5 financial terms to manage your money like a pro

Figuring out your finances can be scary, especially when there’s words you don’t understand. Here’s a lowdown of some of the basics to help you understand your finances a little better. If you need support , check out our managing your money webpage.

1. Credit Card

Debit cards and credit cards are not the same thing. With a debit card, you spend your own money, with a credit card, you use the bank’s money, and you have to pay it back. You’ll have an agreed maximum amount that you’re allowed to spend on a credit card (your credit limit) and will have deadlines to pay the money back. If you don’t repay on time, then you could face additional charges.

Tip: Never spend money that you can’t pay back! When using a credit card, always make a solid plan for how you’ll repay the money on time.

2. Credit Score

Using a credit card affects your credit score, which is a number (usually from 0–999) that rates how likely you are to repay anything you borrow, based on your financial behaviours. This score helps banks and lenders to decide if they should give you things like loans, mortgages, and credit cards. Your score is influenced by multiple factors like credit card usage and loans to moving house. Being registered to vote can even increase your credit score! You can build a good credit score by paying your credit card balance back on time and demonstrating responsible financial habits.

Tip: To check your credit score for free and find out how to improve it, check out Money Saving Expert’s advice.

3. Overdraft

We’ve all heard of students living in their overdraft, a safety net of money that you can dip into when you have no funds left in your current account. Different from a credit card, an overdraft can only be spent when you run out of money and will be attached to your current account. You can set up an arranged overdraft by agreeing an overdraft limit with your bank. Most student accounts come with a 0% overdraft, where you won’t incur any interest or transaction fees for using them.

However, if you haven’t arranged an overdraft but still spend more than your bank balance or exceed your overdraft limit, then you’ll enter an unarranged overdraft, and can be charged fees and interest for using it. Your use of an unarranged overdraft can also impact your credit score, so it’s best to avoid this as much as possible.

To learn more, check out Save the Student’s blog on student overdrafts.

Tip: Remember: your overdraft is an emergency buffer, not an extra pot of money. If an unforeseen circumstance has left you out of money, see if you are eligible for support from the university’s Financial Assistance Fund.

4. Interest Rate

Small print can often be overwhelming, littered with acronyms and language you don’t understand, but here’s a fundamental one: an interest rate is a percentage and refers to an increase in an amount of money.

Interest rates apply to both borrowing and saving money.

If you’re borrowing money, then the interest rate refers to the increase in the amount you’ll have to pay back. If you miss planned repayments, then interest rates may increase. The higher the percentage, the more you’ll have to pay back. The rates you receive will be based on your credit score alongside other personal factors. For example, if you borrow £100 with a yearly interest rate of 2%, then at the end of one year, you’ll owe £102 to your lender.

Savings accounts may also have interest attached to them. The percentage interest rate describes how much money you’ll receive from the bank, as a percentage of your balance. For example, if you have £100 in your savings account with an interest rate of 2% per year, then at the end of the first year, your savings will increase to £102.

Tip: It’s worth keeping an eye on interest rates as even a little change can make a big difference. You may want to switch savings accounts to get a better deal elsewhere.

5. APR

APR stands for Annual Percentage Rate. You’ll usually see this when you’re applying for a loan. An APR combines the interest rate that you pay, plus any extra borrowing fees that you’ll have to pay back to the lender.

There are two types of APR: representative and personal. Representative APR refers to the average APR that customers receive. Most customers that have taken out this loan will have paid close to this percentage. This helps you understand the amount it will cost you to repay your loan and is the number you will see in adverts on TV.

Personal APR is the amount you’ll actually pay and is calculated based on your personal circumstances. This number could be the same, higher, or lower than the advertised representative APR. It will be different for each person due to different financial circumstances and histories. You probably won’t know this number until you apply for the loan. You’ll be able to chat to an advisor at the bank about your personal APR, and what this looks like for you.

Tip: Only apply for a loan if you understand all the terms and conditions and are confident that you can keep up with repayments!

Want to learn more about money to get a grip on your finances? Get support through our managing your money webpage.