personal finance midterm

Lenders look at your ___ _____ to determine how reliably you have managed borrowing and repaying money in the past

Credit History

Keeping her credit card balance low relative to the credit limit helped Lisa improve her ___ ______ ____, key factor in calculating her credit score

Credit utilization rate

One of the most important factors that contributes to your credit score is your _____ ________, which record how timely you have been in paying off different lines of credit

Payment history

Your ___ ____ is a 3-digit number, typically between 300-850, that potential lenders, landlords, and other parties may refer to

Fico score

What are 3 steps someone can take to pay off their debt?

1. make list of all debts+balences

2. choose payoff method (avalanche or snowball)

3. make consistent payment+put extra money towards debt

Identify one disadvantage of avalanche method and one advantage of snowball method

Disadvantage- takes longer to pay off

Advantage- gives motivation

Describe what might happen if someone doesn’t pay their federal student loans

Possible wage garnishment, loan could go to default

Increasing income is a strategy to manage debt, what is one pro and one con

Pro- more $ to pay debt

Con- less free time+ more stress

Credit score is based on 5 factors but they’re weighted unequally, how much does each factor weigh? Factors- payment history, debt amount, length of credit history, credit mix, new credit

Payment history- 35%

Debt amount- 30%

Length of credit history- 15%

Credit mix- 10%

New credit- 10%

Would the following statements increase or decrease the following statements- applying for 5 new credit cards in 2 months, credit utilization rate dropping from 22% to 10%, having credit cards but no other types of loans

Applying for 5 new credit cards in 2 months- decrease

Credit utilization rate dropping from 22% to 10%- increase

Having credit cards but no other types of loans- decrease

How does becoming an authorized user on someone else’s credit card help you build credit history

Can help you build credit if account is managed responsibly

How can signing up for a secured credit card help you build credit history

Making payments on time builds the credit

How can taking a loan out with a co-signer help you build credit history

They help you qualify for the loan, allowing you to establish positive payment history by making on time payments

How does having a checking account help you build credit history

Doesn’t generally help build credit history BUT lets you practice managing money responsibly

Tina’s buying a new car. Her older brother Rafael is co-signing her auto loan because Tina has a thin file. How might Rafael’s finances be impacted by becoming a co-signer

Missed payments could hurt his credit score and increase debt

Are the following statements chapter 7 or 13 bankruptcy- can be filed by a business, debt is reorganized into a 3-5 year repayment pal, better for people who struggle to pay basic expenses, is on credit report for 10 years, is on credit report for 7 years, your assets may be repossessed or sold, is more common

Can be filed by a business- chapter 7

Debt is reorganized into a 3-5 year repayment pal-chapter 13

Better for people who struggle to pay basic expenses- chapter 7

Is on credit report for 10 years- chapter 7

Is on credit report for 7 years- chapter 13

your assets may be repossessed or sold- chapter 7

Is more common- chapter 7

What are 2 consequences of filing for bankruptcy

Makes loans harder to get and possible loss of assets/property

True or false- most DMPs result in higher interest rates and fees

false

True or false- with a DMP, you’ll need to pay a credit counseling agency a monthly fee

true

True or false- debt consolidation loans involve a credit counselor

false

wages before taxes+other deductions

gross pay

wages after taxes+other deductions

net pay

what’s the 50/30/20 rule

needs are 50%, wants are 30%, and savings are 20%

____ _____ diversity your portfolio

bond funds

represents ownership in a company and may provide returns through price increase or dividends

stocks

borrower wants a loan w/ payments that gradually reduce the balance according to a planned schedule

amortized installment loan

divides investments among asset categories

asset allocation

customer wants to earn interest on money that’ll remain untouched for a specified period

certificate of deposit (CD)

second person that’ll repay if the primary borrower fails to pay

co-signer

high—>low RATES payment method

avalanche method

low—>high COST (regardless of rates) payment method

snowball method

DMP stands for??

debt management plan