Financial Literacy Chapter 7 Test

Balance Transfer Fee

moving a balance from one credit card account to another

Billing Cycle

the period of time between credit card billings

Buying Plan

an organized method for making good buying decisions

Cash Advance Fee

money borrowed against your credit card account

Charge Cards

a form of credit card for which the cardholder must pay the balance in full by the due date

Collateral

property that can be used as security for a loan

Consumer Loans

direct loans of cash made to a consumer at a fixed interest rate for a set period of time

Credit

the ability to borrow money and pay it back later

Credit Card

a plastic card linked to a credit amount that can be used to make purchases

Credit Report

a summary of positive items and negative items, public record information, credit information, account detail, request for credit, history, and personal information.

Creditor

a person or company to whom money is owed

Debt

money that must be repaid

Extended Warranty

additional coverage that you can buy for repairs or replacements needed beyond the original warranty period

Finance Charge

the total dollar amount of all interest and fees you pay for the use of credit

Financial responsibility

being able to meet your goals by considering all of the pros and cons along with the costs

Fixed Interest Rate

an interest rate that is set and does not change from month to month

Grace Period

the amount of time you have to pay your current credit card balance in full to avoid paying interest

Installment Credit

to finance the purchase of a single high priced item through a series of equal payments made over a set period of time

Line of Credit

a pre approved loan amount that a debtor can borrow as needed with no collateral

Minimum Payment

the amount you are required to pay each month on a credit account

Penalty Fee

a fee charged for violating a term of the credit agreement

Rebate

a refund of part of the purchase price of an item

Revolving Credit

an account on which the account holder can charge repeatedly up to a max limit

Service Credit

the ability to receive services and pay for them later

Spending Limit

the max amount you are willing to pay for an item

Store Account

a credit account that allows you to charge items or services only at that store or with that merchant

Systematic Decision Making

the process of making choices that that reflect goals by considering all of the pros and cons along with the costs

Variable Interest Rate

an interest rate that goes up and down with inflation and other economic conditions

Steps in designing a Buying Plan

• Step 1: Define Your Spending Goal

  • Evaluate wants and needs, consider for item relates to meeting goals set in budget/financial plan, and consider opportunity cost 

• Step 2: Choose the Item to Buy

  • choose an item that will meet you goals

• Step 3: Define Criteria

  • standard/rules by which something can be judged

  • criteria for an item consists of desired features, functions, and quality of the item

• Step 4: Set a Timeline

  • Decide how soon you want to make the purchase using a time frame

• Step 5: Set a Spending Limit

  • the max amount you are willing to pay for an item

Advantages and disadvantages of credit

Advantages: 

• Increased purchasing power

  • can buy more things and raise standard of living

• Security 

  • safer than carrying large amount of cash

• Convenience 

  • most business accept 

• Leverage

  • consumer has more leverage 

  • ex. Can withhold payment when charge is disputed

• Benefits 

  • department store credit cardholders received advance notices of sales and special offered usually not available to general public

Disadvantages of Credit

• finance charge

  • item purchased on credit and paid fo over time costs more because of he finance charge

• Reduction of future buying power

  • tie up future income by committing to make payments

  • result can be unavailable funds when you need to purchase other products

• Overspending 

  • can lead to overspending 

• Identity theft 

  • run the risk of having account info being stolen without your knowledge

Credit Score components

• calculated using many pieces of credit data like payment history, amounts owed, lengths of credit history, amount owed, and new credit 

• 300-580=bad

• 670-739=good

• 740-799=very good

• 800-850=exceptional

How to make a decision regarding credit card