Personal Finance Unit 6 Credit

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Annual Fee

yearly fee that may be charged for having a credit card

Annual Percentage Rate (APR)

cost of credit expressed as a yearly percentage (percentage = interest rate)

Balance Transfer

moving a balance from one credit card account to another

Cash Advance

withdrawing cash (at ATMS or banks) against your credit limit by using a credit card

Credit

money borrowed in exchange for a promise to pay back a definite sum of money at a future date

Credit Limit

the maximum dollar amount that can be borrowed

introductury Rate

APR that may be charged (usually increased) after the introductory period ends
Not all credit cards have an introductory rate

Late Payment Fee

charged when a cardholder does not make the minimum monthly payment by the due date

Over The Limit Fee

Fee charged if the credit card account balance goes over the set credit limit

Penalty APR

A higher interest rate triggered by:
- making a late payment
- going over credit limit
- making a payment that is returned

Fixed APR

a percentage rate that does not change throughout the period of time outlined in the credit card agreement

Variable APR

percentage rate that may change depending on other factors (such as economic conditions)

Minimum Payment

the lowest amount of money that you are required to pay on your credit card statement each month

Average Daily Balance

The most frequent way used to calculate credit card interest.

Credit Reporting Agency

Keep a record of a consumer's account history (credit history)

FICO score

Credit score from 300-850 that rates how likely a person is to fall 90 days behind in a payment.

Interest

A sum paid or charged for the use of money or for borrowing money

Interest affect on borrower

rising interest rates will usually mean that you will pay more for borrowing money and lower interest rates will usually mean you will pay less

Calculate compound interest

compound interest definition: interest is based on both principal and accumulated interest

Open-ended credit/revolving credit & Examples

a line of credit established in advance so you do not have
to apply for credit each time new credit is desired.
EX: Credit cards, line of credit

Closed-Ended Credit / Installment & Examples

a loan that you must repay in a specified number of equal monthly payments
EX: Car loans, mortgages, education loans

Secured Loan & Examples

a loan that requires collateral (ex: house, car, etc)
EX: mortgages, car loans

Unsecured loan & Examples

a loan that doesn't require any colleteral (ex: house, car, etc)
EX: Credit cards, student loans, personal loans

Steps to obtain a credit card

1. Shop around: Find the card that best fits your needs by comparing different credit card offers.

2. Complete a credit application: available on the Internet, over the phone, or in‐person depending upon the specific lender

3. Determine if you are approved and the final credit terms offered: You may or may not be approved for the credit
card. If you are approved, review the final credit terms offered.

Credit card eligibility

Age: 18+
Income: Sufficient enough to pay back what you borrow
Credit Score: Usually it doesn't matter what your credit score is. Unless you have no credit score, then there's fewer options

Schumer Box

Terms and fees of a credit card in an easy to read box on all credit card applications

Strategies to build a positive credit history/credit score

•Pay your bills consistently and on time
•Maintain reasonable amounts of available credit
•Apply for credit sparingly
•Have a mix of different types of credit accounts
•Do not have too many of one type of account
•Check your credit report annually

Four main sections of a credit report

Personal information, Credit Account Information, Public Records, Inquiry

Personal Information description

information you have provided to lenders when applying for credit.
EX: name, current and previous addresses, telephone number, full or partial Social Security number, date of birth and current and previous employment information.

Credit Account information description

contains specific information about each of your credit accounts
EX: type of credit (open / closed), loan amount or credit limit, date, account balance, payment info

Public Records description

presents information from federal, state, and county public court records
EX: credit accounts that have been turned over to collection agencies (debt collectors), tax liens (taxes not paid in full), and history of foreclosures (borrower doesn't keep up with mortgage payments)

Inquiry Description

occurs when someone with permissible purpose requests a copy of your credit report

When is a credit account in "collection"? What does a debt collection agency do?

When you have a debt in collections, it usually means the original creditor has sent the debt to a third-party person or agency to collect it. Credit card debt, mortgages, auto loans and student loans are a few types of debt that can be passed on to a debt collection agency.

Credit Repair Counselor

advises you on your money and debts, helps you with a budget, and offers money management workshops.