Credit Card and Student Loan Flashcards
What is APR?
Annual Percentage Rate, the avg is 24%
Function of APR?
Shows yearly interest rate and gives you a good idea of how much you’ll need to pay to take out a loan
What is Interest?
Fee a business pays a lender to borrow money
What is a credit score?
Prediction of your behavior to pay on time and in full
What is a Revolving Loan?
A form of credit issued by a financial institution that provides the borrower with the ability to draw down or withdraw, repay, and withdraw again
What is a Unsecured Loan?
A lender provides money to a borrower without any legal claim to the borrower’s assets in case of default
What is a Grace Period?
10-12 day period immediately after the deadline for an obligation during which a late fee, or other action that would have been taken but is waived
What is a Borrower?
A person or business that receives money from a lender with the agreement to pay it back within a specified period of time
What is a Issuer?
A legal entity that develops, registers and sells securities to finance its operations
What is Manual Underwriting?
Bank collects bills, pay stubs, tax returns to determine loan worthiness
What is Loan Worthiness?
Measure of how likely you will default on your debt obligations according to a lender’s assessment, or how worthy you are to receive new credit
What happens if you only pay the minimum payment?
You will have to pay the money you owe along with the APR which is a lot of money
Difference between minimum payment, statement balance, and current balance
Minimum payment: Riskiest way to pay in which the bank sets you up with a cheaper plan but you get penalized with APR
Statement balance: Less risk but still some risk, only paying the statement which is all the credits and transactions within the time frame of the billing period
Current balance: Best way to pay, means that you pay for all the credits and transactions from not only the billing period but also those made after during the grace period
Identify parts of a credit card statement
Haven’t learned yet
Purpose of the credit bureaus
1- They give you the borrower, an idea about how you manage debt
2- Give the issuer (a bank) an idea about how you manage debt
3- Provide security protection (report fraud)
FICO Score - what it means if you have a high one, a low one, or not one at all
High score: More interest opportunities
Low score: Less interest opportunities, more expensive purchases
Not one: Good at handling debt, not much credit experience
FICO - understanding the components - not naming them
35% debt repayment history
30% debt owed
15% how long you’ve been in debt
10% new debt
10% types of debt
= 100% not based on how much money you actually have
Credit bureaus - services they provide
Responsibilities:
1. They give you the borrower, an idea about how you manage the debt
2. Give the issuer (a bank) an idea about how you manage debt
3. Provide security protection (reporting fraud)
Amortization
Paying off debts over time in equal installments, part of each payment goes toward loan principal and part goes toward interest
Subsidized vs. unsubsidized loan
Subsidized: interest accrues after graduation (6 months) while Unsubsidized: interest accrues immediately but has low interest rates
FASFA: What is it, who fills it out, when do you fill it out
What: Asset and income information for you and your parents (if dependent)
Who: Anyone going to college that wants help paying for education
When: Filled out every single year, opens Oct 1
Difference between financial aid and student loans
Financial aid is money given from the government and through your college that you don’t have to pay back. Student loans are money that you have to borrow from the bank and plan to pay back monthly.
What is Transaction?
An agreement, or communication, between a buyer and seller to exchange goods, services, or assets for payment.
