SPF Credit and Borrowing

Credit

the ability to borrow money

Loan

borrowed money that is usually payed back over a period of time

Principle

the original amount of money that is borrowed in a loan

Intrest Rate (fixed vs variable)

the cost of borrowing money

1) remains the same throughout the life of the loan

2) changes overtime

Term

the length of time associated with a loan or investment

Co-signer

someone who agrees to be legally responsible for someone else’s debt if the original owner fails to pay

Secured vs Unsecured Loans

1) when an item is put at risk if the loan is unpaid (can be a valuable item)

2) a loan that is based off of your credit score rather than an item

Credit Card

a card that allows you to make purchases through borrowed money

Downpayment

the initial upfront payment made towards the total cost of an item (a percentage of the purchase)

APR

Annual Percentage Rate, the total yearly cost of borrowing money

Schumer box

standardized table that is legally required by U.S. credit card companies, summarizes the key terms

Credit report

detailed record of an individuals credit history

Credit score

a number between 300-800 that shows if you can be trusted with borrowed money, by that meaning if you are trusted to pay that money back

FICO

Fair Isaac Corporation, a brand of credit score used to assess an individuals creditworthiness

Amortization

spreading the cost of a loan or paying back debt

Revolving vs. installment loans

1) you can borrow money, pay it back, then borrow again, as long as your balance stays under a certain limit

2) you can borrow a set amount of money and pay it back over time

Prime vs. Sub-prime borrowers

1) low risk borrower, good credit score

2) higher credit risk, low credit score, history of late payments