Terms to Increase Your Financial IQ
Whether you're taking out a loan for a car or trying to get a new business off the ground, your first steps into the world of finance may seem quite daunting due to the unfamiliar terminology. Don't worry! Here are some common money terms to serve as a springboard for improving your financial IQ.
Everybody who has borrowed money (including using a credit card) has a credit history. Companies use this history to evaluate a person's ability to repay a loan, and represent it with a three-digit credit score. One well-known company that does this is the Fair Isaac Corporation, which developed FICO Scores. FICO uses five types of credit history data to calculate a score, and these are weighted based on their importance:
- Payment history (35 percent)
- Amounts owed (30 percent)
- Length of credit history (15 percent)
- New credit (10 percent)
- Credit mix (10 percent)
The final score is a value between 300 and 850. Scores ranging from 670 to 739 are considered good.
Gross income and net income have slightly different meanings, depending on whether you're talking about a business or an individual:
- Individual gross income: Total pay from an employer before any tax deductions.
- Company gross income: Revenue from all sources, minus the company's cost of goods sold (production costs, such as materials and labor).
- Individual net income: Income after deductions.
- Company net income: Total value of sales, less the cost of goods sold, selling, operational expenses, tax, and other expenses.
The term "debt" has negative connotations for some people, but it actually refers to any amount borrowed. It's incredibly common to have debt. Businesses and individuals often take on debt to make large purchases they wouldn't otherwise be able to afford. Common forms of debt are loans (such as mortgages) and credit cards. As the borrower, you agree to pay back the debt within an agreed-upon time.
An installment loan is a type of personal loan where you repay the balance in scheduled installments over a fixed period. For example, you may agree to pay an amount once a month until you've cleared the balance. An installment plan makes it easier to stay on top of payments, and paying regularly helps to improve your credit score. At CreditBox, it's possible to get an installment loan for up to $4,000 even if you have been turned down by other lenders. Find out more about a CreditBox loan today!