About this Flash Card Set
14 Cards
by daniel_carter
Understand credit scores, loans, and how debt works: interest, credit cards, mortgages, and the terms that affect what you pay. Practical money literacy.
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Credit
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The ability to borrow money now and repay it later, usually with interest.
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Credit score
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A number (commonly 300–850) predicting how reliably you repay debt. Higher = better loan terms.
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Interest rate
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The cost of borrowing, charged as a percentage of the amount owed.
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APR
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Annual Percentage Rate — the yearly cost of a loan including interest and certain fees.
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Principal
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The original amount borrowed, not counting interest.
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Credit card
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A revolving line of credit. Pay the full balance monthly to avoid interest; carrying a balance is expensive.
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Credit utilization
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The percentage of available credit you're using. Keeping it under ~30% helps your score.
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Secured vs. unsecured debt
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Secured debt is backed by collateral (mortgage, auto loan); unsecured has none (most credit cards).
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Mortgage
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A loan to buy real estate, repaid over many years, with the property as collateral.
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Minimum payment trap
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Paying only the minimum on a credit card means high interest and years of debt. Pay more when you can.
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Good vs. bad debt
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'Good' debt can build value (education, a home); 'bad' debt funds depreciating or consumable things at high interest.
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Default
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Failing to repay a debt as agreed. It seriously damages your credit and can lead to collections.
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Credit report
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A record of your borrowing history. You can check it free at annualcreditreport.com.
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Debt-to-income ratio
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Your monthly debt payments divided by monthly income. Lenders use it to judge how much you can borrow.
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