting. Before that you are not scored, however carefully you have been paying.
Related: Credit score, Credit report
Credit limit
A credit limit is the maximum balance an issuer allows you to carry on a credit card. Spending above it can trigger a declined transaction or a fee.
Why it matters
First cards for people with no US history usually carry low limits, often a few hundred dollars. A low limit makes utilization rise quickly, so a small purchase can have an outsized effect on a new score.
Issuers often raise a limit after several months of on-time payments, sometimes automatically and sometimes on request. A higher limit lowers utilization at the same spending level.
Closing an old card removes its limit from your total available credit and can push utilization up even though nothing about your spending changed.
Related: Credit utilization, Secured credit card
Minimum payment
The minimum payment is the smallest amount you can pay on a credit card in a given month without the account being marked late. It is typically the interest charged plus about 1% of the balance.
Why it matters
Paying the minimum feels responsible and keeps your payment history clean, but it is designed to keep the balance alive. A $3,000 balance at 24% APR paid at the minimum can take over 15 years to clear.
The minimum protects your credit score, because payment history only records whether you paid on time. It does very little for the balance itself.
Every dollar above the minimum goes against the principal, which is why small increases shorten the timeline so sharply.
Grace period
The grace period is the window between the end of a billing cycle and the payment due date during which you can pay your statement balance in full and be charged no interest on purchases.
Why it matters
It is the mechanism that lets a careful cardholder borrow at 0%. It is also easily lost: on most cards, carrying a balance from one month into the next suspends the grace period until the balance is cleared.
Cash advances usually have no grace period at all. Interest starts the day you take the money out.
Regaining a lost grace period normally means paying the full balance and waiting a cycle or two, depending on the issuer.
Related: APR (Annual Percentage Rate), Minimum payment
Hard inquiry (hard pull)
A hard inquiry is a record on your credit report showing that a lender checked your file because you applied for credit. It usually lowers a score slightly and stays on the report for about two years.
Why it matters
Applying for several cards in a short period stacks up inquiries at exactly the moment you want to look stable. Newcomers who are declined repeatedly and keep applying often make the problem worse.
A soft inquiry is different: checking your own score, or a pre-qualification check, does not affect your score at all.
Rate shopping for a single mortgage or car loan within a short window is normally treated as one inquiry by most scoring models.
Related: Credit report, Credit score
Secured credit card
A secured credit card is a real credit card backed by a refundable cash deposit you place with the issuer, usually equal to your credit limit. It reports to the credit bureaus like any other card.
Why it matters
It is the most common way to start a US credit file with no history. The deposit removes the lender’s risk, which is why approval does not depend on a score you do not have yet.
The deposit is not a fee. It comes back when the account is closed in good standing, and many issuers convert the account to an unsecured card after a year of on-time payments.
Before opening one, confirm that the issuer reports to all three bureaus. A card that does not report builds nothing.
Related: Credit-builder loan, Credit limit, Credit score
Credit-builder loan
A credit-builder loan is a small loan where the money is held in a locked savings account while you make the payments. You receive the funds at the end, and each payment is reported to the credit bureaus.
Why it matters
It builds payment history without giving you a spending line, which suits people who would rather not carry a card. Credit unions and CDFIs are the usual providers.
Because the lender is never actually at risk, approval typically does not require an existing credit score.
The cost is the interest and any administration fee, so compare it against a secured card before choosing.
Related: Secured credit card, Credit score
Compound interest
Compound interest is interest calculated on your original balance plus the interest already added to it. On debt it makes the balance grow faster over time; on savings it works in your favour.
Why it matters
Credit card interest usually compounds daily. That is why a balance you are paying every month can still feel stuck: yesterday’s interest is part of today’s balance.
The same mechanism drives long-term saving. Money left alone earns returns on returns, which is why starting early matters more than starting large.
On debt, the practical defence is to shorten the time the balance exists, because compounding is a function of time as much as rate.
Related: APR (Annual Percentage Rate), Minimum payment
ITIN (Individual Taxpayer Identification Number)
An ITIN is a nine-digit tax processing number issued by the IRS to people who must file US taxes but are not eligible for a Social Security Number. It always begins with 9.
Why it matters
It is often the first US number a newcomer holds. It does not authorize work or change immigration status, but many banks and some lenders will open accounts with it.
You apply on Form W-7, normally filed together with your tax return. The IRS asks you to allow seven weeks for a decision, or nine to eleven weeks during filing season.
An ITIN not used on a return for three consecutive years expires and has to be renewed before it can be used again.
Related: SSN (Social Security Number)
SSN (Social Security Number)
A Social Security Number is a nine-digit number issued by the Social Security Administration to citizens, permanent residents, and people authorized to work in the US. It is the identifier the credit system is built around.
Why it matters
Several large tax credits, including the Earned Income Tax Credit and the Child Tax Credit, require an SSN and are unavailable to ITIN filers. Credit files are also easier to build and maintain with one.
Guard it. An SSN is the key to opening accounts in your name, which is why it is the target of most identity theft in the US.
A legitimate organisation will explain why it needs your SSN. A caller who demands it under time pressure is a scam.
Related: ITIN (Individual Taxpayer Identification Number), Credit report
Overdraft fee
An overdraft fee is charged when a bank covers a payment that your account balance cannot fund, leaving the account negative. It is a flat charge, commonly around $35, regardless of the amount overdrawn.
Why it matters
It is the most expensive way to borrow small amounts in the US: $35 on a $6 purchase is an effective rate no credit card comes close to. Overdraft coverage is optional and can be switched off.
Declining overdraft coverage means the transaction is refused instead of covered. That is inconvenient, and far cheaper.
Accounts certified under the national Bank On standard do not charge overdraft fees at all.
Related: Direct deposit
Routing number
A routing number is a nine-digit code identifying your bank in the US payment system. Together with your account number it is what an employer or biller needs to move money to or from your account.
Why it matters
Nearly every US financial setup asks for it: direct deposit, rent payments, tax refunds. It is printed at the bottom left of a paper cheque and shown in your banking app.
A bank can have more than one routing number, often depending on the state where the account was opened or whether the transfer is a wire.
A routing number is not secret in the way a password is, but combined with an account number it is enough to set up a debit, so share it only with parties you have chosen.
Related: Direct deposit
Direct deposit
Direct deposit is an electronic payment of wages or benefits straight into your bank account, arranged by giving your employer your routing and account numbers.
Why it matters
It removes cheque-cashing fees entirely, and many banks waive monthly account fees for accounts receiving regular deposits. For a household paid in cash, setting it up is often the single largest fee saving available.
Funds usually arrive on the payment date without a hold, unlike a deposited paper cheque.
Employers cannot require you to accept wages onto a specific payroll card. You are entitled to choose your own account in almost all cases.
Related: Routing number, Overdraft fee
Remittance
A remittance is money sent from a person in one country to someone in another, typically to family. In the US it is regulated as a remittance transfer when sent through a company that offers the service regularly.
Why it matters
The advertised fee is not the full cost: most providers also take a margin on the exchange rate. Sending $200 from the US cost an average of 6.03% in Q3 2024, against an international target of 3%.
Federal rules give you a disclosure before you pay, a receipt, the right to cancel most transfers within 30 minutes, and disclosures in the language the service was marketed to you in.
The only meaningful comparison between providers is how much money actually arrives, not the fee shown at checkout.
Related: Direct deposit
Debt-to-income ratio (DTI)
Your debt-to-income ratio is your total monthly debt payments divided by your gross monthly income, expressed as a percentage. A $2,000 income with $600 of debt payments is a 30% DTI.
Why it matters
Mortgage lenders lean on it as heavily as on a credit score, and it is the number that decides how much house a lender thinks you can afford. Unlike a score, you can calculate it yourself today.
It counts required payments, so rent or mortgage, car loans, student loans and minimum card payments, not groceries or utilities.
Lowering it means either paying down balances or raising income. Paying off a small loan entirely often moves DTI more than paying a little on several.
Related: Minimum payment, Credit score
About this page
Written and reviewed by Olga Burninova, Founder & CEO, YPA-FINANCE. Last reviewed: .
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