Credit and Borrowing

Credit

borrowing money with the promise to pay it back (usually with interest)

Principle

The initial amount you are borrowing

Interest

A sum paid or charged for the use of money or for borrowing money

Term

time period

Secured Loan

A loan that is backed up by collateral - usually something big like your house or car

Unsecured Loan

A loan that is not backed up by collateral -

Collateral

anything of value that can be used for a secure loan

Co-signer

Someone who signs a loan for you

Variable Rate Loan

A loan in which the interest rate can change, based on prime rate or index rate, over the course of the loan

Fixed Rate Loan

A loan with an interest rate that does not change over the life of the loan

Assets

things that you own

• checking account

• cash

• Value of your home

• value of vehicles

• Retirement accounts

liability

things that you owe

• balance on mortgage or car loans

• credit card debt

• student loan balance

• any other debt you may owe

Net Worth

How much you are worth

Net Worth Equation

Assets - Liabilities

Advantage of paying off credit card in full each month

• avoid fees and interest

• helps credit scores

Outstanding Balance

The unpaid balance, interest is added onto this

Deadbeat

When don't you run a balance and pay back in full each month

Annual Fee

An amount that credit card companies can charge for the use of a credit card

APR/interest rate

• the cost of credit on an annual basis

• shows what a borrower is actually paying with all the costs of financing factored in

Grace Period

from the time you get the bill to the time it is due - about 15-20 day period

Credit Report

A detailed report of an individual's credit history

• things like late fees and penalties
  -need to get it at least once a year
  -determines credit score
  -can help prevent credit card fraud

Hard Inquiries

• checks or examinations made by a potential lender into a borrower's credit record

• The purpose of the check is to determine the financial reliability of the borrower, and the check may impact your credit record

• Loan, lines of credit, new utility, apartment rental, and credit card applications and requests for credit limit increase

Soft Inquiries

• do not impact your credit record

• checks or examinations made by someone who requests your history, such as a landlord or a company that is trying to confirm your identity

• Personal credit checks, pre-approved credit offers, insurance applications, account reviews by current creditors, employment applications

Credit History

allows people to reevaluate the value of your unused accounts, AND it's a great way to check for fraud

4 Main Parts of a Credit Report

• Personal Information

• Credit History

• Public Records

• Credit Inquiries - hard and soft

Installment Credit

used to finance a specific purchase for a specific amount of time. Regular payments are made to pay the interest and the principal

Revolving Credit

An open line of credit that can be used for any purchases as long as you're under the credit limit. Payment amounts vary each pay period based on the size of the debt

Secured Debt

debt is tied to a specific asset that can be used as collateral and repossessed if borrower doesn't make payments

Unsecured Debt

• debt is not tied to a specific asset

• there is no collateral that can be repossessed if borrower defaults

Credit Score

• A number that represents your creditworthiness

• Based on your credit report

FICO

• Fair, Isaac and Company

• A data analytics company founded in 1956 by Bill Fair and Earl Isaac

FASFA

Fee Application for Federal Student Aid

SAI

Student Aid Index

Schumer Box

A table that appears in credit card agreements showing basic information about the card's rates and fees.

How long do financial records remain on your credit report?

7 to 10 years

Ways to Build Credit

• Open an account with your bank

• Get a secured credit card

• Have someone cosign a loan

• See if you can be added to your parent's credit card