Credit Flashcards
What is credit?
Credit is an agreement to purchase a good or service with the promise to pay for it later.
What are the 3 types of credit?
- Variable credit
- Loan agreement
- Contract involving credit
What are the types of variable credit?
- Credit card
- Student line of credit
What are the types of loan agreements?
- Personal loan
- Student loan
What are the types contract involving credit?
- Instalment sale
Describe a credit card.
- A loan which allows purchases up to a predetermined limit.
- No interest is charged the full balance is paid by the due date.
- Minimum amount always needs to be paid.
Describe a student line of credit.
- An open loan available at any time.
- Partial or total reimbursement at any time.
- You get to decide how much or how little you want to use.
- It adds or replaces a student loan.
- The interest is only charged when the money is borrowed.
Describe a personal loan.
- Useful for financing a specific project or goal.
- The total amount of the loan, the interest rate, the frequency and amount of repayments are determined at the signing of the loan agreement.
- It’s possible to budget for repayments.
Describe a student loan.
- It is to help people who want a post-secondary education but can’t afford it.
- Their studies have to take place in an establishment recognized by the Ministère de l’Éducation et de
l’Enseignement supérieur. - The applicant must meet eligibility conditions.
- The student starts repaying the loan when their studies are completed.
Describe an instalment sale.
- A series of payments are made over a given period of time.
- Includes credit charges (fees) and the amount financed.
- The merchant is the owner until all the payments are made (including fees).
Describe a mortgage.
- A loan to buy a property or piece of land.
- The loan is secured against the value of the home until it is paid off.
- The lender can repossess and sell it if you can’t keep up the repayments.
What are advantages to having a credit card?
- Sign-up bonuses.
- It’s safer (easier to avoid losses from fraud).
- There are rewards points and frequent flyer miles.
- Grace period.
- Insurance.
- Helps to build a credit report.
- Practical for online purchases.
- Generally accepted universally.
What are the dangers to having a credit card?
- It can hurt your credit score if payments are late.
- It can incite impulsive and unnecessary purchases.
- It can cost more than its initial value, if payments are spread out.
What are reasons for resorting to credit?
- To immediately acquire a good or service.
- For fulfilling significant pursuits.
- Paying without cash.
- Taking advantage of rewards programs.
- Tackling an unexpected expense.
- Funding investments.
- Improving credit report.
What are the factors to determine the eligibility for credits?
- Income.
- Job stability.
- Current debt and credit score.
- Goods given in guarantee.
- The possibility of having a guarantor.
What are the risks associated with credit?
- Interest rates are very high for unpaid balances on credit cards.
- It can lead to a significant accumulation of debt.
- Reduces eligibility for credit.
- May cause health problems (stress).
What are the consequences of misusing credit? Give examples of each type.
- Physical health (stress)
- Psychological health (irritability, frustration, anxiety…)
- Interpersonal relationships (conflict, lying, isolation)
- Lifestyle (second job, less time for school and leisure, fear of harassment…)
- Hopes and dreams (postponement of dreams and personal projects)
- School and work (decreased productivity, absenteeism)
- Finances (high interest, increase in credit rating,unable to repay debts…)
What is a credit report?
A summary of credit history.
What are the contents of a credit report?
- How many credit cards and loans you have.
- How much money you owe.
- Whether you make your payments on time.
- Whether you missed any payments.
- Whether you go over your credit limit.
What are the credit reporting agencies in Canada?
- Equifax
- TransUnion
What are the factors that influence credit reports?
- Payment history
- Amounts owed
- Length of credit history
- New credit and inquiries
- Types of credit
What are the consequences of having a poor credit report?
- Difficulties to obtain credit cards or loans.
- Paying more to borrow money (higher interest rates).
- Can affect ability to rent housing or get hired for a job.
What does a guarantor do?
Guarantees the payment in case the debtor defaults in their payment like for a loan or future commitment.
What information must be included on all credit contracts?
- The name and address of the consumer.
- The name and address of the credit issuer.
- The date and location of the signing of the contract.
- The total amount of credit charges payable, including interest.
- The credit rate in percent
- The total amount financed and the number, amount and frequency of payments to be made.
What information must be included on a variable credit contracts?
- The credit limit.
- The membership and renewal fees (sometimes there are none).
- The duration for each period for which a statement is provided.
- The minimum payment per period.
- The time allotted to pay the balance without credit charges (grace period).
- Examples of credit charges in a chart.
- If the credit issue is a bank: information box at the beginning that lists essential features of the credit being granted.
What information must be included on loan agreement contracts?
- The amount of the loan before the credit charges.
- A description of the asset being offered as a security on the loan, if applicable.
What information must be included on all contracts involving credit?
- A description of the good covered by the contract.
- The price of the good.
- The amount being paid in cash when the contract is signed.
- A statement that the consumer may cancel the contract within 2 days of receiving a copy of it.
- A statement that the consumer may repay the debt before the due date.
What are the conditions for cancellation on a variable credit contract?
- For a card or line of credit already used: pay the balance before cancelling.
- For a card not used: destroy the card and return it to the issuer after notifying them with the intention to cancel.
- For a line of credit not used: notify the issuer of the intention to cancel.
What are the conditions for cancellation on a loan agreement contract?
- After 2 days of you and the lender having the contract, terminate it by repaying the balance due.
- If the loan hasn’t been paid to you: notify the lender of your intention to cancel.
What are the conditions for cancellation on a contract involving credit?
- You have 2 days from you and merchant having the contract to return the good to the merchant and give a written notification of intention to cancel. After 2 days terminate it by repaying the balance due.
What are types of traditional credit?
- Credit card (financial institution).
- Line of credit.
- Personal loan (financial institution).
What are types of costly credit?
- Department store credit card.
- Personal loan (finance company).
- Rent to own contract.
What are types of short term credit?
- Pawnbroking loan.
- Payday loan.
