What is it?
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A credit score is an intended tool that makes it easy for a lender to settle on the capability of a purchaser to reimburse a loan. It is partly founded on automated scoring replica that studies variety of concepts relating to the consumers. These concepts can be deduced by individual information such as the proportion of the amount overdue, age and proceeds (Bijlefeld &Sharon, 2000). It is noteworthy that credit histories are also established. These scoring replicas bring together data used in predicting the capability of a consumer to pay potential debts. The scoring schemes produce the scores in numerical expression. Lenders use them to decide if the loan should be granted. It helps them set reimbursement terms (Bijlefeld &Sharon, 2000).
Where does it come from? (Who are the reporting agencies?)
The credit score is derived from an individual’s credit record, debts, interval of time they have had credit; furthermore, the types of credit one has acquired are vital in deducing the process. Scores are propagated by the credit bureaus which in turn serve as the reporting agencies. It is noteworthy that the initial scoring scheme was developed in the mid 1980’s by an entity known as fair Isaac. Credit bureaus encompass ‘Experian plc, Trans union LLC, Equifax Inc and Innovis’ (Weston, 2009). ‘Federal Fair and Accurate Credit Transactions Act (FACTA), Regulation B, Fair credit billing act (FCBA) and Fair credit reporting act (FCRA)’ are policies that preside over the bureaus (Weston, 2009). Bureaus gather individual’s monetary and individual data from varied sources known as data furnishers. It is not forgotten that such sources have links with the credit bureaus (Weston, 2009).
How does it affect what a family can or cannot do?
Credit score eventually determine what a family or other basic institutions can or cannot do. It determines the ability of the family to acquire assets by a variety of strategies especially loans especially when the score is low. This insinuates that a family cannot purchase the intended property or service. In other instances, when the credit score is elevated the lender is swift to consent on the loan appeal. This enables the family to acquire the desired assets. It is not forgotten that credit score is a vital aspect in a family’s assessment and evaluation (leece, 2004).
How might this affect family life differently based on a family’s social economic status?
When an individual’s score is high, a family’s aspirations are likely to be achieved. Such an individual will have successful loan request. When an individual’s credit score is low, his family could end up experiencing fiscal difficulties. The low-credit score will thwart a family’s intention of acquiring a home or any other asset or service. It is noteworthy that a low-credit score hinders an individual from successful loan appeals (Pritchard, 2007). It is worth acknowledging that even though the loan application is successful, it will be costly. Whenever an individual’s score dwindles the lenders consider the individual a“credit risk”. Lenders have a tendency of attaching an elevated interest rate to the loan. This in turn distorts everything the family might want to acquire (pritchard, 2007).
Discuss how identity theft plays into credit scores and the family?
Identity theft is experienced when individual information is stolen and used without permission. It might be used in request for a loan or attainment of any credit services. It becomes dire when such crimes go unreported or unseen. Victims suffer the consequences while the crook benefits. Individuality theft can be propagated by acquaintances, family members or ex-lovers (Sullivan, 2004). When the victim can not reimburse these loans in time, he ends up scoring low. This factor eventually thwarts the family unit aspirations. The family cannot fruitfully apply for a loan and family plans are eventually squashed. When the thief is a family member or ex-lover it might bring conflict and division (Sullivan, 2004).
Is understanding finances important for individuals? Families? Society?
Understanding funds is indispensable to individuals; family and society as it enables them make astute decisions on matters relating to finances. If one does not understand his finances, the repercussion of such events is translated to the budget process. This might affect his future life as there is no proper procedure to secure his monetary expectations.. Financial planning is evident when a personality, family or the social order attend to the current monetary situation and alters expenditure patterns (young, 2002).
How might the concept of “the American Dream” and homeownership effect a family’s view of financial success and stability?
Financial perception is important as it instigates cash flow by undertaking activities like careful expenses, budgeting cautiously and imbursement of tax. A strong capital foundation comes about with exhaustive pecuniary planning; permitting one to think of reserves that will improve his monetary position. Financial preparation enables one to manage his proceeds. It secures the family monetarily. With a sound financial plan, one can safeguard his family’s standard of livelihood incase of demise. Financial planning helps put together assets that will not be a saddle in future. Proper financial preparation helps develop assets with liquidity. This asset comes in handy during urgent instances (Tyson, 2006).
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If so, why is financial understanding important? If not, why is financial understanding not important?
Significant proportions of persons in the US view home ownership as attainment of the “American dream”. They believe affluence, accomplishment and stability is attained when one owns a home. The government has put in place policies that ensure customers are not exploited. In 2005, the congress passed a bill, which initiated the “individual development account, IDA” (Narloch). The poor American was able to save consequently buying assets. Lately, general proceeds have increased while the mortgage interest rates have declined noticeably. Citizens prefer home ownership as they believe it will promulgate financial achievement and stability (Narloch).
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Clark, W. (2003). Immigrants and the American dream: remarking the middle class. New York: Guilford Press.
Fisher, S & Shelly, S. (2002). The Complete Idiot’s Guide to Personal Finance in Your 20s and 30s.indiana: Alpha Books.
Government Printing Office. (2005).United state of America congress record. Washington: Government printing office.
Narloch, J. (2008). Facets of the American dream and American nightmare in film. Norderstedt: GRIN Verlag.
Leece, D. (2004). Economics of the mortgage market: perspectives on household decision making.Oxford.UK: Wiley-Blackwell.
Pritchard, J. (2007). The Everything Improve Your Credit Book: Boost Your Score, Lower Your Interest Rates, and Save Money.Miami.USA.F+W publication.
Sullivan, B. (2004). Your evil twin: behind the identity theft epidemic. New Jersey: John Wiley and Sons.
Tyson, E. (2006). Personal Finance for Dummies. Indiana: Wiley publishing.
Weston, L. (2009). Your Credit Score, Your Money & what’s at Stake: How to improve the 3-Digit.new jersey. USA. Ft press.