Untitled Flashcards Set

Credit History

The complete record of your borrowing and repayment performance.

Credit Bureau

A business that gathers, stores, and sells credit information to other businesses.

Credit Report

A written statement of a consumer’s credit history.

Creditworthy

To be considered reliable for credit based on character, capacity, capital, conditions, and collateral.

Character

A responsible attitude toward honoring obligations.

Capacity

The financial ability to repay a loan with present income.

Capital

Financial assets you possess that are worth more than your debts.

Collateral

Property pledged to assure repayment of a loan.

Conditions

Questions asked during the evaluation of creditworthiness.

Credit Rating

A measure of creditworthiness based on an analysis of your credit and financial history.

A-rating

A customer who pays bills before the due dates.

B-rating

A customer pays bills on the due date within a ten-day grace period.

Point system

Points assigned by the credit bureau based on various credit factors.

Credit Score

Points added up to determine an individual's creditworthiness.

Discrimination

Treating people differently based on prejudice rather than individual merit.

Debt Collector

A person/company hired by a creditor to collect the overdue balance on an account.

FICO

The abbreviation for Fair Isaac and Company, which determines credit risk.

Payment history

One of the 5 factors used to calculate credit scores.

Amounts owed

A measure of how much debt you have compared to your credit limit.

Length of credit history

The time that you have been using credit.

New credits

The number of recent credit inquiries or accounts opened.

Types of credit used

The variety of credit accounts you have, such as credit cards and loans.

Consumer Credit Protection Agency

Requires lenders to fully inform consumers about all costs of credit purchase.

Fair Credit Reporting Act

Gives consumers the right to know what is in their credit file.

Fair Credit Billing Act

Requires creditors to resolve billing errors within a specific period.

Equal Credit Opportunity Act

Prevents discrimination in the evaluation of creditworthiness.

Prime Rate

The interest rate that banks offer to their best business customers.

Fixed-rate loans

Loans with an interest rate that does not change over the life of the loan.

Variable-rate loans

Loans with interest rates that fluctuate with market conditions.

Simple Interest

Interest computed only on the amount borrowed.

Down Payment

A part of the purchase price paid in cash upfront.

Minimum Payment

The least amount you may pay per month under your credit agreement.

Advantages of Credit

Expand purchasing power, provide emergency funds, and increase standard of living.

Disadvantages of Credit

Credit purchases may cost more, lead to overspending, and create debt.

Debt Management Plan (DMP)

Gives money each month to a credit counseling organization for debt repayment.

Bankruptcy

A legal process that relieves debtors of the responsibility of paying their debts.

Discharged Debts

Debts erased by the court during bankruptcy proceedings.

Voluntary Bankruptcy

Occurs when the debtor files a petition with a federal court.

Involuntary Bankruptcy

Occurs when a creditor files a petition with the court against the debtor.

Chapter 7

Liquidation form of bankruptcy for individuals.

Chapter 13

Reorganization form of bankruptcy for individuals.

Advantages of Bankruptcy

Debts are erased, exempt assets retained, and costs are minimal.

Disadvantages of Bankruptcy

Credit is damaged, property may be lost, and some debts may continue.