Personal Finance - Chapter 6

Most of the information in your credit file may be reported for only _____________________ years.

7

Open-end credit

A line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment.

Home equity loan

A loan based on the current market value of a home less the amount still owed on the mortgage.

Interest

A periodic charge for the use of credit

Revolving check credit

A prearranged loan from a bank for a specified amount; also called a bank line of credit.

Credit bureau

A reporting agency that assembles credit and other information about consumers.

Collateral

A valuable asset that is pledged to ensure loan payments.

Credit

An arrangement to receive cash, goods, or services now and pay for them in the future.

Equal Credit Opportunity Act (ECOA)

Bans discrimination in the extension of credit on the basis of race, color, age, sex, martial status, and other factors.

Which one of the following is not one of the five Cs of credit?

Climate

Debit card

Electronically subtracts the amount of a purchase from the buyer's account at the moment the purchase is made.

With closed-end credit, the borrower is permitted to take loans on a continuous basis and is billed for partial payments periodically. T/F

False

With open-ended credit, the borrower pays back a onetime loan in a specified period of time and with a specified number of payments. T/F

False

An example of closed-end credit is

Installment sales credit.

Closed-end credit

One-time loans that the borrower pays back in a specified period of time an in payments of equal amounts.

Credit Card Accountability, Responsibility and Disclosure Act

Places new restrictions on credit card lending and eliminates certain fees.

Consumer Credit Reporting Reform Act

Places the burden of proof for accurate credit information on the credit reporting agency.

Fair Credit Reporting Act

Regulates the use of credit reports, requires the deletion of obsolete information, and gives consumers access to their files and the right to have erroneous data corrected.

An example of open-end credit is

Revolving check credit.

Fair Credit Billing Act (FCBA)

Sets procedures for promptly correcting billing mistakes, refusing to make credit card payments on defective goods, and promptly crediting payments.

Capital

The borrower's assets or net worth.

Character

The borrower's attitude toward his or her credit obligations

Capacity

The borrower's financial ability to meet credit obligations.

Line of credit

The dollar amount, which may or may not be borrowed, that a lender makes available to a borrower.

Conditions

The general economic conditions that can affect a borrower's ability to repay a loan.

Consumer credit

The use of credit for personal needs (except a home mortgage).

Credit encourages overspending and ties up future income. T/F

True

Creditor determine credit worthiness on the basis of character, capacity, capital, collateral, and conditions.

True

Two general rules of thumb for measuring credit capacity are the debt payments-to-income ratio and debt-to-equity ratio.

True

Which federal law provides specific cost disclosure requirements for the annual percentage rate and the finance charge as a dollar amount?

Truth in Lending Act