Chapter 9 - Credit Flashcards
What are the types of credit?
Instalment loan: loans provided for specific types of purchases that are repayed regurlarly. Examples are mortgages and car loans.
Revolving open-end credit: credit provided up to a maximum account based on credit score, age, debt, etc. Interest is charged each month on the outstanding balance, minimum payment due each month. Basically credit cards.
What are the advantages of using credit?
- establishes a good credit history
- builds a credit score
- creates capacity to access credit in the future (home)
- eliminates the need for cash
- internet purchases
- bonus points or additional benefits
- keeps a record of past transactions
What are the disadvantages of using credit?
- Temptation to make impule purchases
- can damage credit score
- may need to withdraw from savings to cover payments
What are the two primary credit bureaus? What do they do?
Equifax Canada and TransUnion Canada. They make credit reports that document a person’s credit history.
What information is present on a credit report?
Your personal information, a summary of accounts, bank info (accounts closed for derogatory reasons), public info (bankruptcies, judgments, secure loans), the name of creditors who have made account inquiries.
What is the range for credit scores? What is considered a good, and a very good score?
300-900, good is 600+, very good is 750+.
How long does poor credit history remain on your credit report?
How long does bankruptcy remain on your credit file?
3-10 years for poor credit history.
6-7 years for bankruptcy.
What are prestige and retail credit cards?
Prestige cards are offered to those with very good credit scores, they provide extra benefits such as travel insurance and car rental insurance. They usually come with a fee.
Retail cards are credit cards offered by retailers (stores) and usually have a much higher interest rate.
What are cash advance or convenience checks?
Allow you to withdraw cash from your credit card.
Should only be used as a last resort.
Extremely costly, no grace period and transaction fee.
What is credit card financing?
Paying only a portion of the credit card bill monthly.
It is expensive, as interest rates are often between 20 and 30%.
There are finance charges which are the interest plus any fees you must pay.
What are personal loans?
They are ususally obtained to finance a large purchase, like a car. It is usually used to finance just one purchase, and has a specific plan ass to how it will be paid back.
What is security for a loan?
What are secured and unsecured loans?
Which give better rates?
Collateral, on a mortgage, it’s the actual house. This means that if you don’t fulfill the contract, by defaulting on payments, the bank can seize your house.
Secured loans are backed by collateral while unsecured loans are not.
Secured loans give you better rates.
What is the maximum interest rate that a consumer can be charged on a loan?
60% per year.
What are student loans?
Loans provided to students who pursue post secondary education.
There is a limit based on the needs of the student as to how much can be borrowed each year.
For full time students, your loan only collects interest when education is complete.
Student loans must be paid back if you declare bankruptcy within 7 years of finishing your education.
What is a consumer proposal?
It is the last resort before declaring bankruptcy. It is when you negotiate the money owed on a loan so that you can pay it off.
You can do a consumer proposal when your debt is less than 250k without your mortgage.
