Economics Today and Tomorrow, Student Edition
Economics Today and Tomorrow, Student Edition
1st Edition
ISBN: 9780078747663
Author: McGraw-Hill
Publisher: Glencoe/McGraw-Hill School Pub Co
Question
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Chapter 4.3, Problem 1R
To determine

Significance of credit bureau, credit check, credit rating, collateral, secured loans and unsecured loans.

Expert Solution & Answer
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Explanation of Solution

Following are the significance of:

  1. Credit bureau
    • It provides information to creditors, which helps to take lending decision.
    • It provides data to banks and credit card issuers as their business depends on the credit bureau.
  2. Credit check
    • It helps to understand financial behavior of creditor.
    • It provides information onpayment history, credit worthiness, and financial background.
  3. Credit rating
    • It helps to determine whether the loan should be given or not.
    • It provides individual credit rating on a numerical scale usually between 1-10.
  4. Collateral
    • It provides security to lender.
    • It reduces the number of loan defaulters.
  5. Secured loans
    • It helps to get a larger amount of loan easily.
    • Secured loans makes the rate of interest lower.
  6. Unsecured loans
    • It is a less risky option from borrower point of view.
    • These loans are flexible.
Economics Concept Introduction
  • The credit bureau is an agency that gathers information about individual credit information.
  • Credit rating implies an individual’s financial ability to repay the loan.
  • Credit check is a situation where a company looks for a credit report to understand financial behavior of an individual.
  • Collateral refers to an asset that lenders accept as a security to the loan.
  • Secured loans refers to when lender keeps asset as a collateral to the loan.
  • Unsecured loans is a loan which is not protected by any collateral or guarantor.

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