Chapter 6: Assessing, Managing, and Securing Your Credit

Question 1

credit

Answer 1

Funds provided by a creditor to a borrower that the borrower will repay with interest or fees in the future.

Question 2

Types of Credit

Answer 2

Instalment

revolving open-end

Question 3

instalment loan

Answer 3

A loan provided for specific purchases, with interest charged on the amount borrowed. It is repaid on a regular basis, generally with blended payments.

Question 4

revolving open-end credit

Answer 4

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.

Question 5

Credit insurance

Answer 5

• consumers attempt to ensure that they wil be able to keep making credit paymerns (and therefore maintain their credit standing ) under adverse conditions .

Question 6

credit reports

Answer 6

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

Question 7

Credit Score

Answer 7

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

Question 8

important factors of BEACON score

Answer 8

• 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.

Question 9

3 Reasons why you should review your credit report

Answer 9

• 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

Question 10

advantages of credit cards

Answer 10

(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

Question 11

applying for a credit card

Answer 11

ask for : Personal information- revenues, expenses, credit history, capital, collateral

• credit check
• other information that credits evaluate

Question 12

types of credit cards

Answer 12

• prestige cards
• retail(or proprietary )credit card
• U.S dollar credit card
• Student Credit Card
• Secured credit care

Question 13

prestige cards

Answer 13

Credit cards, such as gold cards or platinum cards, issued by a financial institution to individuals who have an exceptional credit standing.

Question 14

retail (or proprietary) credit card

Answer 14

A credit card that is honoured only by a specific retail establishment.

Question 15

student credit card

Answer 15

can help you to establish a credit rating while you are still in school.

Question 16

U.S. dollar credit card

Answer 16

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

Question 17

secured credit card

Answer 17

is used by individuals who have had credit problems in the past and want to rebuild their credit score.

Question 18

Overdraft Protection

Answer 18

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.

Question 19

finance charge

Answer 19

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

Question 20

3 mthods too calculate finance charges

Answer 20

Previous Balance Method
Average Daily Balance Method
Adjust Balance method

Question 21

Previous Balance Method.

Answer 21

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.

Question 22

Average Daily Balance Method.

Answer 22

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

Question 23

Adjusted Balance Method.

Answer 23

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.

Question 24

Comparing Credit Card

Answer 24

Acceptance of Merchants
annual fee
interest rate
maximum limit

Question 25

consumer proposal

Answer 25

An offer made by a debtor to his or her creditors to modify his or her payments.
-step before filing for bankruptccy.

Question 26

insolvent

Answer 26

A person who owes at least $1000 and is unable to pay his or her debts as they come due.

Question 27

trustee in bankruptcy

Answer 27

A person licensed to administer consumer proposals and bankruptcies and manage assets held in trust.

Question 28

identity theft

Answer 28

Occurs when an individual uses personal, identifying information unique to you, such as your social insurance number, without your permission for their personal gain.

Question 29

shoulder surfing

Answer 29

Occurs in public places where you can be readily seen or heard by someone standing close by.

Question 30

dumpster diving

Answer 30

Occurs when an identity thief goes through your trash looking for discarded items that reveal personal information that can be used for fraudulent purposes

Question 31

skimming

Answer 31

Occurs when identity thieves steal your credit card or debit card number by copying the information contained in the magnetic strip on the card.

Question 32

pretexting

Answer 32

Occurs when individuals access personal information under false pretenses.

Question 33

phishing

Answer 33

Occurs when pretexting happens online.

Question 34

pharming

Answer 34

Similar to phishing, but targeted at larger audiences, it directs users to bogus websites to collect their personal information.