Credit Flashcards
What is credit?
“Buy now, Pay later.”
Or
supplying of money, goods, or services at present time in exchange for the promise of future payment
what are the advantages of credit?
- able to buy items now
- don’t have to carry cash
- creates a record for purchases
- more convenient that writing checks
- creates the bill into one payment
what are the disadvantages of credit?
- interest can make the cost of the items higher than normal
- may require additional fees
- financial difficulties may aria if one loses track of how much has been spent each month
- increased impulse buying may occur
What are the Three C’s?
Character, Capital, and Capacity
What does ‘Character’ mean?
Will you repay the debt?
Comes from your credit history, “does it look like you possess the honesty and reliability to pay credit debts?”
what does ‘Capital’ mean?
What can you use to secure the credit?
What property or possessions do you have that can secure the loan?
if you don’t repay the debt the creditor is able to take any property or possessions if you can’t repay the credit.
What does ‘Capacity’ mean?
Can you repay the debt?
they look at your salary, how long you’ve had your job, the amount of money you make to make sure you are able to pay it all back, how many other credit payments you have, what are you current living expenses, and how many dependents you have.
What responsibilities do you have to keep in mind?
- borrow only what you can repay
- read & understand the credit contract
- pay debts promptly
- notify your creditor if you cannot meet the payments on time
- report lost or stolen credit cards with little or no delay
- never state your credit card # over the phone unless you made the call or are certain of the caller’s identity
What are your rights?
- Truth In Lending Act (1968):
insures consumers are fully informed about cost & conditions of borrowing - Fair Credit Reporting Act (1970):
protects the privacy $ accuracy of information in a credit check
What is the Equal Opportunity Act 1974?
it prohibits discrimination in giving credit on the basis of sex, race, color, religion, national origin, marital status, age, or receipt of public assistance
what is the Fair Credit Billing Act 1974?
sets up a procedure for the quick correction of mistakes that appear on the consumers credit accounts
what is the Fair Debt Collection Practices Act 1977?
prevents abuse by professional debt collectors and applies to anyone employed to collect debts owed to others
does not apply to banks or other businesses collecting their own accounts
How do you build a good credit history?
- establish a steady work record
- pay all bills with little to no delay
- open a checking account and don’t bounce checks
- open a savings account and make regular deposits
- apply for a local store credit card and make regular monthly payments
- apply for a small loan using your savings account as collateral
- get a co-signer on a loan and pay back the loan as agreed
what are the types of credit cards?
Gasoline, retail, bank, and travel and entertainment
what is a gasoline credit card?
- the easiest to get
- provides credit for gas, oil and other products
- must pay interest on unpaid balance
what is a retail credit card?
- comes from a department store or chain of stores
- no annual fee
- may receive special offers
- finance charge on any unpaid balance
what is a bank credit card?
- issued by banks
- can be used at hotels, restaurants, department stores, theaters and almost anywhere
- may have an annual fee (especially to get mileage)
- must pay interest on unpaid amount
what is a travel & entertainment credit card?
- comes from diner’s club and American express
- yearly membership fee, usually higher than annual fee for bank cards
- expected to pay balances in full each month
- can be used throughout the world on airline tickets, car rental, hotel, and more
what is the 20/10 rule?
20: never borrow more than 20% of your yearly net income.
10: your monthly payments should be less than 10% of your monthly net income
