Unit Study Guide - Types of Credit & Managing Credit

Vocabulary flashcards covering supply and demand basics, credit concepts, economic systems, loans, credit scores, and who can view credit reports.

Law of Supply

Prices and quantity supplied move in the same direction: as price rises, quantity supplied increases, ceteris paribus.

Law of Demand

Prices and quantity demanded move in opposite directions: as price rises, quantity demanded falls, ceteris paribus.

Shortage

When quantity demanded exceeds quantity supplied at a given price.

Surplus

When quantity supplied exceeds quantity demanded at a given price.

Authorized User

A person added to another’s credit card account whose payment history can build their own credit score.

Secured Credit Card

A credit card backed by a cash deposit; credit limit equals the deposit and is used to build or rebuild credit.

Schumer Box

Standard card-term disclosures listing fees, APRs, grace period, and penalties for comparison.

Annual Fee

A yearly charge some credit cards impose for access to the card.

APR (Annual Percentage Rate)

The interest rate charged on balances, expressed as an annual percentage.

Grace Period

The period after purchase during which you can pay the balance in full to avoid interest on new purchases.

Penalty Fees

Fees charged for violations such as late payments or over-the-limit charges.

Penalty Rates

Higher interest rates applied after certain credit violations or defaults.

Partial Payment

Paying less than the full balance due while the payment is on time can incur interest on remaining balance.

Minimum Payment

The smallest amount due; paying only this can extend payoff and increase total interest.

Advantages of Using a Credit Card

Convenience, fraud protection, credit-building, rewards, and expense tracking.

Scarcity

Economics’ fundamental problem: limited resources vs unlimited wants, leading to choices and trade-offs.

Communism (Command Economy)

An economic system where the government owns or controls the means of production and plans the economy.

Free Market (Capitalism)

An economic system based on private property, voluntary exchange, and decisions driven by supply and demand with limited government involvement.

Principal (Loan Principal)

The amount borrowed or remaining on a loan before interest.

Down Payment

Upfront amount paid toward a purchase, reducing the loan amount.

Term of Loan

The length of time over which a loan is repaid.

APR (Loan APR)

The annual rate used to calculate loan interest and finance charges.

Monthly Payment (Factors)

The regular amount paid each month; influenced by principal, down payment, term, and APR.

Extra Principal Payments

Payments made above the required monthly payment to reduce principal faster and cut total interest.

Top Credit Score Factors

Payment history, amounts owed, and length of credit history are the most influential factors.

AnnualCreditReport.com

The official government resource to obtain a free annual credit report in the U.S.

Credit Report Contents

Personal information, account history, balances, payment history, inquiries, and public records.

Negative Item Duration

Most negative items stay on a credit report for about 7 years; some bankruptcies can last longer.

Bankruptcy Duration

Bankruptcy can remain on a credit report for up to 10 years.

Advantages of Early Credit

Establishing credit early helps build a longer history, better terms, and more financial options later.

Ways to Build Credit

Pay on time, maintain low utilization, use secured cards, become an authorized user, avoid excessive new accounts.

Credit Score and APR

Higher credit scores often lead to lower APR and lower monthly loan payments.

Example: Score Impact on APR

A higher score can reduce the APR on a loan, lowering monthly payments and total interest (illustrative example from slides).

Dispute Credit Report Errors

If you find errors, file a dispute with the credit bureau to correct information; improves score.

Keep a Consistent Payment History

Always pay on time to strengthen payment history and boost score.

Reduce Credit Utilization

Keep balances low relative to limits to improve utilization ratio and score.

Maintain Old Accounts

Keeping old accounts open preserves length of history and improves score.

Limit New Credit Inquiries

Avoid frequent hard inquiries to protect your credit score.

Landlord Credit Check

A landlord may view your credit report to screen rental applicants.

Banks and Creditors

Banks and creditors view credit reports when deciding whether to lend or extend credit.

Employers

In some cases, employers may view credit reports as part of a background check with consent.

Insurance Companies

Insurance providers may review credit reports to help determine premiums or eligibility.

Utility Companies

Utility service providers may view credit reports to decide deposits and service terms.