Credit

Question 1

What is credit?

Answer 1

Credit is an agreement to purchase a good or service with the promise to pay for it later.

Question 2

What are the 3 types of credit?

Answer 2

• Variable credit
• Loan agreement
• Contract involving credit

Question 3

What are the types of variable credit?

Answer 3

• Credit card

- Student line of credit

Question 4

What are the types of loan agreements?

Answer 4

• Personal loan

- Student loan

Question 5

What are the types contract involving credit?

Answer 5

• Instalment sale

Question 6

Describe a credit card.

Answer 6

• 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.

Question 7

Describe a student line of credit.

Answer 7

• 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.

Question 8

Describe a personal loan.

Answer 8

• 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.

Question 9

Describe a student loan.

Answer 9

• 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.

Question 10

Describe an instalment sale.

Answer 10

• 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).

Question 11

Describe a mortgage.

Answer 11

• 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.

Question 12

What are advantages to having a credit card?

Answer 12

• 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.

Question 13

What are the dangers to having a credit card?

Answer 13

• 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.

Question 14

What are reasons for resorting to credit?

Answer 14

• 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.

Question 15

What are the factors to determine the eligibility for credits?

Answer 15

• Income.
• Job stability.
• Current debt and credit score.
• Goods given in guarantee.
• The possibility of having a guarantor.

Question 16

What are the risks associated with credit?

Answer 16

• 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).

Question 17

What are the consequences of misusing credit? Give examples of each type.

Answer 17

• 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…)

Question 18

What is a credit report?

Answer 18

A summary of credit history.

Question 19

What are the contents of a credit report?

Answer 19

• 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.

Question 20

What are the credit reporting agencies in Canada?

Answer 20

• Equifax

- TransUnion

Question 21

What are the factors that influence credit reports?

Answer 21

• Payment history
• Amounts owed
• Length of credit history
• New credit and inquiries
• Types of credit

Question 22

What are the consequences of having a poor credit report?

Answer 22

• 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.

Question 23

What does a guarantor do?

Answer 23

Guarantees the payment in case the debtor defaults in their payment like for a loan or future commitment.

Question 24

What information must be included on all credit contracts?

Answer 24

• 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.

Question 25

What information must be included on a variable credit contracts?

Answer 25

• 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.

Question 26

What information must be included on loan agreement contracts?

Answer 26

• The amount of the loan before the credit charges.

- A description of the asset being offered as a security on the loan, if applicable.

Question 27

What information must be included on all contracts involving credit?

Answer 27

• 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.

Question 28

What are the conditions for cancellation on a variable credit contract?

Answer 28

• 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.

Question 29

What are the conditions for cancellation on a loan agreement contract?

Answer 29

• 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.

Question 30

What are the conditions for cancellation on a contract involving credit?

Answer 30

• 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.

Question 31

What are types of traditional credit?

Answer 31

• Credit card (financial institution).
• Line of credit.
• Personal loan (financial institution).

Question 32

What are types of costly credit?

Answer 32

• Department store credit card.
• Personal loan (finance company).
• Rent to own contract.

Question 33

What are types of short term credit?

Answer 33

• Pawnbroking loan.

- Payday loan.