Understanding Credit and Loans

Flashcards covering key vocabulary related to credit, loans, and financial management based on the provided lecture notes.

Credit

Any time you borrow money.

Instalment Credit

Borrowing a set amount of money and agreeing to fixed payments over an amount of time.

Revolving Credit

A specific amount of credit a lender provides that can be continually used as long as on-time payments are made.

Open Credit

The amount owed changes each billing cycle, depending on usage.

Charge Card

A card with flexible spending limits and no interest rates, requiring the full balance to be paid each month.

Credit Card

A card with fixed spending limits and interest rates, allowing for minimum balance payments each month.

Debt to Income Ratio (DTI)

The percentage of your income that you owe to debts, recommended not to exceed 36% of gross income.

Gross Income

Your pre-tax income.

Credit Rating

A measure of your creditworthiness, indicating your likelihood to repay a loan.

Character (3 C's of Credit)

Refers to whether you have paid loans as agreed in the past.

Capacity (3 C's of Credit)

Refers to your income and current debt.

Collateral (3 C's of Credit)

Something the bank can take from you if you can't pay the loan.

Credit Report

A detailed summary of your credit history, available for free annually from Transunion, Equifax, and Experian.

FICO

The main credit scoring model.

Secured Credit Card

A credit card that requires a deposit as collateral, making it easier to get for those with no credit history.

Student Credit Card

Credit cards with low credit limits and high interest rates, designed for students to build credit if balances are paid in full.

Store Credit Card

Credit cards offered by retailers, often easy to get with rewards but typically have high interest rates.

Authorized User

Someone added to another person's credit card account, benefiting from the primary user's good payment history to boost their own credit score.

Student Loan

A type of loan to finance higher education expenses, which must be repaid after graduation.

Car Loan

A loan used to purchase a car, which can help build credit if paid on time.

Credit Building Loan

A loan designed solely for the purpose of building credit, with the money held by the lender until repayment.

Cosigning

When a family member with good credit agrees to be responsible for your payments if you default on a loan or credit card.

APR (Annual Percentage Rate)

The annual interest rate charged on outstanding credit card balances.

Variable Rate

An interest rate that changes with the prime rate.

Fixed Rate

An interest rate that seldom changes unless payments are missed or specific terms are violated.

Penalty Rate

A higher interest rate applied if a payment is missed or returned.

APR

The annual percentage rate applied to standard credit card purchases.

Introductory APR

A temporary low or 0% interest rate offered to entice new credit card customers.

Simple Interest Loan

A loan where interest is paid only on the principal amount.

Compound Interest

When interest is paid on both the principal and any accrued interest.