7. Credit

Question 1

Close-end Credit

Answer 1

A loan where the entire amount is loaned at the beginning and all repayment and interest must be repaid by a specific date. This type of credit tends to be an installment plans.

Question 2

Open-end Credit

Answer 2

A loan where a total amount is set and the borrower can use any or the entire loan, repaying it overtime, also know as a line of credit. This kind of credit tends to be revolving credit.

Question 3

Installment Plan

Answer 3

A credit system where payment for goods is made with fixed payments over a period of time.

Question 4

Revolving credit

Answer 4

A credit system whereby the borrower can make periodic purchases and payments.

Question 5

Collateral

Answer 5

Something of value (often a house or a car) pledged by a borrower as a security for a loan.

Question 6

Secured loan

Answer 6

Credit with collateral for the lender.

Question 7

Unsecured loan

Answer 7

Debt without collateral; credit card debt, for example.

Question 8

Layaway

Answer 8

A system where period payments are made on goods and upon final payment, the goods are delivered. This is not a true form of credit.

Question 9

Capacity

Answer 9

It is an indicator of how creditworthy a prospective borrower is likely to be, as determined by the borrower’s current & future earnings relative to current debt.

Question 10

Character

Answer 10

It is an indicator of how creditworthy a prospective borrower is likely to be, as determined by the borrower’s handling of past debts & his or her stability in jobs and residences.

Question 11

Capital

Answer 11

It is an indicator of how creditworthy a prospective borrower is likely to be as determined by the borrower’s current financial assets and net worth.

Question 12

Conditions

Answer 12

The general state of the economy. In periods of slow economic activity, lenders may be reluctant to lend out of fear that the borrower will be unable to pay.

Question 13

3 major bureaus that reports your credit score.

Answer 13

Equifax
Experian
TransUnion

Question 14

Annual Percentage Rate (APR) / interest

Answer 14

The percentage of the principal of a loan to be paid as interest in one year. The Truth Lending Act requires lenders to disclose APRs to prospective borrowers.

Question 15

Promotional incentives

Answer 15

Rates or payment options used to induce consumers to apply for certain types of credit cards. Included are low or zero-interest rate cards (sometimes called teaser rates) that last only for a short period. Also used are “no interest” if paid within a certain time period.

Question 16

Credit line aka Credit limit

Answer 16

The maximum amount of money that will be extended to a person by a financial institution or credit-card issuer.

Question 17

Float

Answer 17

deferred payment

Question 18

Minimum payment

Answer 18

The minimum amount a credit cardholder is required to repay each billing period on an open balance.

Question 19

Penalty charges

Answer 19

Additional charges to an account for late payment, missed payment or exceeding the credit limit.

Question 20

Fair Credit Billing Act

Answer 20

A federal law that requires creditors to mail out the bills at least 14 days before payment is due and also establishes procedures for resolving billing errors on credit accounts. PROTECTS CONSUMERS AGAINST INNACCURATE AND UNFAIR CREDIT BILLING AND CREDIT CARD PRACTICES AND PROVIDE CONSUMERS WITH A MECHANISM FOR ADDRESSING BILLING ERRORS.

Question 21

Fair Credit Reporting Act

Answer 21

A federal law governing the activities of credit bureaus and creditors. It requires creditors to furnish accurate and complete information to borrowers; it also establishes a process consumers may use to correct inaccuracies in credit reports. REGULATES CONSUMER REPORTING AGENCIES AND THE USE OF CONSUMER CREDIT INFORMATION.

Question 22

Fair Debt Collection Practices Act (FDCPA)

Answer 22

A federal law that bars collection agencies from using threats, harassment or abuse in their efforts to collect debts. PREVENTS ABUSIVE AND DECEPTIVE PRACTICES BY OTHER DEBT COLLECTORS.

Question 23

Credit Card Accountability, Responsibility, and Disclosure Act (CARD)

Answer 23

An act of Congress that establishes responsibilities of card issuers and protections for cardholders regarding interest rates, grace periods, pay-off times and other information. BANS UNFAIR RATE INCREASES AND UNFAIR FEES, REQUIRES THAT CREDIT CARD CONTRACT TERMS BE PRESENTED TO CONSUMERS IN CLEAR LANGUAGE, AND ENSURES ACCOUNTABILITY FROM CREDIT CARD ISSUERS AND REGULATORS.

Question 24

Equal Credit Opportunity Act

Answer 24

an act of Congress that makes it unlawful for a credit grantor to discriminate on the basis of race, color, religion, national origin, sex, marital status, or age (provided the applicant is legally able to enter into a contract).

Question 25

Bankruptcy

Answer 25

A process whereby a debtor may liquidate or adjust their debts. This may be considered when an individual’s debts exceed their assets.

Question 26

Chapter 7 Bankruptcy

Answer 26

Is the chapter of the U.S. Bankruptcy Code providing the “liquidation” (i.e., the sale of a debtor’s nonexempt property ad the distribution of the proceeds to creditors.) “They sell your stuff”

Question 27

Chapter 13 Bankruptcy

Answer 27

Is the chapter of the U.S. Bankruptcy Code providing for adjustment of debts of an individual with regular income. (Chapter 13 allows a debtor to keep property and pay debts over time, usually three to five years.) “They reschedule you debts - still have to pay debts, but keep your assets”