Chapter 6 - Accessing, Managing, and Securing Your Credit Flashcards
What is credit?
Funds provided by a creditor to a borrower that will be repaid with interest and fees later.
What is the principle when talking about credit?
The original amount borrowed.
What is maturity date when talking about credit?
The date when the loan is fully repaid.
What is an installment loan?
Its a type of credit
A loan for a specific purchase, repaid over time with fixed monthly payments.
What is revolving open-end credit?
A credit account with a borrowing limit where interest is charged if the balance is not paid in full.
This type of credit can also be referred to as a demand loan because repayment of the loan can be asked for at any time
What are the advantages of using credit?
Helps achieve goals sooner, allows online purchases, provides financial benefits, keeps transaction records, and is useful in emergencies.
What are the disadvantages of credit?
High costs if mismanaged, potential debt trap, difficulty saving, and impulse spending.
What is credit history?
A record of an individual’s borrowing and repayment behavior.
What are the steps in the credit application process?
- Choose the type of credit.
- Provide financial information (assets, savings, income).
- Undergo a credit check and evaluation.
- Receive approval if eligible.
What is a credit bureau?
An agency that collects and provides credit reports on individuals.
What is a credit score?
A rating that assesses an individual’s creditworthiness.
What are the main factors affecting a credit score?
35%: Payment history
30%: Amount owed
15%: Length of credit history
10%: Types of credit used
10%: New credit inquiries
What is considered a good credit score?
680+ is a good credit score.
What are the different types of credit cards?
Retail cards, prestige cards, balance transfer cards, student cards, secured cards, and prepaid cards.
What is a billing period?
The time between two credit card statements dates is known as the billing period. The billing period is usually 30 days, although it can vary among credit card companies. At the end of each billing period, the credit card issuer will add up all your transactions from the previous 30 days.
What is a grace period?
This is the time after the billing period where the credit card companies don’t charge you interest on your purchases
This is the time from when you were billed to the time when the statement is due
What is a home equity line of credit (HELOC)?
A home equity line of credit (HELOC) is a loan in which a home serves as collateral. This allows homeowners to borrow, up to a specific credit limit, against the equity in their homes.
When you borrow money, you pay monthly interest only, and then you pay the principal amount (the amount you borrowed) at the end (the maturity date)
Note that the interest rate is usually variable
What is a personal loan?
A common installment loan requiring a contract specifying the loan amount, interest rate, and repayment schedule.
What is a student loan?
A government-backed loan for education, with payments deferred until after graduation.
What is a consumer proposal?
A formal agreement with creditors to modify repayment terms. A consumer proposal can be made as long as your debts are less than $250,000.
What is bankruptcy?
A legal process for individuals unable to repay debts, where assets may be liquidated.
Individuals can file for bankruptcy when they become insolvent. They may be deemed to be insolvent if they owe at least $1000 and are unable to pay their debts as they come due.
Should you use credit repair services?
No, Avoid these Services!
Avoid because you can do these things on your own without their help! You can do it for free
What are common methods of identity theft?
Shoulder surfing, dumpster diving, skimming, phishing, database hacking, and mail theft.
How can you protect yourself from identity theft?
Monitor transactions, secure personal information, use strong passwords, and avoid risky websites.
What should you do if you’re a victim of identity theft?
Report fraud, request a credit report fraud alert, review statements, notify creditors, and change passwords.
If a person is of higher risk, what will a creditor do? Will they still give them the credit?
Creditors might give credit at higher interest rates to those who have a higher risk
What are Credit Bureaus?
Credit bureaus provide credit reports that document your credit payment history to lenders and others.
What is Overdraft Protection? What is the disadvantage?
Basically allows you to make purchases beyond your stated credit limit. So it prevents your card from being rejected because you are over your limit
The disadvantage is that people can spend beyond their limit, and then they can struggle to pay back
What is a secured loan?
A loan that is backed, or secured, by collateral is referred to as a secured loan
What is an unsecured loan?
A loan that is not backed, or secured, by collateral is an unsecured loan
How does co-signing a loan work? Why is this needed sometimes?
Some borrowers are only able to obtain a personal loan if someone with a stronger credit history co-signs the loan. The co-signer is responsible for any unpaid balance if the borrower does not repay the loan. If the borrower defaults and the co-signer does not repay the loan, the lender can sue the co-signer or try to seize the co-signer’s assets, just as if the co-signer were the borrower.
What is the prof’s opinion on co-signing?
Never co-sign somebody’s debt because if the bank decides that someone is a risk and don’t give them the loan, then they shouldn’t have it!
What is the prof’s opinion on loaning money to family members?
If you are willing to give money as a gift to a family member, then do it. If you expect the money back, then don’t do it! This is because it can destroy relationships!
What are the golden rules when buying cars? (This is according to the prof)
Buy Used NOT New
Pay Cash
Never Lease
