Credit Cards and Loans U11

Credit Score

a statistical number that evaluates a customer's credit worthiness and is based on credit history.

Credit worthiness

the extent to which a person or company is considered suitable to receive financial credit, often based on their reliability in paying money back in the past.

Credit History

a record of a consumer's ability to repay debts and demonstrated responsibility in repaying debts

CHARACTER

will you repay the debt?

From your credit history, does it look like you possess the honesty and reliability to pay credit debts?

CAPITAL

what if you don’t repay the debt? Do you have any valuable assets such as real estate, savings, or investments that could be used to repay credit debts if income is unavailable?

CAPACITY

can you repay the debt? Have you been working regularly in an occupation that is likely to provide enough income to support your credit use?

COLLATERAL

(assets to secure the debt)

CONDITION

(of the borrower and the overall economy)

truth in lending act (1968)

Ensures consumers are fully informed about cost and conditions of borrowing.

fair credit reporting act (1970)

Protects the privacy and accuracy of information in a credit check.

equal opportunity act (1974)

Prohibits discrimination in giving credit on the basis of sex, race, color, religion, national origin, marital status, age, or receipt of public assistance.

fair credit billing act (1974)

Sets up a procedure for the quick correction of mistakes that appear on consumer credit accounts.

fair debt collection practices act (1977)

Prevents abuse by professional debt collectors, and applies to anyone employed to collect debts owed to others; does not apply to banks or other businesses collecting their own accounts.

single-payment credit

Items and services are paid for in a single payment, within a given time period, after the purchase. Interest is usually not charged.

installment credit

Merchandise and services are paid for in two or more regularly scheduled payments of a set amount. Interest is included.

revolving credit

Many items can be bought using this plan as long as the total amount does not go over the credit user’s assigned dollar limit. Repayment is made at regular time intervals for any amount at or above the minimum required amount. Interest is charged on the remaining balance.

Unsecured Loan

This common type of personal loan isn’t backed by collateral, such as your home or car, making them riskier for lenders, which may charge slightly higher annual percentage rates.

Secured Loan

These loans are backed by collateral, which can be seized by the lender if you default on the loan. Examples of other secured loans include mortgages and car loans

Fixed-Rate Loans

Most personal loans carry fixed rates, which means your rate and monthly payments (sometimes called installments) stay the same for the life of the loan.

Variable-Rate Loans

Interest rates on variable-rate loans are tied to a benchmark rate set by banks. Depending on how the benchmark rate fluctuates, the rate on your loan — as well as your monthly payments and total interest costs — can rise or fall with these loans.

Debt Consolidation Loans

This type of personal loan rolls multiple debts into a single new loan. The loan should carry a lower APR than the rates on your existing debts to save on interest. Consolidating also simplifies your debt payments by combining all debts into one fixed, monthly payment.

Co-Sign Loans

This loan is for borrowers with thin or no credit histories who may not qualify for a loan on their own. A co-signer promises to repay the loan if the borrower doesn’t, and acts as a form of insurance for the lender.

average daily balance:

You pay interest on the average balance owed during the billing cycle. The creditor figures the balance in your account on each day of the billing cycle, then adds together these amounts and divides by the number of days in the billing cycle.

adjusted balance:

You pay interest on the opening balance after subtracting the payment or returns made during the month.

previous balance:

You pay interest on the opening balance, regardless of payments made during the month.

past-due balance:

No finance charge is added if the full payment is received within the grace period. If it is not received, a finance charge for the unpaid amount is added on to your next bill.

prompt credit for payment

A card issuer must credit your account on the day the issuer receives your payment, unless the payment is not made according to the creditor’s requirements.

refunds of credit balances

When you return merchandise or pay more than you owe, you have the option of keeping the credit balance on your account or receiving a refund.

unauthorized charges

If you report your card lost before it is used, you cannot be held responsible for any unauthorized charges. If your card is used before you report it lost, you are liable for $0 if reported within two business days. After that, you’re liable for no more than $50.00.

disputes about merchandise or services

In some circumstances, you have the right to withhold payment for unsatisfactory merchandise or services.