credit unit review Flashcards
3 things to do to build credit history
- pay your bills on time
- apply for a credit card
- make regular payments
3 c’s of credit
- character
- capacity
- capital
what is character?
willingness to repay the debt
what is capacity?
ability to repay debt
what is capital
what happens if you don’t pay the debt
characteristics of installment credit
- big ticket items
- regular payments set by creditor
- interest included in the payment
- may require down payment
- may require collateral or a co-signer
characteristics of revolving credit
type of credit that does not have a fixed number of payments, in contrast to installment credit
APR
annual percentage rate
credit limit
- the amount of money that is available to you
- varies due to your credit worthiness
grace period
- length of time you have to pay your credit card balance in full without accruing interest charges
- usually 25 days
principal
original amount of money borrowed
term
length of a loan
amortization
periodic payments that are applied to both the principal and interest
collateral
something pledged as security for repayment of a loan, to be forfeited in the event of a default.
equity
the amount of money the owner of an asset would be paid after selling it and any debts associated with the asset were paid off
FICO
ranges from 300-850
default/penalty rate
higher interest rate that is applied because you did not honor the terms of the cardholder agreement
subsidized loans
loans for undergraduate students with financial need, as determined by your cost of attendance minus expected family contribution and other financial aid
unsubsidized loan
loans for both undergraduate and graduate students that are not based on financial need
FAFSA
free application for federal student aid
variable rate
the rate can go up or down based on fluctuations in the prime rate
fixed rate
an unchanging rate charged on a liability, such as a loan or mortgage
3 credit bureaus that keep track of credit history
- equifax
- experian
- transunion
factors that determine your credit score
- payment history
- amounts owed
- length of credit history
- new credit
most important factor when determining your credit score?
payment history
range for credit scores
300 to 850
How long information stays on your credit report
7 years
How often are you entitled to get a free credit report?
every 12 months
relationship between credit history, credit report, and credit score.
Your payment history, the amount of debt you owe and the length of your credit history are all factors that contribute to your credit score.
minimum requirement to avoid Private Mortgage Insurance
20%
federal student loans
- fixed interest rate
- government may pay interest while attending school
private student loans
- mostly from banks
- higher interest rates
- charged interest entire time
secured loan
a loan in which the borrower pledges same asset as collateral
unsecured loan
issued and supported only by the borrower’s creditworthiness
what is a co-signer
a person who agrees to be legally responsible to pay a debt if the borrower does not pay back a loan as agreed.
what information does the schumer box provide
summary of costs of a credit card agreement as required in marketing materials under a federal act
advantages of credit cards
- building credit
- fraud protection
- expensive purchases
disadvantages of credit cards
- high interest charges
- overspending
- hidden fees
consideration when applying for a credit card
- APR
- minimum payment
- annual fee
payday loans
short term, unsecured loan that carries high interest and fees
chapter 7 bankruptcy
sell off assets to clear debt
chapter 13 bankruptcy
keep most assets using repayment program
