chapter 16&17 Flashcards
what is credit ?
money borrowed to buy something now, with an agreement to pay later
how old do you need to be to have credit -
18
the history of credit …. in the early years:
general stores: ex. dollar store
the history of credit in 1900…..
increased understanding of credit
credit today —
1990’s record #of bankruptcy’s
the borrower or debtor -
person borrowing the$
creditor -
loaning the money
capital -
money/ net worth you have after debts
collateral-
pledging to repay the loan
principal -
on credit, $ you borrow
financial charge -
anything you have to pay back over & above the principal
all secured loans
- ex. mortgage, car payment
-you pay these in incriments
AKA CLOSE END
installment agreement
If you dont pay your minimum payment by the due date, you will receive a ……..
Late fee
When you’re borrowing $ for something, they serve as collaterals -
Secured loan
Advantages of consumer credit -
Purchasing power Emergency funds Convenience Deferred billing Safety
Disadvantages of consumer credit
Higher prices
Financial charges
Tie up income
Overspending
To qualify for credit, you must have th ability to …..
Repay the loan
Qualification is based on 3 things -
Income
Financial position
Collateral
Its the value of property you possess after deducting your debts
Capital
Having capital tells the creditor that you have accumulated ……… which indicates responsibility
Assets
Your …… represents cash outflow and will be compared to your cash inflow income
Debt
Types of credit -
Open-ended
Close-needed
Service
Its a credit card
- open 30-day accounts
- revolving credit accounts
Open - ended credit
Any installment plans are this type of credit
Ex. Car payments
Closed-ended
The credit that you have now, but pay for it later
Service credit
Its the rate you would pay if you carry a balance
Annual percentage rate
APR
The time you can still pay w/o being charged w/ a penalty -
Grace period
What you have to pay in order to get a card-
Annual fees
Method of calculating the finance charge:
Most do an average ……….
Daily balance
Sources of credit -
Retail stores Credit card companies Banks/credit unions Finance companies Pawnbrokers Private lenders
Ex of retail stores -
Dillard’s
Someone who works at a pawn shop-
Pawnbroker
Borrowing what you dont own -
Private lenders
Organizations that makes loans besides banks -
Finance companies
Is there a charge to use the coinstar center machine -
Yes but not always
Do i need to sort my coins before using the coinstar machine?
No, it does it for you
Do i have to redeem the cash voucher at the store where I cash in my coins -
You should do it that day
Does the coinstar cash voucher need to be redeemed for cash right away?
No, but you should
The free period, also called ……, allows you to avoid a finance charge if you pay in full before the due date -
Grace period
One who lends money or the use of goods and services for payment at a later date is known as -
Creditor
Paying at a future date for the present use of goods and services or money is called
Credit
Is a pre-established amount that can be borrowed on demand -
Line of credit
A loan on which the goods purchased with the loan serve as _____ is a type of secured loan
Collateral
Is credit whereby you can add purchases up to a set credit limit
Open-ended
A loan for a specific amount that must be repaid in full, including finance charges, by a stated due date, is called …
Closed-ended credit
Is money borrowed against the credit card limit
Cash advanced
A manufacturer-related company, called ……, makes loans through authorized representatives
Sales finance company
Are unlicensed lenders who charge illegal interest rates
Loan sharks
Service to customers that allows you to charge now and not be billed for serveral months
Deferred building
The interest rate you pay for tthe use of credit is called
Financial charge
Almost everyone uses this credit
Involves having work performed and paying for it later
Service
They offer goods and services directly to consumers and include department stores, drug stores, clothing stores
Retail
Small loan companies
Charge higher interest rates and take more risk
Finance companies
In some states, maximum interest rates are set by …… laws
Usury
Is a legal business where loans are made based on the value of merchandise used as collateral -
Pawnbroker
Something of value that can be sold to pay a debt is often reffered to as -
Collateral
T or F
Most disadvantages of credit can be eliminated by wise use of credit -
True
T or F
Department stores, drug stores, and finance companies are all examples of retail outlets -
False
T or F
Interest rates on loans are usually higher at credit unions than they are at banks
False
T or F
Where no usury laws exist, financial institutions may charge whatever rate of interest is agreed upon
True
T or F
In an installment purchase agreement, the item you are purchasing will serve as the collateral
True
T or F
Affinity cards charge higher interest rates than regular bank credit cards -
False
T or F
Credit has helped American economy to grow to a healthy place
True
T or F
A line of credit is a preestablished amount you can borrow w/o the new loan application
True
T or F
The Truth-in-lending law requires all lenders to calculate APR the same way
True
T or F
A debtor is a person who borrows money from others
True
Credit cards such as VISA abd MAstercard are examples of ….
Revolving credit agreements
What is an examp of a service credit
Telephone bill
Fianance companies charge higher rates of interest on loans because …
They take more risk
Pawnbrokers sell merchandise you have pawned, called ……., if you do not repay the loan plus interest by a specificed date
Collateral
What is not true about an installment purchase agreement -
New purchases can be added on
GMAC Financial Services is an example of a -
Sales finance company
Could a person survive in our enconomy w/o using credit at all ?
Yes
Some ways ppl must use some form of credit -
Auto loans
Installment loans
Mortgage loans
Credit reports has …..
Current balance Current payments Your credit history Marriage/divorce Bankruptcy
How information is gathered and used:
Subscribers
People who pay a fee to credit bureau and share information
Subscribers
Whats in your credit file -
Credit bureau
Credit report
Credit history
Types of info stored in credit records
Any public info
2 services available related to your credit file -
Credit guard services
Credit freezing services
Where you pay someone to monitor your credit -
Credit guard services
You can contact the bureau and freeze credit & so no one can touch it
Credit freezing services
Five C’s of credit -
Character Capacity Capital Conditions Collateral
How you are financially -
Character
Its your ability to pay back -
Capacity
Are your assets more then your debt?
Capital
Is your job secured?
Conditions
Something to pledge for repayment -
Collateral
Getting started with credit - (5)
Begin w/ savings account Open checking acct Open store credit acct Get small loan Apply for credit card
Credit ratings -
Excellent
Good
Fair poor
They are well-established
A rating
Excellent credit rating
What your goal should be
Never late, very reliable
Good credit rating
B rating
Slow payers but do get money out of them
They are fair
Fair credit ratings
Want to avoid!!
You have debts you dont pay
Poor credit ratting
6 credit reports -
Summary of info Public record of info Credit info Acct detail Requests for credit history Personal info
5 credit laws -
Consumer credit protection act Fair credit reporting act Fair credit billing act Equal credit opportunity act Fair debt collection practices act
Its known as the Truth in Lending Act
-before buying car loan etc. , they have to tell you the full cost of credit before you sign
Consumer credit protection act
Its where you have the right to see credit report once a year for free, unless youre denied credit -
Fair credit reporting act
If theres an error, you have to contact them & they have to fix the error within a certain time -
Fair credit billing act
You cannot be denied credit based on anything other than your credit worthiness ( to prevent discrimination ) is called
Equal credit opportunity act
They can keep telling you to pay, but not aggressively or harassing.
They can take your home away, car, etc.
Fair debt collection practices act
a responsible attitude toward paying bills and meeting obligations on time is called ….
character
your ….. will answer questions about how you have paid your bills, how many bills you had and what type, ho much total credit you have been given and how much credit appears to be outstanding now -
credit history
- A credit bureau issues a written statement called …
- it itemizes accumulated info about a person through subscribers and public records -
credit report
a member of the credit bureau is called …..
-pays fees for use of the bureau’s services in collecting information and issuing reports
subscriber
……. scores are the credit scores many lenders use to determine credit risk
FICO
is the ability to repay a loan or make payments on a debt out of current income -
capacity
existing debts, stability of employment, and personal factors that determine a persons ability to meet financial obligations called ….
conditions
is a business tht accumulates, stores, and distributes credit info to members -
credit bureau
is a type of rating used by credit bureaus in determining a person’s general creditworthiness -
point system
an ….. credit rating is earned when u pay ur bills before the due date
excellent
a …. credit rating is earned when you pay your bills on the due datte or within a short grace period -
good
a ….. credit rating is likely to result in denial of new credit -
poor
a ….. credit rating is given to a person who pays during the grace period, but occasionally takes longer
fair
is a person hired to collect the balance due -
debt collector
the act of treating people differently based on prejudice rather than individual merit is called …
discrimination
T or f
your credit history is an import record of your past experiences w/ credit, and you have rights and responsibilites for its accuracy
true
T or f
a credit bureau is a nonprofit company established by members for the benefit of members -
false
T or F
most large credit bureaus are computerized clearinghouses that search for and retrieve info to make reports -
true
T or F
if you are denied credit based on a credit report, inaccurate info in your file may be the cause
true
T or F
a debt collector is allowed to make telephone calls at anytime in order to collect overdue balances
false
T or F
the consumer credit protection act prevents discrimination in the judgement of creditworthiness.
false
T or F
A point system of credit rating is based on assigning value to such things as employment, amount of income, amount of current debt, or # of late payments
True
T or F
An excellent credit rating results when you pay your bills on the due date every month and never miss a payment
False
T or F
A person who is considered a good credit risk ususally meets five basic qualifications, called five C’s of credit
True
It is lawful for creditors to ask you for person info, such as employment and residence history, in order to determine your creditworthiness -
True
T or F
If you believe your bill contains an error, there usually is no hurry in resolving the problem -
False
What is an unlawful purpose for a credit report -
Mailing list info
The act that provides that you may see your credit file at no charge within 30 days of a credit denial is the …
Fair credit reporting act
If you believe there is an error in your statement , your complaint must be in writing and mailed within ….. days after you receive it
60
Your letter of complaint must be acknowledge in …..days
30
Within ….. days of receiving your complaint, the creditors must either correct the error or explain why the bill is correct -
90
The truth-in-lending act limits your liability when a credit card is lost or stolen to the first ….., unless the card is reported lost or stolen before it can be used -
$50
Credit reports are issued by ….
Credit bureaus
Credit files are updated ….. by computers and search procedures
Daily
The act known for its provisions requiring full disclosure of all costs in a credit transaction is called ….
Truth-in-lending act
To see ur credit file at anytime would cost you …
A small charge
Debt collectors are required to …..
Give costumers the chance to clarify and dispute their bills
