Financial Literacy Review

Study Notes

Credit: Borrowed money that requires repayment, often with interest.
Debt: Money owed to a lender or creditor.
Loan: A sum of money borrowed, with an expectation of repayment and interest.
Good Debt: Borrowing for beneficial items like education or a home (assets).
Bad Debt: Borrowing for non-essential items that lose value.
Consumer Debt: Debt related to individual purchases like shopping or vacations.
Total Debt: The sum of all debt owed.
Debt Ratio: A comparison of total debt to income.
Secure Loan: Backed by valuable assets like vehicles.
Unsecured Loan: Not backed by assets, like credit cards.
Collateral: Assets pledged as security for a loan.
Co-Signer: A person who agrees to repay a loan if the borrower defaults.
Variable Rate: An interest rate that fluctuates over time.
Fixed Rate: A constant interest rate that doesn't change.
Consumer Loan: Borrowing for personal use, like a car or a trip.
Revolving Credit: Credit that can be used repeatedly up to a limit (e.g., credit cards).
Mortgage: A loan specifically for purchasing property.
Amortization Period: The time it takes to repay a loan.
Credit Report: A record of borrowing history.
Credit Score: A numerical representation of creditworthiness.
Consumer Proposal: An agreement with creditors to repay less than the full amount owed.
Bankruptcy: A legal process to relieve individuals from debt.

Good vs. Bad Debt: Good debt benefits future prospects (e.g., education), while bad debt is for unnecessary expenses.
Benefits & Pitfalls of Credit: Credit can aid in emergencies and build credit scores, but can also result in higher debt with interest charges.
Credit Agencies in Canada: Equifax and TransUnion.
5 C's of Credit: Character, Capacity, Capital, Collateral, Conditions.
Big Down Payment Benefits: Leads to smaller loan amounts, potentially lower interest rates, and better deals.
Credit Score Use: It reflects borrowing history and repayment habits, affecting loan applications and other financial opportunities.
Co-Signer Risks: If the primary borrower defaults, the co-signer is responsible for the debt.
Credit Cards (Good or Bad): Wise use is beneficial, while overspending puts one at risk of accumulating high levels of debt.
Typical Credit Card Interest Rate: Generally falls between 18% and 20%.
Fixed vs. Variable Mortgage: Fixed mortgage rates remain constant, whereas variable rates fluctuate.
25-Year Mortgage Considerations: Smaller monthly payments but higher overall interest over the lifetime of the loan.

Mortgage Pre-Approval: A preliminary assessment of loan eligibility.
CMHC Insurance: Required when down payments are below 20%.
High vs. Low Credit Score: High scores result in better borrowing terms and deals.
Credit Score Ranges: 300-900, with higher scores indicating better financial standing.
How to Boost Credit Score: Timeliness of payments, responsible credit use, and checking credit reports regularly.
How to Hurt Credit Score: Late payments, excessive borrowing amounts, and missing payments seriously impact the credit score.
Bad Stuff on Reports: Late payments, collections, and bankruptcies.
Scholarship vs. Bursary: Scholarships reward academic merit, while bursaries aid based on financial needs.
Grants: Free financial aid for educational purposes.
Government Student Loans: Usually low interest but flexible payment terms.
Banks and Interest Rates: Banks charge higher interest for increased risk of non-payment.
Steps to Repay Debt: Identify and list debts, prioritize minimums, create a payment plan, communicate with lenders, develop larger income streams, and consider debt consolidation.