Don’t know the difference between APR and APY? You’re not alone. Below, we’re breaking down common financial terms so you’ll be prepared whether you’re opening a new account, applying for a loan, or filing your taxes. 

ACH Transfers

An ACH Transfer is the electronic movement of funds between banks through the Automated Clearing House network. If you get direct deposits through your employer, this is how it’s done. 

APR vs APY

It’s easy to get these two mixed up. APR stands for Annual Percentage Rate. It’s the interest rate plus any fees you’d have to pay on an account, like a credit card. The lower this number, the better. 

APY stands for Annual Percent Yield and it’s the interest rate you earn on an account or investment. The higher this number, the more you benefit. 

Available Balance vs Current Balance

You’ve probably noticed these terms when you’ve checked your bank statement. Available balance is the amount of money you can spend at any given time and current balance is the total amount of money in your account. These numbers can differ due to pending transactions. 

Bimonthly

Bimonthly can mean twice a month or every two months. A little confusing, right? It’s important to know the context. Most people are paid bimonthly (twice a month). 

Cash Flow

Just like it sounds, cash flow is the movement of money in or out of a business or account. Positive cash flow means you have more money coming in than out of your account. It’s a good thing. 

Cost of Living Increase

A cost of living increase is used to keep an employee’s pay on par with a rise in prices (see inflation). It’s also called a cost of living adjustment (COLA) or cost of living raise. It is most commonly applied to Social Security benefits.

Credit Utilization Ratio

Credit utilization ratio is the percent of your total credit you use. Most experts recommend using under 30% of your available credit at any time. For example, if your credit card has a monthly limit of $1,000, you’d want to charge less than $300 per month. If you keep your credit utilization ratio low, it will help improve your credit score.

Creditworthiness

Here’s that term again! Creditworthiness is how a lender determines how worthy you are to receive new credit. It’s based on a few factors, including credit score and repayment history. If you have high creditworthiness, you’ll likely have a lower interest rate. 

FICO Score

Your FICO (Fair Isaac Corporation) score is a credit score that evaluates your creditworthiness (more on that above). It’s shown as a number between 300 and 850. Lenders will take this number into account before issuing a loan or determining interest rates. Brigit’s Credit Builder can help build your credit. 

Gross Income vs Net Income

Gross income is what you earn before taxes, benefits and other deductions. Net income is what’s left after these items are taken out.

Inflation Rate

Inflation rate is the increase or decrease in prices over a given time period, typically over a month or a year. When inflation increases, which happens when demand outpaces supply, it tends to drive up interest rates. 

Interest

Interest is the cost of borrowing money (the principal). You’ll most often see it listed as APR (annual percentage rate). A low interest rate means less money you’ll have to pay on top of the principal.  

Overdrafts

Here’s a term that nobody likes. An overdraft is basically a loan provided from your bank when your account reaches zero or you have insufficient funds. These loans often come with high fees, which can add up over time if you’re overdrafting on a regular basis. With Brigit Instant Cash, you can sign up for no-fee automatic transfers when your account balance is running low.

Principal

You’ll often see this term associated with a loan. It refers to the original amount of money you agreed to pay back with a loan.

Variable Interest Rate vs Fixed Interest Rate

Interest rates are either variable or fixed. Variable interest rates change over the course of the loan based on the fixed margin (this is based on creditworthiness and is typically lower if you have a higher credit rate) and the variable interest rate index (based on an interest rate index set by the lender). Fixed interest rates stay the same for the entire borrowing period. 

*Impact to score may vary. Some users’ scores may not improve. Results will depend on many factors, including on-time payment history, the status of non-Brigit accounts, and financial history.