Financial literacy chapter test #7

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 a 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 account that can be used to make purchases

Debt

Money that must be repaid

Extended warranty

Additional coverage that you can buy to pay 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 financial goals through planned earning, spending, and saving

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 change repeatedly up to a maximum limit

Service credit

The ability to receive services and pay for them later

Spending limit

The maximum 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 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

1. Define your spending goal

2. Choose the item to buy

3. Define criteria (standards or rules by which something is judged)

4. Set a timeline

5. Get a spending limit (the maximum amount you are willing to pay for an item)

Advantages and disadvantages of credit

Advantages:

• increases purchasing power

• security

• convenience

• leverage

• benefits

Disadvantages:

• finance charge

• reduction of future buying power

• overspending

• identity theft

Credit score components

1. Payment history

2. Amounts owed

3. Length of credit history

4. New credit

5. Credit mix

Credit card choices - how to make the decision?

1. APR

2. Grace period/payment

3. Term

4. Rewards - credit cards only

5. Too much credit - 3 max

6. Do NOT open/close credit cards