MODULE 8 Flashcards
money that a lender makes available to a borrower with the understanding that the borrower will repay the money in the future
credit
fees charged by a lender on borrowed money
interest
a payment card issued to users to enable the cardholder to pay a merchant for goods and services based on the cardholder’s promise to the card issuer to pay them for amounts plus the agreed charges. (ex. visa, discover, master card, etc)
credit card
a person may borrow up to this amount based on his or her income level, debt level, and overall credit record.
credit limit
allows you to make large purchases sooner. Eliminates having to carry cash or checks. Ex. Gass bill (montly, rather than weekly). Developing good credit history saves $$$ in the future.
advantages of using credit
if you borrow too much $$$, you may have difficulty making the payments. ex. car repossessions/foreclosures.. you lose entire investment
disadvantages of using credit
(APR) the rate that factors in all the financing costs so that borrowers know exactly what they are paying and can make informed decisions
APR
by paying off credit card balance each month, you can avoid paying interest. Generally, credit cards don’t charge fees unless you carry your balance into the next month. there are premium type credit cards that charge a yearly fee. these fees usually come with incentives
fees
pay bills on time, pay off loans (cars, home, education, etc) **keep credit cards low
building credit
good credit history = lower interest rates
your credit history
organization that collects credit information about individual consumers
credit bureaus
summarizes an individual’s existing and past lines of credit. Also includes credit score
credit report
a federal law that limits the sharing of an individual’s financial information to firms that have a legal purpose to evaluate it
fair credit reporting act
created a model on which credit scores (fico scores) are calculated
fair issac corporation (FICO)
a numeric score that uses your credit history to access your credit worthiness. The 3 main companies that produce credit scores are Equifax, trans union, and experian
credit score (3 main companies)
paying the total amount for the car to avoid financing charges
paying with cash
you get a loan directly from a bank, the car dealership, finance company, or credit union. You agree to pay, over a period, the amount financed, plus a finance charge.
financing
cash paid-up front by a borrower to reduce the amount financed on a loan
down payment
the price a dealer will pay for your current car when selling you a new one. Dealer trade-in is typically thousands of dollars lower than the price possible with a person-to-person sale
trade in
covers a list of things that will be replaced at no cost if they are defective. Generally, new car warranties remain in effect for at least three years of 36,000 miles. The bumper-to-bumper warranty covers repairs to everything on the vehicle except “wear items” - tires, brake pads, etc.
warranty
documentation that is completed by an individual or business seeking to apply for a line of credit with a lending institution. The information on the application is used to determine the borrower’s credit history, employment status, and his/her ability to repay the loan amount
credit application
the measure or estimate of a person’s or other entitity’s ability to properly pay back a debt by meeting agreed obligations.
credit worthiness
the maximum amount of credit that a financial institution or other lender will extend to a debtor for a particular line of credit
credit life
a person who agrees to pay a borrower’s debt if he or she defaults on the loan. The person asked to cosign a loan usually has a good credit score and a lengthy credit history, which greatly improves the primary borrower’s odds of approval.
co-signer
