Credit and Debt Management Flashcards

Flashcards on Credit and Debt Management

Character (in the 5 C's of Credit)

An assessment of your reputation and track record for repaying debts.

National Credit Bureaus

Agencies that collect information from lenders and financial institutions about an individual’s financial condition, debts, and payments.

Examples of National Credit Bureaus

Equifax, Experian, and Transunion

Credit Report

A record of your complete credit history, collected and maintained by credit bureaus.

FICO method

A credit score above 750 allows for the best rates

FICO factors

Amounts owed (30%), Payment history (35%), New credit (10%), Length of credit history (15%), Credit mix (10%)

Capacity (in the 5 C's of Credit)

An assessment of your ability to repay the loan, based on your income and existing debts.

Debt safety ratio

A calculation to determine the maximum amount of debt one can safely handle, ideally no more than 20%.

Capital (in the 5 C's of Credit)

An evaluation of your net worth, considering your assets versus your debts.

Collateral (in the 5 C's of Credit)

Assets pledged to secure the loan, which the creditor can repossess if you can't repay.

Conditions (in the 5 C's of Credit)

Prevailing economic conditions that could affect the borrower’s ability to service a loan.

Cosigning a Loan

Agreeing to be responsible for the debt if the other person fails to make payments.

Credit Management

Establishing and following an individual plan for using credit wisely.

Avoid Unnecessary Costs

Paying cash for small purchases

Avoid Risky Loan Practices

Predatory Lending and Usury Laws

Easy access credit

Title loans, payday loans, and rent-to-own agreements

Signs of Debt Problems

Consistently making only the minimum monthly payment on credit cards, total balance on credit cards increasing every month, and missing credit payments or often paying late.

Dealing with Problems

Contacting your creditors and negotiating lower payments or loan modifications

Bankruptcy

A legal procedure to relieve a person of excessive debt.

Common causes of Bankruptcy

Excessive medical bills, small business failure, poor financial planning/unwise credit use, having no savings or emergency fund, losing employment or excessive debt load.

Chapter 7- straight (liquidation) bankruptcy

Most assets are sold to pay off creditors while certain assets may be exempted; any remaining debts are discharged except tax debt, student loans, government fines, child support or alimony

Chapter 13- Wage Earner Plan

Debtor follows a court approved payment plan and gets to keep assets.

Resolve Credit Errors

Examine credit account statements carefully and address errors as quickly as possible, disputing within 60 days.

Address Credit Errors

Call to report and Submit a dispute letter or other written follow-up

Protect Against Fraud and Identity Theft

Notify immediately if your card is stolen/lost, cancel card and get new PINs, keep a list of each credit card’s information, immediately close any accounts you believe may have been accessed by another.

Dealing with Stolen Identity

Close or freeze credit account that has been tampered with or opened fraudulently and follow up in writing, contact credit bureaus- flag your file with fraud or security alert, file a police report and keep a copy of it in case creditors need proof of the crime.

Federal Credit Protection Agencies

Federal trade commission and Consumer financial protection bureau

Truth in Lending Act

Lending are required to fully inform consumers about the cost of credit in any loan or credit agreement

Truth in Lending Act

Written disclosures must be provided before any agreement is signed

Truth in Lending Act

Limits lost credit card liability to $50

Fair Credit Reporting Act

Regulates the use of consumer credit information; consumers may access their files as well as correct misinformation; requires deletion of out of date negative information.

Fair Credit Reporting Act Restrictions

Bankruptcy- 10 year limit

Misinformation in your file

Contact a credit bureau if you believe it is reporting incorrect information and follow up to be sure they remove/correct the problem (should be done within 30 days)

Fair Credit Billing Act

Billing errors and disputes-revolving credit; notify in writing within 60 days-creditor has 90 days to resolve the dispute; must still pay any portion of bill not disputed

Fair Debt Collection Practices Act

Prohibits certain practices by debt collectors and controls the ways in which a debt collection agency may deal with consumers

Equal Credit Opportunity Act

A lender may not discriminate on a basis of race, nationality, age, sex, marital status; whether you receive social security or public aid; gives borrower the right to know why a loan or credit application is denied

Credit CARD Act

Requires 45 day notice of interest rate increase; late fees can no longer be more than the minimum payment due; must provide minimum payment warning; statements must be issued at least 21 days prior to payment due date