Credit Card and Student Loans Flashcards
Components of FICO
- Debt repayment history,
- debt owned
3.how long you’ve been in debt - new debt, types of debt.
- NOT BASED ON HOW MUCH MONEY YOU ACTUALLY HAVE
What does it mean to have a high and low FICO Score
If you have a high FICO score, you’ve been in debt and managing it well
If you have a low FICO score, you’ve been missing payments, filed bankruptcy, And have been in debt for a long time.
Credit Bureau services
They compile credit reports on individuals, which they sell to prospective lenders and others. The three bureaus can have somewhat different information in their reports, depending on which creditors provide it to them. The information in your credit reports is also used to assign credit scores to you.
For a debit card, where is the source of the money?
Your bank account
For a credit card, where is the source of the money
An issuer or bank
How do credit card companies make their money
By persuading you to pay a minimum payment instead of your statement balance, because you end up having to pay an APR on the remaining balance that was due.
What are some documents that you need to file the FASFA
W2, pay stubs, tax return
What is the difference between a subsidized and unsubsidized loan
Subdisidzed is a loan that does not accrue interest right away, usually happens after you graduate. An unsubsidized loan accrues interest immediately.
Amortization
The action or process of gradually writing off the initial cost of an asset by a specific date. In amortization, interest gets paid off first and then the principle because issuer of the loan wants their fees paid off first.
3 responsibilities of a credit bureau
- They give you the borrower, an idea about how you manage debt
- Give the issuer (a bank) an idea about how you manage debt
- Provide security protection (prevent someone from stealing your information)
What do credit bureaus do?
Report your credit score, (Three agencies)
What does credit mean denotatively?
Credo: I believe, The belief that someone will pay you back
What is A Credit
Money you’ve already paid
Credit card
Chainsaw of personal finance; can be helpful and beneficial but can cause irreversible damage
Cash advance
The act of withdrawing cash against your credit limit through the use of your credit card, should be done for emergencies because there are very high fees and APRs
APR
(Annual percentage rate):Interest rate cost of not using your credit card appropriately. You will not be charged APR until you miss the grace period of paying your statement// usually 24%
Statement
Credit card bill that has a due date and lists your transactions and credits within a certain time frame.
Grace period
period of 10-12 days where you have time to accrue funds to pay your statement
Penalties with credit cards
you are only penalized if you make the minimum payment
Pay the minimum?
RED: a payment assigned by the issuer that is lower than the statement, yet you are penalized by having to pay an APR on your remaining due balance.
Pay the statement?
YELLOW: When you pay the balance of your billing cycle, no penalties and no credits
Pay the current balance?
Green: Pay all balances up to date, present. Doing this gets you credits for the next billing cycle.
Unsecured loan
No collateral, credit card loans are unsecured loans.
Private funding
Type of loan that comes from a private institution. Your credit score must be at least 690 to qualify.
- Average interest rate is 6%-13%
FICO is about managing ____ not measuring your ____
debt, income or how much money you have
Manual underwriting
The process where the bank or loan originators collects documents such as bills, paystubs, or Tex returns, to determine loan worthiness.
FASFA
(Free Application for Federal Student Aid): determines eligibility for federal grants, work-study, and federal loans. [also some scholarship committees]
Subsidized Loan
interest accrues after graduation, usually six months
Unsubsidized loans
interest accrues immediately
Grant
Money given by the federal government that does not have to be repaid
Direct Plus Loans
Unsubsidized loan that parents or grad students can take out.
Work study
Part-time job awarded by college
Describe why someone may owe more than they originally borrowed after paying the minimum payment on a loan for 10 years
Some individuals who are under an income based repayment plan have lower monthly payments that don’t contribute to the principle or interest payments. The balance increases over time.
Three ways to spend from your bank account
Cash, check, debit
Understand the source of money for bank accounts
Labour accrues money into your bank account, spend using cash, check, debit. All money spent is 100% paid.
Revolving loan
A revolving loan occurs when a lender grants a borrower money up to an approved limit. A credit is a revolving loan
What is the source of money for credit cards?
Card issuer or bank.
What does a purchase read as on credit statement
transaction
What does a payment read as on credit statement
credit
Pros and Cons of having a credit card?
Pros: convenience, rewards/cash back
Cons: high interest rates fees
Pros and Cons of having a credit card?
Pros: convenience, rewards/cash back
Cons: high interest rates fees
