Untitled Flashcards Set

Credit History

The complete record of your borrowing and repayment performance

Credit Bureau

A business that gathers, stores, and sells credit information to other businesses

Credit Report

A written statement of a consumer’s credit history

Subscribers

People that Credit bureaus gather information from businesses

creditworthy

To be considered character, capacity, capital, conditions, and collateral

character

A responsible attitude toward honoring obligations

capacity

The financial ability to repay a loan with present income 

cosigner

Someone who promises to pay if they borrow fails to pay when opening a store credit account

Credit Bureau - List the 3 below

TransUnion

Experian

Equifax

Describe the 5 C’s of credit  (pgs 378-379)

Character

A responsible attitude toward honoring obligations

Capacity

The financial ability to repay a loan with present income 

Capital

Financial assets you possess that are worth more than your debts

Collateral

Property pledge to assure repayment of a loan

Conditions

Questions asked

Credit Rating

A measure of creditworthiness based on an analysis of your credit and financial history

A-rating

A customer who pays bills before the due dates

B-rating

A customer pays bills on the due date within a ten-day grace period

Point system

Points are assigned by the credit bureau based on the amount of current debts, number of late payments, number and types of open accounts, current employment, amount of income, etc. 

Credit score

Points added up

discrimination

Treating people differently based on prejudice rather than individual merit 

Debt collector

A person/company hired by a creditor to collect the overdue balance on an account 

What are the 4 classifications of credit ratings?   List the level name and the score range.

(table on page 385)

Excellent; 800-950

Good; 700-799

Fair; 500-699

Poor; Below 500

Fair Isaac and Company

What is the abbreviation?

FICO scores are the credit scores most lenders use to determine credit risk

Credit scores are based on 5 things (page 384-385)

Payment history

Amounts owed

Length of credit history

New credits

Types of credit used

Consumer Credit Protection Agency

Requires lenders to fully inform consumers about all costs of credit purchase before and agreement is signed

Fair Credit Reporting Act

Have the right to know what is in your file and who has seen your file

Fair Credit Billing Act

Creditors must resolve billing errors within a specified period of time 

Equal Credit Opportunity Act

To prevent discrimination in the evaluation of creditworthiness 

Fair Debt Collection Practices Act

Eliminates abusive collection practices by debt collectors 

Comparison shopping

Checking several places to be sure you are getting the best price for equal quality

Impulse buying

When you buy something without thinking about it, and make a conscious decision

Garnishment

A legal process that allows part of your paycheck to be withheld for payment of a debt

encryption

A code that protects your account name, number, and other information

phishing

A scam that uses online pop-up messages or e-mail to deceive you into disclosing personal information

Unused credit

The remaining credit available to you on your current accounts (credit limit - amount you already owe)

Rewards program

A payback in the form of points that can be redeemed for merchandise or airline tickets

Rebate plan

A portion of what you spend on credit purchases over the year

Other Review Notes 

Responsibilities to Creditors

Limiting your spending to amounts you can repay, understanding the terms, and contacting the credit if an emergency prevents you from making a payment

Creditors’ Responsibilities to You

Assisting consumers in making purchases, applying fair credit policies, informing them of the rules, and dealing fairly with credit problems 

Safeguarding Your Cards

Sign and activate your cards as soon as you receive them, carry only the cards you need, keep a list of you credit card numbers, their expiration dates, and the phone number and address of each card company in a safe place, Notify creditors immediately by phone when you card is lost or stolen and follow up with a letter so that you have written evidence of the notification, watch your card during transaction and get it back as soon as you can, tear up old cries no longer needed that contain account information, and do not lend you card to anyone or leave it lying around 

Protecting Your Accounts Online

Deal only with companies online that you know and trust, and when making online transactions, always look for your browser’s symbol that indicates a secure site before entering your personal information. 

Unnecessary Credit Costs

Accept only the amount of credit you need, make more than the minimum payment, do not increase spending when your income increases, keep your credit accounts to a minimum, pay cash for small purchases, understand the cost of credit, shop for loans, and take advantage of credit incentive programs 

Prime rate

The interest rate that banks offer to their best business customers 

Fixed - rate loans

A loan for which the interest rate does not change over the life of the loan

Variable - rate loans

The interest rate goes up and down with inflation and other economic indicators

Simple interest

Interest is computed only on the amount borrowed without compounding 

Down payment

A part of the purchase price is paid in cash up front

principal

The amount borrowed, or the unpaid portion of the amount borrowed, on which the borrower pays interest

rate

The percentage of interest you will pay on a loan

time

The period during which the borrower will repay a loan

Down payment

a part of the purchase price paid in cash up front

Key Terms

Credit

The use of someone else’s money, borrowed now with the agreement to pay it back later

Debtor

A person who borrows money from others

Creditor

A person/business that loans money to others

capital

The value of the property you possess

collateral

Property pledged to assure repayment of a loan

Finance charge

The total dollar amount of all interest and fees you pay for the use of credit

Line of credit

A pre-established amount that can be borrowed on demand with no collateral 

Deferred billing

A service available to charge customers whereby purchases are not billed to the customer until much later than the standard billing time. 

Qualification for credit is based on 3 things.  

Earn an income

Financial position is based on capital

Collateral 

Making Payments 

Principal

Amount borrowed

Balance due

Amount borrowed and interest for the time you have the loan

Finance charge

The total dollar amount of all interest and fees you pay for the use of credit

Minimum payment

The least amount you may pay the month under your credit agreement 

Advantages of credit

Expand purchasing power, raise the standard of living, provide emergency funds, cardholders can withhold payment until it is resolved, and since the money remains to be paid, the consumer has more power in the event of a dispute 

Disadvantages of credit

Credit purchases cost more than the cash purchases, fees, and finance charges; funds are not available to you for buying other products you may need, and can lead to overspending.

Key Terms

Open-end credit

When a borrower can use credit up to a stated limit

Closed-end credit

A loan for a specific amount that must be repaid in full

Annual percentage rate 

(APR)

The cost of credit expressed as a yearly percentage

Grace period

A timeframe within which you may pay your current balance if fill and incur no interest charges 

Service credit

a service for which you will pay later

Finance company

An organization that makes high-risk consumer loans

Loan sharks

Unlicensed lenders who charge illegally high interest rates

Usury law

A state law that sets a maximum interest rate that may be charged for consumer loans 

pawnbroker

A legal business that makes high-interest loans based on the value of personal possessions pledged as collateral

Credit Management

Following an individual plan for using credit wisely

20/10 Rule

A plan to limit the use of credit to no more than 20 percent of your yearly take-home pay, with payments of no more than 10 percent of monthly take-home pay

Credit payment plan

A record of your debts and a strategy for paying them off

Danger Signs of overextending your credit.  List 4 signs

You pay for everything with credit

You often pay late or at the end of the race period

You often pay one credit card by shifting the balance to another

You worry about how you will be able to pay your bills 

Credit counseling

A service to help consumers manage their debt load and credit more wisely

Debt management plan (DMP)

Giving money each month to a credit counseling organization

Debt negotiation program

A company you hire will call your creditors on your behalf and negotiate reductions in the amounts you owe

Debt adjustment

The formal process of taking over your debt situation for a period of time 

Debt adjustment service plan

A finance company takes over your checkbook, paycheck, and bills 

Debt consolidation loan

The finance company loads you money to pay off your debts

Credit repair

The process of reestablishing a good credit rating

Bankruptcy

A legal process that relieve debtors of the responsibility of paying their debts or protects them while they try to repay 

Discharged Debts

Debts erased by the court during bankruptcy proceedings

Reaffirmation

The agreement to pay debts that have been legally discharged

Exempted Property

Assets considered necessary for survival

Type of Bankruptcy

Voluntary

When you file a petition with a federal court asking to be declared bankrupt

Involuntary

Occurs when creditor files a petition with the court, asking the court to declare you, the debtor, bankrupt 

Chapter 7

A liquidation form of bankruptcy for individuals 

Chapter 13

Reorganization form of bankruptcy for individuals 

Chapter 11

Reorganization form of bankruptcy for businesses that allows them to continue operation under court supervision as they repay their restructured debts 

Job loss

Emotional spendings

Failure to budget and plan

Catastrophic injury or illness

Advantages of Bankruptcy

Debts are erased

Exempt assets are retained

Caterina incomes are unaffected

The cost is small

Disadvantages of bankruptcy

Credit is damaged

Property is lost

You may not quality for liquidation

Some debts continue