What Is a Credit Score?

Your credit score is a three-digit number that represents how well you've handled credit in the past and how likely you are to repay future debts. Your credit score is calculated from the information found in your credit report, which includes your trade lines -- your loans, credit cards and other debts, inquiries from when you've applied for credit in the past, and public records like bankruptcies and collections.

What Are Financial Goals?

Financial goals are the priorities and targets you set for how you want to spend and save your money. They aren't one size fits all, because everyone has different priorities. However, if you don't set your financial goals, you'll probably be left wondering where all your money went.

What Are Payments?

Payments refer to the transfer of money or services by someone to fulfill his obligations to another party. In the personal finance area, payments refer to money given to creditors by the borrower to pay back loans such as credit cards, mortgages and student loans.

What Are Minimum Payments?

Minimum payments refer to the smallest amount you can pay on a debt and still be considered current with your payments. The term minimum payment is usually used in the context of credit cards. Even though you might think you're doing just fine paying the minimum, if that's all you pay, it can take you several years (and potentially thousands of dollars in interest) to pay off a debt.

What Are Loans?

Loans refer to when one party gives money to another on the condition that it be paid back, typically with interest, at a certain time in the future. The terms of the loan determine what that interest rate will be, how long the borrower has to repay the money, and sometimes place additional stipulations on the funds including how the proceeds are used.

What Are Investments?

Investments are things of value, or assets, that you buy now in the hopes they will be worth more later and/or will provide income in the form of cash or other valuable items. Personal investing usually means the purchase of financial securities like stock and bonds, or of physical property such as commodities, collectibles or real estate. Investments are risky and can lose money, so it’s a good idea to research an investment before taking the plunge.

What Are Interest Rates?

Interest rates refer to the amount a lender charges a borrower in return for the privilege of borrowing money. This figure is generally expressed as a percentage of the principal. For example, if the interest rate on a $1,000 loan is 5 percent per year, and you want to pay off the loan in full at the end of a year, you would pay $1050: the $1000 you borrowed, plus $50 in interest. When you put money in a deposit account, you're essentially "loaning" money to the bank, so the bank pays you interest.

What Are Cutbacks?

Cutbacks refer to steps taken to reduce the amount of money being spent. If you're coming up short each month when it comes to paying your costs of living, you probably need to reduce your spending. However, taking the time to budget may reveal some relatively painless ways to do so.

What Are Bonds?

A bond is a type of debt issued by a corporation, government or other organization where the purchaser pays a certain amount to purchase the bond and, in exchange, will receive either a lump sum after a certain period of time or specified recurring payments over a period of time. For example, you might pay $50 to buy a bond that will pay you $75 in 10 years or will pay you $10 per year for the next seven years.

What Are Assets?

An asset is any item that you own that increases your net worth, as opposed to a liability that decreases your net worth. Examples of assets include the money in your bank account, property like your house or your car, and personal items like your TV, fine art or appliances. Knowing what assets you have and how much they are worth helps you make better financial decisions.

Pages