PFM Ch 18

Cosigner

Someone who becomes responsible for payment of a note if you do not pay as promised.

Character

A person's honesty and willingness to pay a debt when it is due.

Capacity

A person's ability to pay a debt when it is due, comparing total income to debts

Capital

The value of a borrower's possessions (money and property you own).

Credit

Using someone else's money for a period of time (buy now, pay later)

Installment loan

A loan in which you agree to make monthly payments in specific amounts over a period of time

Bankruptcy

A legal process whereby the courts may reduce or eliminate the amounts of debt that you owe

Credit counselor

A person who suggests actions to reduce spending and eliminate credit difficulties

Down payment

A payment of part of the purchase price that is made up-front as part of the credit agreement

Promissory note

A written promise to repay a loan based on the debtor's excellent credit rating

Collateral

Property that is offered as security for some loan agreements

Finance charge

The total dollar cost of credit, including interest and all other charges

Annual percentage rate (APR)

The percentage cost of credit on a yearly basis

Credit bureau

A company that gathers information on credit users and sells that information in the form of credit reports to credit grantors.

Statement of account

A record of the transactions that you have completed with a business during a billing period

Credit application

A form in which you provide information needed by a lender to make a decision about granting credit

Interest

The cost of using someone else's money

Credit limit

The maximum amount of money that may be owed at one time on a credit account or credit card

VISA

Example of a bank card

American Express

Example of a charge card

Credit rating

A person's reputation for paying bills on time, as documented by a credit bureau

Principal

The dollar amount of a loan

Interest Rate

The percent of interest charged on a loan

Time

The length (years or parts of a year) for which interest will be charged on a loan

I=PRT

The formula for calculating simple interest

Truth in Lending Act

Requires lenders to provide the APR and total dollar cost of credit to a prospective borrower

Fifty dollars

The highest amount you are responsible for if someone steals your credit card and makes purchases

Equal Credit Opportunity Act

The law which prohibits creditors from denying a person credit because of age, race, sex, or marital status.

Fair Credit Billing Act

The law which requires prompt correction of mistakes on your credit statement.

Fair Credit Reporting Act

The law which gives consumers the right to see their credit files at the credit bureau

Fair Debt Collection Practices Act

The law which prevents bill collectors from calling debtors in the middle of the night, trying to collect a past-due account

Truth in Lending Act

This law limits your liability to $50 for unauthorized credit card purchases made prior to notifying the card issuer

Revolving account

A type of credit that requires customers to pay only part of the debt each month

Credit report

A document showing the debts you owe, how much you use credit, and whether you pay your debts on time

3 C's of Credit

Character, Capacity, Capital