Chapter 6: Assessing, Managing, and Securing Your Credit Flashcards
credit
Funds provided by a creditor to a borrower that the borrower will repay with interest or fees in the future.
Types of Credit
Instalment
revolving open-end
instalment loan
A loan provided for specific purchases, with interest charged on the amount borrowed. It is repaid on a regular basis, generally with blended payments.
revolving open-end credit
Credit provided up to a specified maximum amount based on income, debt level, and credit history; interest is charged each month on the outstanding balance.
Credit insurance
- consumers attempt to ensure that they wil be able to keep making credit paymerns (and therefore maintain their credit standing ) under adverse conditions .
credit reports
Reports provided by credit bureaus that document a person’s credit payment history.
includes:
■ Your personal information ■ A consumer statement showing the details of any explanation that you have submitted to the credit bureau regarding a particular account ■ A summary of your accounts ■ Your account history ■ Bank information regarding any accounts that were closed for derogatory reasons
■ Public information regarding bankruptcies, judgments, and secured loans ■ The names of creditors who have made account inquiries ■ A list of creditor contacts
Credit Score
A credit score is a rating that indicates a person’s creditworthiness. It reflects the likelihood that an individual will be able to make payments for credit in a timely manner.
- can also affect the interest rate you get.
- graded by your BEACON score
important factors of BEACON score
- credit payment history (35% of your score)
- credit use (30% of score)
- length of the relationship with you creditor (15%)
- type of credit you establish (10%)
- recent credit inquiries (10%)–> shows how desperate you are for lines of credit.
3 Reasons why you should review your credit report
- ensure the report is accurate
- review of the report will show you the types of information that lenders or credit card companies may consider when deciding whether to provide credit
- you credit report indicates what kind of information might lower you credit rating, so that you can attempt to eliminate these deficiencies and improve you credit rating prior to apply for additional credit
advantages of credit cards
(1) establish a good credit history, (2) create credit capacity, (3) eliminate the need for carrying cash, (4) provide a method for payment when cash is not an option, (5) earn additional benefits, and (6) receive free financing until the due date on your credit card statement
applying for a credit card
ask for : Personal information- revenues, expenses, credit history, capital, collateral
- credit check
- other information that credits evaluate
types of credit cards
- prestige cards
- retail(or proprietary )credit card
- U.S dollar credit card
- Student Credit Card
- Secured credit care
prestige cards
Credit cards, such as gold cards or platinum cards, issued by a financial institution to individuals who have an exceptional credit standing.
retail (or proprietary) credit card
A credit card that is honoured only by a specific retail establishment.
student credit card
can help you to establish a credit rating while you are still in school.
U.S. dollar credit card
is ideal for individuals who travel to the United States since the amount billed on the monthly statement will be shown in U.S. dollars
secured credit card
is used by individuals who have had credit problems in the past and want to rebuild their credit score.
Overdraft Protection
Some credit cards provide overdraft protection, which allows you to make purchases beyond your stated credit limit. This is similar to the overdraft protection provided on some chequing accounts at financial institutions. The overdraft protection on credit cards prevents your card being rejected because you are over your credit limit.
finance charge
interest and fees you must pay as a result of using credit
- The finance charge usually applies only to balances that were not paid in full before their due date in the current billing period
- compunded daily
3 mthods too calculate finance charges
Previous Balance Method
Average Daily Balance Method
Adjust Balance method
Previous Balance Method.
With the previous balance method, interest is charged on the balance at the beginning of the new billing period. This method is the least favourable of the three to the cardholder because finance charges are applied even if part of the outstanding balance is paid off during the billing period.
Average Daily Balance Method.
The most frequently used method is the average daily balance method. For each day in the billing period, the credit card company adds together the ending balance of your credit card account. The company then determines the average daily balance for the billing period by dividing the total of the ending balances by the number of days in the billing period. The interest charged to your account is determined by multiplying the average daily balance by the daily interest rate, and then multiplying this result by the number of days in the billing period
Adjusted Balance Method.
Under the adjusted balance method, interest is charged based on the balance at the end of the new billing period. This method is most favourable because it applies finance charges only to the outstanding balance that was not paid off during the billing period.
Comparing Credit Card
Acceptance of Merchants
annual fee
interest rate
maximum limit
