Blog

Definition of Collections Nobody likes seeing the word collections attached to their name. In the financial world, collections refers to the process of attempting to recover money that someone owes but has failed to pay on time. If a debt remains unpaid long enough, the original creditor may turn the account over to an internal collections department or hire or sell the debt to a third-party collection agency.

What Does “Default” Mean? A default happens when a borrower fails to meet the terms of a loan or other financial obligation. Most commonly, this means failing to make required payments. If you borrow money for a house, car, credit card, student loan, or personal loan, you agree to repay that money according to certain terms. When you fail to meet those obligations for an extended period of time, the lender may consider the loan to be in default.

Nobody wants to see the word garnishment on a letter from an employer, creditor, or court. But understanding garnishment and how it happens can help you recognize financial trouble early and take action before someone else starts making decisions about your paycheck. What Does Garnishment Mean? Garnishment is a legal process that allows money you owe to be taken directly from your wages, bank account, or other income to satisfy a debt. The most familiar example is wage ga

Bankruptcy is one of those financial words nobody really wants to use when talking about their own money. But understanding what it means—and how it works—is an important part of becoming financially savvy. What Does Bankruptcy Mean? Bankruptcy is a legal process that allows individuals or businesses that cannot repay their debts to seek relief from some or all of those financial obligations. Bankruptcy doesn’t simply mean someone “ran out of money.”

What Does Foreclosure Mean? Foreclosure is the legal process a lender can use to take possession of a property when the borrower fails to make the required mortgage payments. When you borrow money to purchase a home, the property serves as collateral for the loan. You get to live in and own the home, but the lender has a financial claim against the property until the mortgage is paid off.

What Is a Personal Loan? A personal loan is money borrowed from a bank, credit union, or online lender that is usually repaid through fixed monthly payments over a set period. Unlike a mortgage or auto loan, most personal loans are unsecured. That means the loan is not backed by collateral such as your house or car. Because the lender has no property to repossess if you stop paying, unsecured personal loans may come with higher interest rates.

What Is a Student Loan? A student loan is money borrowed specifically to pay for education-related expenses, such as tuition, fees, books, supplies, and sometimes living expenses. Like other loans, the money eventually has to be repaid, usually with interest. Student loans generally fall into two categories: Federal student loans and Private student loans.

Buying a car is one of the largest purchases most people make outside of buying a home. And unless you’re paying cash, there’s a good chance an auto loan will be part of the deal. But understanding how an auto loan really works can potentially save you thousands of dollars over the life of the loan. What Is an Auto Loan? An auto loan is money you borrow specifically to purchase a vehicle...

You’ve probably heard someone say, “I’m thinking about refinancing my house.” But refinancing isn’t limited to mortgages—and understanding when and why to refinance can potentially save you thousands of dollars. What Does “Refinance” Mean? To refinance means to replace an existing loan with a new loan, usually because the new loan offers better terms. In simple terms, you’re saying: “I already owe this money, but I think I can find a better way to borrow it.”

What Is a Mortgage? A mortgage is a loan used to purchase real estate, with the property itself serving as collateral for the loan. In simple terms, a lender provides the money needed to purchase the property, and you agree to repay that money over a specific period of time—often 15, 20, or 30 years. Your monthly mortgage payment will typically include some combination of: - Principal – the amount that reduces what you owe. - Interest – the cost of borrowing the money...

What Is a Loan? A loan is money that one person or organization—usually a bank, credit union, or other lender—provides to a borrower with the expectation that it will be repaid, usually with interest, over an agreed period of time. In simple terms: You get money today. You promise to pay back more money later. That “more money” is generally the interest you pay the lender for allowing you to use their money. For example, suppose you borrow $20,000 to purchase a vehicle...

What Is a Credit Card? When you use a debit card, money generally comes directly out of your bank account. When you use a credit card, you’re borrowing the card issuer’s money. Every credit card has a credit limit, which is the maximum amount the lender allows you to borrow. Each month, you receive a statement showing your purchases, your balance, your minimum payment, and the date your payment is due.

What Is a Credit Line? Suppose your bank approves you for a $50,000 business line of credit. You don’t immediately owe $50,000. You simply have permission to borrow up to that amount. If you borrow $10,000, you generally pay interest only on the $10,000 you’ve actually borrowed—not the entire $50,000 credit line. As you repay the balance, that borrowing capacity may become available again if the credit line is revolving.

What Is a Credit Limit? A credit limit is the maximum amount of money a lender allows you to borrow on a revolving credit account, such as a credit card or line of credit. For example, suppose you have a credit card with a $10,000 credit limit. If you currently have a $2,000 balance, you have $8,000 of available credit remaining. Pretty simple, right? But here’s where it gets interesting: your credit limit doesn't just determine how much you can spend. It can also affect

What Is a FICO Score? A FICO Score is a type of credit score designed to help lenders estimate how likely you are to repay borrowed money as agreed. FICO stands for Fair Isaac Corporation, the company that developed the scoring system. While there are several types of credit scores today, FICO Scores are widely used by lenders when evaluating borrowers. Most FICO Scores range from 300 to 850. Generally speaking, the higher your score, the better you look to a potential len

What Is a Credit Report? A credit report is a detailed record of your credit history compiled by a credit reporting agency. In the United States, the three major credit bureaus are Equifax, Experian, and TransUnion. Your credit report typically includes information such as: - Credit cards and credit limits - Mortgages - Auto loans - Student loans - Personal loans - Account balances - Payment history - Late or missed payments

The Definition of Credit Score A credit score is a three-digit number designed to estimate how likely you are to repay borrowed money as agreed. In the United States, one of the most commonly used scoring models is the FICO Score, which generally ranges from 300 to 850. The higher your score, the more favorably lenders may view your creditworthiness.

What Is Liquidity Risk? Liquidity risk is the risk that you won’t be able to quickly convert an asset into cash without losing a significant amount of its value. In simple terms, you may have something worth a lot of money, but that doesn’t necessarily mean you can turn it into cash when you need it. Cash is highly liquid. You can use it immediately. A publicly traded stock is generally liquid because you can usually sell it quickly during market hours.

What Is Interest Rate Risk? One of the biggest forces affecting your money is something you can't see: interest rates. Interest rate risk is the possibility that changes in interest rates will reduce the value of an investment or increase the cost of borrowing money. While interest rates may seem like something only bankers and economists worry about, they impact nearly every financial decision you make, from buying a home to investing for retirement.

What Is Credit Risk? Every time money is loaned, there is one important question in the lender's mind: "Will I get my money back?" The answer to that question is known as credit risk. Credit risk is the possibility that a borrower will fail to repay a loan according to the agreed terms. In other words, it is the chance that the lender will lose money because the borrower cannot or does not make the required payments.