Econ credit card notes

Here’s a breakdown of each financial concept you mentioned:

1. Difference Between a Credit Union and a Bank

  • Credit Union: A nonprofit financial institution owned by its members. It typically offers lower fees, better interest rates, and a more personalized customer experience.

  • Bank: A for-profit institution that serves the general public and businesses. It provides a wide range of financial services but often has higher fees and interest rates.

2. Types of Savings Accounts & Their Functions

  • Traditional Savings Account: Low-interest, secure place for storing money. Easy to access but may have withdrawal limits.

  • High-Yield Savings Account: Offers higher interest rates than traditional savings, typically found in online banks.

  • Money Market Account: Combines checking and savings features, often with higher interest rates but requiring larger balances.

  • Certificate of Deposit (CD): Locks money for a fixed term with higher interest. Early withdrawals may have penalties.

3. Simple vs. Compound Interest

  • Simple Interest: Calculated only on the original principal (e.g., $1,000 at 5% earns $50 per year).

  • Compound Interest: Earns interest on both the principal and previously earned interest, leading to exponential growth.

4. Types of Debt

  • Secured Debt: Backed by collateral (e.g., mortgages, auto loans).

  • Unsecured Debt: No collateral; riskier for lenders (e.g., credit cards, personal loans).

  • Revolving Debt: Can be borrowed repeatedly (e.g., credit cards, home equity lines).

  • Installment Debt: Fixed payments over time (e.g., student loans, car loans).

5. Income-to-Debt Ratio

A measure of financial health comparing monthly debt payments to monthly income. Lenders use this to assess creditworthiness. A lower ratio indicates better financial stability.

6. How Credit Cards Work

Credit cards allow consumers to borrow money up to a set limit, with the option to pay in full or carry a balance. Balances accrue interest if unpaid.

7. FICO Scores (Credit Scores)

A three-digit number (300-850) reflecting creditworthiness, based on:

  • Payment history (35%)

  • Amounts owed (30%)

  • Length of credit history (15%)

  • Credit mix (10%)

  • New credit inquiries (10%)

8. Credit Card Aspects (APR, Fees, etc.)

  • APR (Annual Percentage Rate): The interest rate charged if a balance is carried over.

  • Annual Fees: Yearly charges for card ownership, common on premium cards.

  • Grace Period: Time to pay the balance without interest.

  • Minimum Payment: The smallest required monthly payment to avoid penalties.

  • Rewards: Cash back, travel points, or discounts for spending.

Would you like further details on any of these?