fin ch 5

overdraft fees

Fees incurred when a customer withdraws more money from an account than what is available in the account.

Cost of borrowing

Also called 'cost of credit'. This is the total amount that the borrower will be charged including interest and any fees. For personal loans and credit card borrowing the cost over a 12-month period must be quoted - the annual percentage rate (APR).

Debit cards

-Usually comes with a checking account. Acts as an electronic version of a check. -have FDIC or NCUA insurance, fraud protection and generally low or no fees.

credit score

1. You must first have a credit report on file with one of the major credit bureaus. If you're in college right now and have a student loan, you probably already have a credit report and a credit score. You should check your report immediately. You can do this for free once per year by visiting www.annualcreditreport.com. If you find that you don't have a credit report, you might want to apply for a credit card. You don't have to use the credit card often or load up on debt. Just having a credit card for a period of time will lead to establishing a FICO score, which might come in handy later in your financial journey (assuming you manage your credit wisely). 2. You must have a record of recent credit use. This means that you should have at least one open line of credit that has been in existence for 6 months.

Content and accessibility of a credit report

300-550: This range is low - usually leads to rejections for new credit. 550-620: This range is considered subprime -indicates a high-risk borrower. High interest and fees. Limits amount of credit issued. 620-680: This range represents the minimum score to be accepted for most loans. 680-740: This range represents individuals with good credit. Terms and conditions of loans will be favorable. 740-850: This range is considered excellent . Borrowers have stellar previous payment histories and receive the best borrowing terms.

Identity theft

A crime that involves someone pretending to be another person in order to steal money or obtain benefits

ACH

Automated clearing house (ACH) Is a nationwide network of financial institutions that send each other credit and debit transfers electronically Make up a high percentage of payments made in the united states Ex. direct deposit of your wages, automatic payment of recurring bills such as energy bills

The FICO scores

FICO scores can range from a low of 300 to a high of 50.Higher credit score = lower credit risk Within the financial world, credit scores are used—similar to the roommate risk score—as a way to predict which people are likely to manage their debt wisely in the future. The most widely used credit score was created by Fair Isaac Corporation, Having a higher score means that you have a lower credit risk and are therefore more likely to be approved for a loan.

elements of loans

Principal: The amount of money you borrow (the loan) that must be repaid. Interest: The amount paid to the lender for the use of their money - determined by the interest rate charged on the loan. Loan fees: Fees to cover processing or managing the loan. Collateral Something of value that can be sold in the event that the loan payments are not made by the borrower. For example, a car or a house. Finance Charges The total amount of fees and interest charged by the lender for a loan.

Items that are included in the finance charge of a loan

Principal:The amount of money you borrow (the loan) that must be repaid. •Interest:The amount paid to the lender for the use of their money - determined by the interest rate charged on the loan. •Loan fees: Fees to cover processing or managing the loan.

Credit card minimum payment calculation given the outstanding balance and the interest rate

The minimum payment due is the greater of a set minimum percentage of the outstanding balance, or some nominal payment amount, such as $25. The credit card balance is used to determine the minimum payment. The minimum percentage generally ranges between 2% and 4%. The lower the percentage, the longer the payoff period, which increases total interest paid.

Secured credit cards (also consequences if you fail to make a payment on your secured credit card)

There is a another way to obtain a credit card. Banks and credit unions offer Provides way to establish credit w/o cosigner Have to deposit the full amount of money before card is issued

variable loans

also structured so that the loan will be paid off within a certain time period, however, payments may fluctuate. •If the interest rate changes, then the payments due and interest charged will change each month .•Caution - the change in interest charged may increase or decrease the loan payments or change the length of the loan. •Example, Adjustable Rate Mortgages (ARMs)

Overdraft Protection

an automatic loan made to an account if the balance will not cover checks written

inactive account fee

charge/fee assessed to a no-cost checking account when inactive (under federal law is allowed in a free checking account)

Credit report and credit inquiries (hard finance inquiry vs soft personal inquiry)

credit report -a summary of an individual's credit history Inquiry When a lender requests your credit report to determine creditworthiness, Financial inquiry=hard credit inquiry - negative impact on credit score Personal inquiries=soft inquiries - generally have no effect

Credit cards (fees, financial charges, principal, interest, payments, APR, etc).

fees Account set-up fee: one-time fee associated with opening a credit card. Typically $0 but can be as high as $500. Annual fee: charged once per year by some credit card companies to keep the credit card active. Most cards charge a $0 fee; typical fees range from $49 to $999 per year.

Fixed loans

has a fixed payment each month to settle a debt; car payment, mortgage

Analyzing your credit report

is a summarized accounting of your credit history. How Credit Reports Are Used A lender will request your credit report to determine creditworthiness when you apply for credit.

Checks

is simply a written order to a bank to pay a third party. Three elements are required when you write a check: 1. The name of the person or company that gets the money. 2. The date. 3. The amount to be paid. The amount needs to be recorded both in numerical and written form.