ECON chapter 10 study guide

Check

a written order to a bank to pay a third party

Checks

requires the payee's name, date, and amount (both numerically and written)

Bank routing numbers and account numbers

creates a payment trail for transferred funds

Federal Deposit Insurance Corporation

insures deposits up to $250,000 per depositor, per bank

Endorsement

how you sign a check to receive payment or transfer ownership

Blank endorsement

simply signing your name (allows anyone to cash it)

Special endorsement

specifies who can receive the money ("Pay to the order of…")

Restricted endorsement

limits how the check can be used ("For deposit only…")

Reconciliation

the process of matching your records with the bank's records

Traditional payment methods

include cash, coins, and checks

Electronic payment methods

include debit cards, prepaid cards, and digital transfers

Liquidity

how quickly and easily you can access cash

Debit cards

allow direct access to funds in a checking account

Prepaid card

cards that have money loaded in advance and don't require a bank account

Check-to-electronic conversion

transforms paper checks into electronic payments at point-of-sale

Direct debit

an electronic withdrawal directly from a bank account without a card

Peer-to-peer payment apps

apps that enable transfers between individuals

Automated Clearing House

a network for electronic transfers between institutions

Debit card liability protections

$0 if reported before use, $50 if within 2 days, $500 if within 60 days

Credit card liability protection

Limited to $50 for unauthorized charges

Prepaid card liability protection

Often have unlimited liability (no protection)

Cryptocurrency

digital currency that allows transfers without a bank or broker

Credit report

a summary of your credit history maintained by credit bureaus

Major credit bureaus

Equifax, Experian, and TransUnion

Credit reports

includes personal information, account details, inquiry history, and public records

Negative items

can remain on credit reports for 7 years (10 years for bankruptcies)

The Fair Credit Reporting Act

grants you free access to your credit report once every 12 months

Credit bureaus

must investigate disputes within 30 days

Credit score

summarizes your credit risk in a numerical value

FICO scores

range from 300-850, with higher scores indicating lower risk

Credit score inputs

includes payment history (35%), amount of credit (30%), length of history (15%), new credit (10%), and types of credit (10%)

Utilization ratio

compares your credit limit to how much you've used

Loans

consists of principal (amount borrowed), interest (cost of borrowing), and fees

Finance charge

the total amount of fees and interest charged

Installment loans

loans that have fixed payments over a set period

Fixed installment loans

loans that maintain the same interest rate throughout the term

Variable installment loans

loans that have interest rates that can change during repayment

Collateral

something of value that secures a loan

Amortization

the process of paying down a loan with regular payments

Interest

calculated based on the remaining loan balance

Credit cards

revolving credit that can be used at the borrower's discretion

Traditional loans

loans that are typically amortized with fixed payments

Credit card costs

costs that can include annual fees, interest, and account setup fees

Minimum payment

typically a percentage of the balance or a fixed amount, whichever is higher

Grace period

the time allowed to pay without incurring interest (minimum 21 days for new purchases)

Co-signer

an additional person responsible for the debt if the primary borrower defaults

Secured credit cards

requires a deposit equal to the credit limit as collateral

Reward credit cards

provides benefits based on purchase amounts

Credit cards

have different APRs for purchases, balance transfers, and cash advances

The CARD Act of 2009

requires clear monthly statements showing payment information