Fin Lit Credit Test Study Guide
Credit: The ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future.
Creditor: A person or business that loans money to others. Zzvreditors charge money for this service in the form of interest and fees
Debt: Money borrowed
Debtor: A person who borrows money from others. Money borrowed is called debt. Debtor must be qualified to receive credit
Interest: a sum paid or charges for the use of money or for borrowing money
Principal: the amount of money borrowed
Term: The length of time you have to pay off a loan
Variable interest rate: AN interest rate on a loan or security that fluctuates over time because it is based on an underlying benchmark interest rate over index that changes periodically
Fixed interest rate: the rate stays the same for the duration of your loan
Installment credit: credit arrangement in which the borrower must repay the amount owed plus interest in a specific number of equal payments
Revolving (open) credit: credit that is automatically renewed as debts are paid off
Payday Loans: a short term, high-cost loan, generally for $500 or less, that is typically due on your next payday
Installment Loans: a type of loan where you borrow a sum of money and must pay it back in a fixed amount called “instalments”.
APR (annual percentage rate): APR is a uniform measurement of the cost of a loan, including interest and financed costs of closing, expressed as a yearly percentage rate
Reading a credit card statement
Grace Period: A time period during which no finance charges will be added to your account
Billing Cycle and a typical length: schedule of recurrent times in any regular system of preparing or sending bills/ 25-30 days
Minimum Payment: The smallest required payment that a credit card holder can pay on a monthly bill and still remain in good standing with the lender
Due dates: The dates the payments are due
Fees: things you have to pay and if you pay them late there is a big consequence
How to pay off faster strategies and why
Traps with 0% card: 0%, APR, and fees
Debit card: A bank card that automatically deducts the amount of a purchase from the checking account of the cardholder- does not add to a credit score
Home Mortgage: spreading the cost of property over many years
Car Loan: a loan to finance the purchase of a new or used (pre-owned) vehicle.
Secured Credit Card: a type of credit card that is backed by a savings account used as collateral on the credit available with the card
Credit report- what is on it and how long missed payments stay on
Credit History: a summary of a person's borrowing and repayment history
How to fix mistakes on a credit report
Credit bureaus (3) Experian, Equifax, Transunion
Credit Score- FICO and the direct impact on a low or high APR
Knowing the weights of the score
Paying on time followed by utilization are weighted the most.
5 C’s of Credit
Character: The distinctive qualities that describe how a person thinks, feels, and behaves
Capacity: Consistent work record that provides enough income to support credit
Capital: Assets held such as checking, savings, stock to show that you have other financial means.
Collateral: A security pledged for the repayment of a loan
Conditions: Any external factors that may affect your ability to pay back a loan or debt
Reviewing a credit report and loan application
Laws
Consumer Protection Act: Requires lenders to fully inform consumers about all costs of a credit purchase before an agreement is signed - limited to $50 if a card is lost or stolen
Fair Credit Reporting Act: US act that protects privacy of background information and ensures that information supplied is accurate.
Fair Credit Billing Act: Provides consumers with a means to dispute a billing error on open ended credit accounts (credit and charge cards)
Equal Credit Opp. Act (ECOA): The federal law that prohibits discrimination in the extension of credit because of race, color, religion, age, ect.
Fair debt collection practices act: Prohibits unfair, abusive, and deception methods of collecting debt
Bankruptcy: A legal process to get out of debt when you can no longer make all your required payments
Chapter 7: The forfeiture of an individual's assets in exchange for the discharge of debts (also called straight or liquidation)
Chapter 13: a reorganization form of bankruptcy for individuals that allows the debtors to keep their property and use their income to pay a portion of their debts over 3-5 years
Chapter 11: For a business- protects an insolvent firm from creditors during a period of reorganization to restore profitability
Reaffirm debt: agreeing to repay the excess loan amount in accordance with the terms of the promissory note
Involuntary bankruptcy: Bankruptcy procedures filed by a debtors creditors
Voluntary bankruptcy: legal procedures initiated by a debtor
Discharged debt what it is? What does not count?
ID Theft: Stealing someone's identity (their personal information)
What it is
Steps to take
Methods
Phishing scam: a thief trying to trick you into sending them sensitive information. Typically these include emails about system updates asking you to send your username and password, social security number or other things.
Skimming: Double-swiping a credit card in a legitimate terminal or covertly swiping a credit card in a small hidden, handheld card reader that records credit card data for later use.
Vishing: a type of social engineering attack where scammers use telephone calls to deceive individuals into divulging personal, financial or security information
Synthetic: financial instruments that are engineered to simulate other instruments while altering key characteristics, like duration and cash flow
Types
Tax, medical, criminal, financial & SS
Signs of identity theft
Bills for items you didn't buy
Debt collection calls for accounts you did not open
Information on your credit report for accounts you did not open
Denials of loan applications
Mail stops coming to or is missing from your mailbox
Conditions of the loan: Interest rate and principal amount and time period for monthly payments
Calculating utilization: Amount of money you own / the money your allowed to borrow other words balance divided by credit limit x100 (2 spaces to right - .35 = 35%)
Discharge: release from debt
Schumer box: terms and fees of a credit card in an easy to read box on all credit card applications and solicitations
Credit card: A plastic card used to make purchases now and pay for them later
Credit score: A number assigned to a person that indicates to lenders their capacity to repay a loan. APR on a credit card (12%-15% for example) are mainly determined by one’s credit score
Credit report: a detailed report of an individual's credit history
Credit bureau: company that collects information about your credit history and sells it to lenders
The 3 credit bureaus are: Equifax, Experian, TransUnion
The largest part of a credit score is paying bills on time
A low credit score can negatively affect a person's ability to get favorable interest rates, approved for loans, ect.
Late payments stay on a credit report for 7 years
Error on credit report: Call credit card company right away
Items not discharged in bankruptcy: Student loans, alimony, and child support
If you receive a text or email saying your credit card has been compromised you should call the number on the back of the credit card and not use links or phone numbers in the email/ text.
Public record: If you declare bankruptcy, are married or single have a lawsuit and your address are all a matter of public record