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CFP NOV 2024 Prep > Insurance Ch - 10 > Flashcards

Insurance Ch - 10 Flashcards

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1
Q

CONSUMER LENDING AND CONSUMER
SPENDING

A

CONSUMER LENDING AND CONSUMER SPENDING

  • Credit cards, home equity loans, home equity lines of credit, auto loans, other recreational vehicle loans, and appliance loans are all included in consumer lending.
  • 60 to 70% of GDP growth in the United States is a result of
    consumer spending
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2
Q

SECURED VS. UNSECURED LOANS

  • Secured loans
  • Unsecured loans
  • Secured loans are considered higher quality loans
A

SECURED VS. UNSECURED LOANS

  • Secured loans________HIGHER Quality ___________
    —Mortgages: House is collateral toward the debt
    —Automobile loans: Car is collateral towards the debt
  • Unsecured loans_________________________
    — Personal loans
    – -Non-secured credit cards
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3
Q

CREDIT REPORT info collected

  • The three credit reporting agencies are independent companies that each collect information in different ways.
  • A credit report generally includes the following information:
    ?
A

CREDIT REPORT - INFO collected

  • The 3 credit reporting agencies are independent companies that each collect information in different ways.
  • A credit report generally includes the following information:

– Personal information
– Credit account information
– Inquiries
– Delinquency information
– Collection agencies information
– State and Courts public information

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4
Q

THE FAIR CREDIT REPORTING ACT OF 1971

A

THE FAIR CREDIT REPORTING ACT OF 1971

  • U.S. citizens have FREE ACCESS to their credit reports and credit scores from the three national credit reporting agencies.
  • Should examine their credit report regularly because they frequently contain errors.
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5
Q

REPAIRING A CREDIT REPORT

A

REPAIRING A CREDIT REPORT

  • Repairing a credit report requires planning, due diligence,
    persistence.
  • Any negative information in the report that is incorrect should be
    addressed immediately and in writing (limited to 100 words) to the credit reporting agency.
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6
Q

CREDIT SCORES

A

CREDIT SCORES

  • Credit scores are calculated using a formula with 4 or more variables with various weightings.
  • Often referred to as FICO scores (Fair Isaac Corporation).
  • 2 most well-known credit scores are FICO and VANTAGE
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7
Q

WHATS NOT IN A CREDIT SCORE ?

A

WHATS NOT IN A CREDIT SCORE

Pay Raises

Credit Inquiries

Paying Down DEBT

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8
Q

FICO SCORES

  • Calculated ? ranges ?
  • Factors not included ?
A

FICO SCORES

  • Calculated using a formula that evaluates many types of information in the credit report at that credit reporting agency and

ranges from 300 to 850.

  • NOT INCLUDED IN FICO SCORES -
    gender, race, religion, nationality , marital status
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9
Q

FICO SCORE RANGEs ??

A

FICO SCORE RANGE

800 - 850 Excellent
740-799 Very Good
670 - 739 Good
580 - 669 Fair

300 - 579 Poor

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10
Q

FICO Alternative SCore & ULTRA SCore

A

FICO Alternative SCore & ULTRA SCore

in April 2025 FICO joined with Equifax to use date from cable, cell phone , gas and electric bills to produce a score of credit worthiness for personas without score otherwise.

New Ultra FICO - allows consumers the options to link their checking , savings, or MM accounts in order to provide add’l indicators such as consistent balances

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11
Q

Important to mange FICO Score

A

Important to mange Score

Credit score determine whether a consumer is likely to obtain credit and is so at what rate of interest.

  • borrowers with higher credit scores are considered less risky and able to obtain credit at a lower rate of interest.
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12
Q

Cost for FICO Scores

A

Cost for FICO score

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13
Q

Factors that affect credit scores

Positive

Negative

A

Factors that affect credit scores

POSITIVE ________________________________
consistent , Timely payments
More history Accounts
no 30/60/90 days late
No late charges
Credit Utilization
No New HARD inquiries
no recent closed accounts
No charge offs
No Liens
No judgements
No Foreclosures
NO Bankruptcy

Negative________________________________
Late payments
Significant change in Utilization Rate
Closing Accounts
Opening NEW accounts
Liens
Judgments
Foreclosures
New HARD inquiries
Bankruptcy
Child support in Arrearage
Wage garnishments

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14
Q

Vantage Score

A

VANTAGE SCORE

It weights PAYMENT HISTORY more than FICO and no ranges from 300 - 850

Attempts to IMPROVE on the FICO score by putting more weight on THE PAST 24 mns. OF CREDIT HISTORY

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15
Q

Factors that influence VANTAGE SCORE

A

Factors that influence VANTAGE SCORE

Extremely Influential - TOTAL CREDIT USAGE,
Balance
Available credit

Highly Influential - credit mix and experience

Moderately Influential - Payment history

Less Influential - AGE of credit history

Less Influential - NEW accounts

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16
Q

Establishing Credit

If a person has NO Credit , the best way to establish credit is ?

4 way’s

A

Establishing Credit

If a person has NO Credit , the best way to establish credit is :

Secured LOAN

a CO-signer

Single Purpose card ( gas card )

Car Loan with large down payment

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17
Q

Managing the Basics of Credit

A

Managing the Basics of Credit

Keep Credit balances low but not $0- Utilization Factor
do NOT close accounts - credit history
Pay on time - payment history
Only apply for credit as needed - Hard Inquires
Have a mix of credit( cards, installments, mortgages) - - Credit mix Get Free credit reports - Monitor

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18
Q

Other Uses of Credit Information

A

Other Uses of Credit Information
__________________________________________
Potential Employers

Life Insurance Providers

Potential landlords

Cell Phone Companies

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19
Q

Credit Cards vs Debit Cards

A

Credit Cards vs Debit Cards

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20
Q

Credit Card Accountability and Responsibility and Disclosure Act 2006 - CARD ACT

A

Credit Card Accountability and Responsibility and Disclosure Act 2006 - CARD ACT

Credit Cardholders Bill of Rights

2 reasons:
-Improve Fairness & Transparency

-Prohibits practices that are unfair or abusive such as hiking up the rate on an existing balance or allowing a consumer to go over their credit limit and then imposing an over the limit Fee

Requires that any payment above the MIN rec’d payment amount be applied first to he balance with the highest interest rate

  • EX cardholder carries a balance on purchase at 14%, cash advances at 24% and balance transfer offer at 0%. Any payment excess of the min must be applied toward the cash advance balance, because its the highest rate.
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21
Q

Charge Cards

A

Charge Cards

Charge card issuers expect payment of the FULL balance within 30 DAYS

Charge cards generally charge annual fees

Currently American Express is the most well known

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22
Q

Identity Theft and Fraud

A

Identity Theft and Fraud

Identify thefts BIG business

Affected 25% of consumers in 2021

If you suspect, take account NOW

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23
Q

Steps to take if you have Identity Theft and Fraud

A

Steps to take if you have Identity Theft and Fraud

  1. file report with LAW
  2. File a complaint with FTC
  3. Place a “Fraud Alert “ on all credit records by contacting the 3 major credit bureaus:
    Equifax, Experian, Transunion
  4. Contact victims financial companies, and close any accounts, that were opened w/o permission
  5. Check with SS administration earnings statement annually.
24
Q

Signs of Identity Theft

A

Signs of Identity Theft

Unexplainable bank withdrawals
failure to receive bills or mail
Merchants refuse checks
Debt collector calling
Unknown accounts appear on creit reports
Receipt of unknown medical bills
IRS notice of multiple tax returns or unknown income reported
Notice of Date Breach from business

25
Q

Avoid becoming a Victim of identity Theft

A

Avoid becoming a Victim of identity Theft

“S C A M “

S Be SKEPTICAL about giving personal data

C check Financial Info often

A Ask for credit reports regulary

M Maintain careful records

26
Q

Auto Credit Score -

A

Auto Credit Score -

Score calculated principally based on previous auto loan history.

27
Q

Auto Insurance Score -

A

Auto Insurance Score -

Using data from the TransUnion credit report, it helps auto insurance companies to assess the risk of insuring a consumer by measuring the probability that an auto insurance claim might be filed.

28
Q

Chip and Pin (EMV Technology) -

A

Chip and Pin (EMV Technology) -

An embedded computer chip in the card (card is more expensive), creates a unique number for each transaction and requires a pin to approve any charge.

29
Q

Credit Agencies -

A

Credit Agencies -

Companies that compile and maintain credit information from credit card companies, banks, mortgage companies, and other creditors for the purpose of creating personal in-depth credit reports on individuals. The major credit reporting agencies are Experian, Equifax, and TransUnion.

30
Q

FICO Score -

A

FICO Score -

A credit score developed by FICO (formerly know as Fair Isaac Corporation) that estimates the level of future credit risk for an individual. It is calculated using a formula that evaluates many types of information in the credit report at that credit reporting agency and ranges from 300 to 850

31
Q

Hard Inquiries -

A

Hard Inquiries -

Inquiries made by creditors or potential creditors

32
Q

Home Insurance Score -

A

Home Insurance Score -

Ranges from 150 to 850 and is once again calculated using the TransUnion credit report.

Used by home insurance companies to assess the
probability that a homeowner
WILL FILE A HOMEOWNER insurance CLAIM

33
Q

SCAM - An acronym from the ??

A

SCAM -

An acronym from the Justice Department to help avoid identity theft.

34
Q

Secured Loans -

A

Secured Loans -

Loans secured by collateral that may be repossessed if the loan is not repaid as agreed.

35
Q

Shoulder Surfing -

A

Shoulder Surfing -

A means of identity theft by the eavesdropping on those who punch in numbers or verbally give numbers over the phone.

36
Q

Soft Inquiries -

A

Soft Inquiries -

Inquiries made by the consumer or by a prospective or current employer.

37
Q

The Fair Credit Reporting Act of 1971 -

A

The Fair Credit Reporting Act of 1971 -

Provides that U.S. citizens have free access to their credit reports and credit scores from each of the three national credit reporting agencies

38
Q

unsecured Loans -

A

Unsecured Loans -

Loans with no collateral and only backed by the borrower’s promise to pay.

39
Q

VantageScore 4.0 -

A

VantageScore 4.0 -

Ranges from 300-850 and was developed by the three major credit bureau agencies.

40
Q

Which of the following likely has the highest credit score?

a. Forrest has five credit cards, credit utilization of 40%, and a perfect payment history for five years.

b. George has three credit cards, credit utilization of 29%, an installment loan, a mortgage, and a perfect payment history for three years.

c. Connor has two credit cards totaling a $50,000 limit.

d. Floyd has a 30-year mortgage in the 10th year with a perfect payment history and the mortgage is his only debt

A

b. George has three credit cards, credit utilization of 29%, an installment loan, a mortgage, and a perfect payment history for three years.

41
Q

Which of the following is incorrect about credit freezes and extended fraud alerts?

a. A credit freeze stops all access to the credit report.

b. An extended fraud alert allows the consumer two free credit reports within 12 months from each of the reporting agencies.

c. The extended alert lasts 24 continuous months.

d. Some states charge a fee for placing a credit freeze.

A

INCORRECT&raquo_space; D. The extended alert lasts 24 continuous months

Credit freeze last 7 years

42
Q

credit freezes and extended fraud alerts

A

-credit freeze STOPS ALL ACCESS to the credit report.

  • Requires potential creditors to VERIFY THE IDENTITY of person seeking credit

-. Extended fraud alert allows the consumer 2 FREE CREDIT REPORTS within 12 months from each of the reporting agencies.

-Extended alert lasts 7 years

-Some states charge a fee for placing a credit freeze.

43
Q

A creditor makes a hard inquiry to a persons credit report. How long does the hard inquiry affect the FICO score?

3 months
6 months
12 months
24 months
A

12 MNS

Its reported on the FICO score for 24 mns

44
Q

Credit agencies do not collect any of the following information for credit report except:

Home ownership.
Employment information.
Bank accounts with over withdrawals.
Child support payments in arrears.

A

Child support payments in arrears.
Rationale

Public records are collected and may indicate child support payments in arrears.

45
Q

Credit cards, debit cards, and charge cards are:

All different as to liability exposure.

All different as to required payment period.

All have pre-established limits.

All have annual fees.

A

All different as to required payment period.

Rationale

Credit cards can pay over time, debit cards pay immediately, and charge cards pay monthly.
All have pre-established limits.
All have annual fees.

46
Q

Credit agencies do not collect any of the following information for credit reports ,,,,except:

Employment information.

Age of borrower.

Amount of alimony paid

Tax lien.

A

Tax lien.

Rationale

Public records, such as tax liens, are collected and reported. The lender will ask for DOB on a loan application, but the credit score calculated by the credit agencies is not impacted by your age.

47
Q

The TransUnion automobile insurance score
uses all of the following except:

Credit payment history.
Driving record.
Credit utilization percent.
The number of credit accounts.

A

Driving record

Rationale

A driving record is not part of data a credit agency collects.

48
Q

The auto credit score is?

The same as the auto insurance score.

Calculated the same way as FICO.

Calculated by FICO.

Only used by 25 - 50% of auto lenders

A

Calculated by FICO.

Rationale—

The auto credit score is calculated by FICO and is used by 90% of auto lenders.

49
Q
A

CREDIT PROTECTION TEST

FICO - 7 years of credit history, in report.

  • Factors affecting credit scores
    • Payment history
    • Amount of debt
    • Length of credit history
    • Credit mix
    • New credit
50
Q

CREDIT REPORTS

  • There are 3 major credit reporting bureaus or agencies that collect credit information.
A

CREDIT REPORTS TEST

3 major credit reporting bureaus that collect credit information.

– Experian: www.Experian.com
–Equifax: www.Equifax.com
–TransUnion: www.Transunion.com

  • These credit agencies are for-profit companies and not government
    agencies
51
Q

CREDIT INQUIRIES - two types of inquiries:

  1. Hard inquiries:
  2. Soft inquiries:
A

CREDIT INQUIRIES * two types TEST

  1. Hard inquiries: Occur when a consumer is applying for a loan
    – ON credit report for 2 years, but only impacts
    negatively for 12 months
  2. Soft inquiries: Occur when a consumer is checking his or her own
    credit score or when a potential employer is conducting a
    background check.
    – No impact on credit score
52
Q

How is FICO score determined ?>

A

How is FICO score determined “ P A L N T “ TEST

35% P ayment history
30% A mounts Owned
15% L ength of Credit History

10% New Credit
10% Types of Credit

53
Q

The optimal credit utilization percentage is between________________ percent of total credit available

A

Optimal credit utilization % is between 1 - 30% of total credit available

54
Q

Credit agencies do not collect any of the following information for credit reports except:

Employment information.
Age of borrower.
Amount of alimony paid.
Tax lien.

A

Tax lien.

Rationale

Public records, such as tax liens, are collected and reported. The lender will ask for DOB on a loan application, but the credit score calculated by the credit agencies is not impacted by your age

55
Q

The auto credit score is?

A

calculated by FICO.

Rationale

The auto credit score is calculated by FICO and is used by 90% of auto lenders.

56
Q
A
57
Q
A

CFP NOV 2024 Prep (80 decks)

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