CH 14 Personal Finances

These flashcards cover key vocabulary terms and concepts related to personal finances, credit scores, financial planning, and budgeting.

FICO score

A numerical credit score used by credit bureaus to assess an individual's creditworthiness.

Credit Bureau

An organization that collects and analyzes credit information about individuals and businesses.

Authorized user

A person added to a credit account by the primary account holder, allowing them to use the credit card.

Compound interest

Interest calculated on the initial principal and also on the accumulated interest of previous periods.

Net worth

The difference between an individual's total assets and total liabilities.

Cash flow statement

A financial statement that shows the money coming in and going out over a specific period.

Current liabilities

Debts that must be paid within one year.

Tangible assets

Physical items of value that can be used, as opposed to investments.

Short-term financial goals

Objectives that can be accomplished in less than two years.

Long-term financial goals

Objectives that will take more than five years to accomplish.

Flexible spending account (FSA)

A pre-tax account that allows employees to pay for qualified expenses, reducing their taxable income.

Retirement plan

A financial arrangement designed to replace income in retirement, such as a defined contribution or defined benefit plan.

Budget variance

The difference between the budgeted amounts and actual amounts in financial planning.

What should you consider before using credit to purchase goods or services?

Evaluate if you truly need the item, can afford it, and are prepared to pay interest on it.

What do lenders report to credit bureaus when you borrow money?

They provide details about your debt and payment behavior.

What five factors do credit bureaus consider when calculating your credit score?

Payment history, total amount owed, length of credit history, amount of new credit, and types of credit used.

What are some actions young individuals can take to build a good credit history?

Become an authorized user on a parent's account, get your own credit card, use it for small purchases, and pay off the balance each month.

How can you raise your credit score?

Pay bills on time, maintain low card balances, and correct any errors found in your credit report.

What should you do if you're unable to meet your debt obligations?

Communicate with your lenders about your situation and consider seeking help from a credit assistance counselor.