ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -This phrase has more than one meaning in finance, but most people think of credit as an arrangement in which the borrower borrows money from the lender and then pays back the lender the money along with interest. Credit can also mean a person’s or business’s ability to pay back debts or credit history.

Detailed explanation-2: -Credit money is the creation of monetary value through the establishment of future claims, obligations, or debts. These claims or debts can be transferred to other parties in exchange for the value embodied in these claims. Fractional reserve banking is a common way that credit money is introduced in modern economies.

Detailed explanation-3: -A line of credit is a flexible loan from a financial institution that consists of a defined amount of money that you can access as needed. You can repay what you borrow from a line of credit immediately or over time in regular minimum payments. Interest is charged on a line of credit as soon as money is borrowed.

Detailed explanation-4: -Principal: The amount of debt, exclusive of interest, remaining on a loan. Principal and Interest to Income Ratio: The ratio, expressed as a percentage, which results when a borrower’s proposed Principal and Interest payment expenses is divided by the gross monthly household income.

Detailed explanation-5: -Credit allows you to get money upfront with the promise to repay it in the future, often with interest. Creditworthiness refers to a borrower’s ability to pay what they’ve borrowed. Lenders judge creditworthiness in many different ways, and they may use things like credit reports and credit scores to help.