![]() Default is the second and more serious stage of nonpayment that follows the stage of delinquency. It can be accrued through any form of borrowing-credit cards, mortgages, personal loans, and auto loans among others.ĭefault occurs when a borrower is unable to meet the obligation of debt repayment. Debit cards are less likely to contribute to excessive debt than credit cards, but users face fees if they overdraw their account.ĭebt is the money that a borrower owes to a lender. Unlike a credit card, a debit card immediately withdraws funds from the user’s bank account. Creditworthiness is primarily determined by how well a borrower has managed previous debt obligations. Borrowers with higher scores are viewed as more likely to repay debt obligations and are thus more likely to be approved for credit and receive lower interest rates.Ĭreditworthiness is a term that refers to how much confidence a lender can have in a borrower’s ability to repay a loan. It is calculated based on the information in a borrower’s credit report and ranges from 300 to 850. The information in a credit report is used to calculate a consumer’s credit score, which is one of the primary factors that lenders consider when evaluating a credit application.Ī credit score is a three-digit number that represents how likely a borrower is to repay a debt. It is produced by the credit bureaus and typically consists of four sections: personal information, financial account history, history of credit applications, and public records. Common forms of credit include loans and credit cards.Ī credit report is a record of a borrower’s credit history. By spreading the cost over time, credit enables borrowers to make big-ticket purchases such as homes and vehicles. It allows consumers to make purchases that they wouldn’t be able to afford if they had to pay the full price in one installment. It consists of comparing the prices of similar products to determine which is least expensive.Ĭredit is a financial arrangement in which money is borrowed for a purchase and paid back at a later date. It tracks how much income a person receives and details how that money will be allocated to pay for expenses, build savings, and meet financial goals.Ĭomparison shopping is a strategy that consumers can use to save money on purchases. Bankruptcy carries significant financial consequences.Ī budget is a plan for using income to meet financial obligations. Bankruptcy shields borrowers from debt collection, but it requires that they sell their assets to repay the money they owe. An individual, company, or country can own or control assets, which include things like cash, investments, art, technology, real estate, and intellectual property.īankruptcy is a legal status that a person or entity can enter when they're unable to repay their debts. In other words, assets contain value that can be converted into money. The rate is expressed as a percentage and indicates how much interest the borrower will pay over the course of a year.Īn asset is any resource (tangible or intangible, owned or controlled) that holds value. Financial literacy vocabulary wordsĪnnual percentage rate, or APR, is the yearly interest rate charged on borrowed money. Ready to get started? Here are the 20 most important terms to strengthen your financial literacy vocabulary. Take a financial literacy course or two, and go from there. Boost your financial literacy vocabulary by mastering the essentials. They might be intimidating, but it’s an important language to learn-it’s how lenders, banks, and credit card companies talk about you, so study up because you want to know what they’re saying! ![]() At first, the words might sound like a foreign language. Understanding financial terminology is an essential part of financial literacy. Pop quiz: What does ‘creditworthiness’ mean? How about ‘principal’ or ‘credit report’?
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