Lesson 9: Consumer Credit and Borrower Liability

Question 1

Secured vs. Unsecured Loans

Answer 1

-Secured loans are secured by collateral (auto or home)

Question 2

FICO and Credit Scores

Answer 2

• The three national credit bureaus are Experian, Equifax, and TransUnion
• Fair Credit Reporting Act of 1971 allows free access to credit reports and credit scores from ^^^

Question 3

Credit Scores

Answer 3

-most well-known credit scores are FICO and Vantage
-FICO score ranges from 300-850
^ Bad = 300-549
Poor = 550-619
Fair = 620-679
Good=680-739
Excellent=740-850

What effects FICO Score:
35% payment history
30% amount owed (less than 30% is best)
15% length of credit history (score maximized once history reaches about 7 years)
10% new credit (negative effect)
10% types of credit used (better to have multiple)

Income and assets do not effect credit score

Question 4

Penalty For Hard Inquiries

Answer 4

-Lasts for up to one year

Once these inquiries drop off the credit report, the credit score will increase automatically

Question 5

Debit/Credit/Charge Cards

Answer 5

Charge cards function similarly to credit cards. American Express is the most well-known charge card issuer at this time.

Compared to credit cards, charge card issuers expect payment of the full balance within 30 days. Failure to pay the entire balance will result in relatively high fees and interest charges.
Also, charge cards generally charge annual fees.
In exchange for these limitations, charge cards have historically offered higher rewards and other perks

• Debit cards are a good option for consumers who have no credit or a low credit score and are unable to qualify for a credit card
• Credit cards have lower liability limits and higher rewards

-For consumers who have access to both - better to use credit cards (not ppl with bad spending habits)

-All have different rules regarding the required payment period.
The balance on a credit card can be paid off over time, while debit cards deduct the payment directly from the cardholder’s bank account. Charge cards must be paid off within 30 days

Question 6

Identity Theft

Answer 6

-consumers can request to have a free fraud alert added to their credit report. A fraud alert remains active for 90 days but can be extended for up to 7 years, if needed

A fraud alert placed with the credit-reporting agencies remains on the credit report for 90 days but can be renewed