Credit

credit

the supplying of money, goods, or services at present in exchange for the promise of future payment

creditor

a business or organization that extends credit

principal

original amount borrowed

secured credit

credit that is backed by a pledge of property

collateral

property that is a pledged to guarantee repayment of a loan

closed-end credit

a onetime extension of credit for a specific amount and time period

open-end credit

credit that can be used repeatedly. sometimes referred to as a line of credit

installment

a set portion of a loan amount that the borrower must pay at regularly scheduled intervals

finance charge

the total cost of using credit, including interest and any fee

credit history

a pattern of past behavior in regard to repaying debt

credit bureau

a firm that collects information about the credit worthiness of consumers

credit report

a record of a particular consumer’s transactions and payment patterns

credit rating

an evaluation of a consumers credit history

credit source

a numerical rating, based on credit report information, that represents a persons level of credit worthiness

cosigner

a person with a strong established credit history who signs a credit application and contract along with the borrower

APR

annual percentage rate: the annual rate of interest that is changed for using credit

grace period

period of time during which the balance on a credit card may be paid in dull to avoid finance charges

credit limit

the maximum amount of credit that a creditor will extend to a borrower

consumer finance companies

businesses that specialize in making small or personal loans

loan sharks

unlicensed lenders who operate outside the law and charge excessive interests

down payments

a portion of a purchase price paid by cash or check at the time of purchase, reducing the amount borrowed

balloon payments

a final loan payment that is much larger than the other installments

acceleration clause

a provision in an installment loan contract that gives the seller the right to declare the whole balance due if the buyer misses even one installment

add-on

a loan contract provision that allows purchases to be added to an existing installment loan, with earlier purchases used as security for later ones

right of rescission

the right provided by the Truth in Leading Act, that gives borrowers up to three business days to cancel a loan or other credit transaction for which their home is pledged or security

delinquent

overdue

default

failure to fulfill the obligation of a loan

repossession

taking away property due to failure to make loan or overdue payments

collection agency

a business that collects unpaid debt for others

lien

a claim upon property to satisfy a debt

garnishment

the legal withholding of a specified sum from a person’s wages in order to collect a debt

credit counseling

guidance provided by trained people who help consumers learn to live within their means

debt consolidation loan

a loan that combines all existing debt into a new loan with a more manageable payment schedule

bankruptcy

legal relief from repaying certain debts

What is collateral, and why might a creditor require it?

The property that is pledged to guarantee repayment is known as collateral or security. A creditor might require this as a security interest in the pledged property so that they can take the property back if loans are not being paid.

How is a credit score related to a credit rating?

A credit score is part of credit rating evaluations. A credit score is a numerical rating based on credit report information that represents a person's level of creditworthiness. Credit rating is an evaluation of a consumer's credit history.

How does having a grace period benefit consumers?

The grace period is a period of time during which the balance may be paid in full to avoid finance charges. This is beneficial because it allows them to pay in full before getting more debt added.

What is an add-on clause?

Add-on clauses allow additional purchases to be added to an installment contract.

How does a lien work?

A lien is a claim upon property to satisfy a debt. When a house is sold. Money from the sale is first used to pay any lien holders

Briefly describe how credit works.

You borrow money from a bank or use a credit card to purchase an item. Then you pay it back either all at once or in small increments.

Explain the difference between single payment and installment credit.

An installment is a set portion of a loan amount that the borrower must pay at regular scheduled intervals. A single payment is paying the loan back in full at once.

How can your credit history demonstrate that you will be a good credit risk?

Credit history will show if the consumer has a pattern of past behavior in regard to repaying debt.

Give two examples of how to establish a good credit rating and two examples of how to maintain it.

Pay money back on time and keep a steady income. Check you credit report for any thing thats weird and keep up with your loans.

What is the difference between private label and general purpose cards?

Private label cards can only be used at a single retailer. General purpose cards, also known as bank cards or major credit cards, can be used at millions of different businesses across the country or around the world.

Name three types of credit card terms and conditions you would compare before choosing a card.

Three types of credit card terms and conditions you would compare are if they have an annual fee, what their annual percentage rate is and if it might change, if they have a grace period, and many more.

How can you use a credit card limit wisely?

When you get close to the limit, slow down. If you reach the limit put the card in a safe place. Only use it on things you absolutely need.

Identify the sequence of steps from the time you decide the type and source of loan you want.

First, apply for a loan, Then, you wait to be approved. After, you will sign a loan contract. The lender might suggest that you purchase credit life insurance.

Which option should you try first to solve debt problems- debt consolidation or bankruptcy? Explain

Debt consolidation because you will use the money from the new loan to pay back all previous creditors. Then you make just one payment each month to the lending agency. Bankruptcy is a much more serious situation that only should be looked at after debt consolidation.