Comprehensive Guide to Credit, Loans, and Financial Management

Credit

A contractual agreement in where a borrower receives a loan and agrees to pay the lender in a specific date in the future usually with interest.

Secured Credit Cards

Require deposit to be held by the credit card company. Credit limit is the amount of deposit. Good for starting a credit file or rebuilding a credit file after bankruptcy.

Unsecured Loan

They are also known as signature loans.

Five Cs of Credit Decision

1. Character: what's your credit score? Are you responsible to pay on time? 2. Capacity: enough income minus expenses to pay the loan. 3. Collateral: is your house on the line if you don't pay the bank? What are assets that you own that's given to the lender if you default on the loan? 4. Capital: what's your net worth? What other assets that could be sold to pay the loan? 5. Conditions: what economic conditions for a specific industry?

Cosigner

Cosigners are sometimes required because if you are under 21 and have a credit card you can't show proof of income to repay debt.

Debt-to-Income Ratio

Monthly recurring debt payments divided by monthly gross income and its measured by using the 28/36 rules basically taxes and monthly house payment should be no greater than 28% of monthly gross income.

Interest Rate Variability

Because it's based off the collateral, use of unsecured or secured credit cards and the risk rating based off the five C's.

Advantages of Using Credit Cards

1. Arbitration (in a event of a disagreement of a charge the credit card company removes the charge until resolved). 2. Auto pay on bills. 3. Identity theft safeguards (up to 60 days). 4. Extended warranties. 5. Interest free loans. 6. Purchase protections. 7. REWARDS.

Credit Card Balance

To maintain a high credit rating, what is the most you should carry as a balance on a credit card? Anything below $30.

Grace Period

Time you have to pay your bill before charges are activated.

Keeping Credit Card Rates Low

If you are high income and have a lot of net worth your rates are lower.

0% Credit Offerings

What should you watch for on 0% credit offerings? Insert answer here by clicking on the three dots to the left of this box.

Remedying Credit Card Errors

1. Contact your credit card company in writing within 60 days after the error. 2. Send billing inquiries on the bill with the error. 3. Include name/account number state the error why its an error and the date of the error. Provide copies of the supporting document. 4. Keep a copy.

Subsidized Student Loans

Amount Borrowed: $10,000. Accrued interest: $1,500. Interest paid by the government while at school: $1,500. Amount due upon graduation or going below half time student status: $10,000. Payments deferred for 6 months after graduation or going below half-time student status.

Unsubsidized Student Loans

Amount borrowed: $10,000. Accrued interest: $1,500. Interest paid by the government while at school: $0. Amount due upon graduation or going below half time student status: $11,500. Payments deferred for 6 months after graduation or going below half-time student status.

Private Student Loans

What are the advantages and disadvantages with private student loans?

Deferment

A process for continued education, rehabilitation, and low-income individuals that delays the loan and no interest is accrued for subsidized loans.

Loan Payment Formula

PVA-PMT ([1-{1-1/(1 + i)²]}/i

Predatory Lending

Payday or title loans are considered predatory lending because it's impossible for borrowers to pay off due to absurd interest rates.

Rent-to-Own Disadvantages

Higher total cost than buying full price, have collateral if payments are missed, and no total ownership.

Alternatives to Payday Loans

Credit unions and banks, borrowing money from family, friends, or strangers, asking for a paycheck, and using emergency funds.

Perma-Debt

An endless cycle where you never get out of debt, and credit card companies make you think it's easier to pay the minimum payments.

Credit CARD Act of 2009

Requires anyone under 21 to show evidence of income or have an adult cosigner to qualify for a credit card and prohibits colleges from applying credit cards for free gifts.

Importance of Establishing Credit Record

To demonstrate trustworthiness to financial institutions in order to own a credit card.

Establishing a Credit Record

After applying for a credit card, use it diligently, and pay off your bills on time and in full.

National Credit Reporting Agencies

1. Transunion 2. Experian 3. Equifax

Credit Report Information

Includes past payments on credit, personal information, public records, unpaid child support, and any monetary judgments.

Late Payment Incident Duration

A late payment incident will stay on your credit report for 7 years.

Best Credit Utilization Rate

People with the best credit have a utilization rate of no more than 7%.

FICO Credit Score

The scale used to calculate the credit score ranges from 300-850 and places more weight on recent payments rather than past payments.

FICO Score Range

300-850

Good FICO Score

Anything above 700.

Indicators Impacting FICO Score

1. Payment history 2. How much you owe 3. How long you have credit 4. Your last application for credit 5. Types of credit used.

Most Impactful Indicators on FICO Score

Your payment history and how much you owe, as they combine to determine 65% of your score.

Checking Credit Report and Score

You can securely check your credit report and credit score through the credit reporting agencies: Transunion, Equifax, and Experian.

Credit Report Errors

According to a February 2013 FTC report, as many as 25% of credit reports contain errors, and 5% include serious errors that could affect one's credit score.

Improving Credit Score

Pay your bills on time and in full, keep credit card balances low, pay off debt, limit credit card accounts, and catch up on missed payments.

Identity theft

When someone steals your personal information where they steal or commit fraud

Phishing

Marketing schemes online to steal your personal information

Skimming

When a thief steals information through your credit card by swiping it through a process machine that gathers info

Negative information duration

7-10 years

Actions to protect against identity theft

Check financial statements, monitor your credit report, don't give out personal information, and use mobile payment apps

Steps if victim of identity theft

1. Contact one of the three major credit bureaus and place a fraud alert 2. Obtain copies of your credit report 3. Contact the authorities and file a report 4. Contact all your creditors and alert them of fraud and close the accounts affected by it 5. File a complaint with the federal trade commission (FTC) 6. Place a freeze on your credit reports at all three credit bureaus 7. Continue to monitor your credit bureau reports for future identity theft

Irresponsible use of debt side effects

Low credit score, higher interest rates, not qualifying for a loan, and defaulting on loans

Building credit rating steps

Make payments on time and not use more than 30% of your credit line. Review every financial statement and look for errors and always budget your spending

Monthly vehicle payment dependency

The number of months you finance the vehicle, the amount financed and the interest rate

Auto payment affordability

Your total monthly income(0.36)

Advantages of buying a used automobile

Its depreciated with an average depreciation of 20% which makes it cheaper to buy and you need an independent mechanic which is $100 but it saves you thousands

Advantages of buying a new automobile

You get a lower interest rate compared to buying a used car. While with it you may be eligible for dealer and government rebates and incentives.

Advantages of leasing an automobile

Its great for using cars every 2-3 years and you can drive with a low number of miles and take good care of their cars.

Private sale vehicle checks

Check VIN, registration, and clean title (no bank liens)

Fair treatment in trade-in

Sell your vehicle privately and track the maintenance work you done on the car

0% interest and $0 down offers

They often hide higher prices or fees

After-sale activities before signing

A thorough walk around the exterior look and a close look in the interior preferably in the sun for any dings or marks.

Mortgage

A legal contract where the lender can use your property as collateral (in other words if you don't pay your bills your house is gone)

Advantages of renting

N/A

Sublease

The transfer the rental agreement from you the current tenant to a new one.

Equity

The difference between the value of what you own and what you owe.

Realtor

Links buyers with sellers.

Private Mortgage Insurance (PMI)

Required by a lender if the home needs to be foreclosed and the sale does not cover the mortgage.

PMI Drop Request

Once your home loan to value ratio is 80% or less.

Fixed-rate/Fixed-term Mortgage Advantage

You know when the loan will be paid off and what the payments would be.

Adjustable-rate Mortgages (ARMs) Advantage

The interest rates will decrease when you plan to be in the home for an initial period of time.

Great Recession Impact on ARMs

The housing market crashed and those who have introductory mortgage rates expired could not sell their homes for a loss and could not afford the payments.

Balloon-payment Mortgage Hope

Sell the house before the balloon payment is due so you wouldn't need to refinance.

Closing

Final steps in a home sale where documents are signed and recorded and the process of owner transferring is in effect.

Closing Cost Fees

Fees from the loan application, origination, points, appraisal, home inspection, and title search.

Credit Score Below 600

Wait for a period of time to rebuild your credit score (i.e PAY YOUR BILLS ON TIME!!!).

Refinance Home

When interest rates drop, your credit score improves or shorten the loan term.

Home Equity Loans

Borrowing money against equity in the home and using the home as collateral.

Home Equity Loan Precaution

Avoid being in debt and remembering your home is the collateral.

Emergency Fund Minimum

$1,000.

Emergency Fund Next Goal

3 to 6 months worth of income in the emergency fund.

Signs of Out-of-Control Credit Card Spending

Borrowing money from family members to cover payments, failing to make payments on time, getting cash advances on credit cards, using a bail out lender.

Fiscal Fitness vs Physical Fitness

You are using various strategies to cut your spending habits that could possibly put you in debt.

Frugal

Avoid waste and be resourceful. Trim back on expenses.

Cost per Unit (CPU)

It's important to compare items per pound or ounce so you can find the cheaper option easier.

Pay Yourself First

Making a commitment to your future financial fitness.

Emergency Fund

A reserve of money set aside for unexpected expenses.

Little Leaks

Small, unnecessary expenses that can add up over time.

Debt-Free Plan

A structured approach to eliminate debt and manage finances effectively.

Steps to Digging Out of Debt

1. Stop using credit cards 2. Create a realistic budget and use the envelope system 3. Exercise the 'ten seconds' and 'month-end' holds 4. Don't buy things you cannot afford 5. Pay off debt 6. Make payments on time 7. Increase your income.

Average Purchase Increase

When credit cards were accepted at McDonald's, the average purchase rose from $4.50 to $7.00.

Month End Method

A technique involving reviewing transactions and paying off bills at the end of the month.

Debt Payment Recommendation

Pay off smaller debts first to build momentum for paying off larger debts.

Strategies for Managing Credit Card Debt

Include credit counseling services, debt consolidation, debt settlement companies, and consumer protection.

Risk of Debt Consolidation

It addresses the symptoms of debt but not the underlying issues.

Credit Counseling Categories

1. People signing up for a debt management plan 2. People unsure where to start paying off debt 3. Individuals needing solutions for specific financial dilemmas.

Identifying Legitimate Credit Counselors

Look for counselors accredited by the National Federation for Credit Counseling.

FDCPA Prohibited Activities

Includes calling before 8 am or after 9 pm, calling at work if requested not to, harassment, unprofessional language, and concealing identity.

Seriously Delinquent Loans

Residential mortgages that are 60 days or more past due or already in foreclosure.

Preparing for Mortgage Lender Meeting

Call the mortgage lender ahead of time; they want to help solve the problem.

Mortgage Loan Modification Benefit

Allows banks to receive payments on loans they would otherwise have to foreclose on.

Reinstatement

A temporary solution to foreclosure risk involving the establishment of a new loan if terms are met.

Forbearance

A temporary reduction or suspension of mortgage payments for 3 or 4 months followed by a new repayment plan.

Short Sale

Occurs when a property cannot be sold for the full loan amount, and the lender accepts the selling price as satisfying the mortgage.

Credit Protection Options

Short-term options include reinstatement, forbearance, and repayment plans; long-term options include loan modifications and selling your home.

Bankruptcy Definition

A legal process by which a person declares an inability to pay debts owed to others.

Liquidation

The sale of a debtor's nonexempt property and the distribution of the proceeds to creditors.

Wage Earner Bankruptcy

Chapter 13 bankruptcy for individuals with a regular source of income.