When I started my financial journey to better understand the financial world there were words I did not understand. Here are some definitions that will help one to understand financial terms. It gives you the knowledge you need to understand financial reading.
Borrower – a person or company that needs money from a bank.
Credit Score – a record of your debt and repayment history.
Creditworthiness –the amount to which a person or company is considered fit to receive. financial credit, often based on their trustworthiness in paying money back in the past.
Consumer – a person who purchases goods and services for personal use.
I.E. – “in other words.”
Interest Rate – is the percentage of principal charged by the lender for the use of its money.
Initial Deposit – minimum deposit or first payment is the minimum amount of money. needed to open an account with a financial organization, such as a ban.
Lending – the action of allowing a person or organization the use of a sum of money under an agreement to pay it back later.
Length of credit history – means how long any given account has been reported open.
Life of the loan – how long a loan is traced.
New Credit – the opening of a credit card or line of credit, which could lower credit score if you reach your credit limit giving by the bank.
Payment History – Payment history is often tracked for credit cards and loan payments and reported as part of your credit score.
Types of Credit
- Revolving Credit – credit that allows you to borrow money up to a certain amount, such as.
- Charge Cards – This form of credit is often mistaken to be the same as a revolving credit card. It allows users to be approved for large sums. Must pay back all at once. Types of charge cards: American Express and Sunoco Gas card.
- Installment Credit – a loan at a fixed amount. The borrower agrees to make a set number of monthly payments at a specific dollar amount. The repayment period lasts for months or years until the debt is paid off.
Now you have more information about financial words. Were you like me when you first saw the word ‘FICO score?’ What is that?
FICO stands for Fair Isaac Corporation. It has been around since 1986 and over 90% of lenders look at the FICO Score when it comes to making borrowing money or financing big ticket items. For example, if you want to finance a car you will submit a loan application to the lender, and they will research your financial background i.e., your FICO score. Understanding your credit/FICO score and having a good score is important in our current world.
| FICO Score | Credit Score |
|---|---|
| 90% of creditors look at your FICO score not Credit score. | A credit score is a number between 300–850 that depicts a consumer’s creditworthiness. |
| Remove discrimination from the lending process. | The credit score model was created by the Fair Isaac Corporation, also known as FICO, and it is used by financial institutions. |
| Consumer can access their own score but lenders will have access as well. | A credit score of 700 or above is generally considered good and may result in a borrower receiving a lower interest rate, which results in their paying less money in interest over the life of the loan. |
| 740-799 score is Very Good | A person’s credit score may also determine the size of an initial deposit required to obtain a smartphone, cable service or utilities, or to rent an apartment. |
|
• Payment history • Total amount owed • Length of credit history • Types of credit • New credit |
• Payment history • Total amount owed • Length of credit history • Types of credit • New credit |
| 2014 FICO 9 was launched to help ease medical debt on FICO scores and allowed consumers access to credit. |
Find more information about this content at: https://www.ficoscore.com/education
At the end of the day
The world we live in requires good Credit/FICO scores, healthy spending habits, paying bills on time, credit usage of 30% or less, and low debt to income ratio. Are you struggling in any of these areas? If so, get help now! Go to Book Time With Me calendar to set up a free virtual meeting with to get help with your credit.
Be aware, be informed!