Personal Finance Credit

What are the different sections of credit reports?

1: Accounts (includes credit cards, retail credit cards, real estate loans, installment loans, and collection accounts) 2: Scores (your credit score, based on information about your accounts, inquiries, and legal records included in credit report; used by lenders to predict your ability to make payments in the future) 3: Inquiries (records of your applications for new credit, stay on report for two years) 4: Legal Records (include information like bankruptcies, tax liens, and court judgements [not your criminal record]) 5: Summary: Includes info that defines this as yours and summaries of other sections of the report)

Credit Bureaus (CRAs)

A company that collects information relating to the credit ratings of individuals and makes it available to credit card companies, financial institutions, etc.

What doesn't impact your credit score?

Debt ratio, income, length of residence, length of employment

What are the three big credit bureaus?

Equifax, Experian, TransUnion

What is a good credit score?

For a score with a range between 300-850, a credit score of 700 or above is generally considered good. A score of 800 or above on the same range is considered to be excellent. Most credit scores fall between 600 and 750.

Who compiles credit reports?

The three major credit bureaus, Equifax, Experian, and TransUnion

Risk Management

The type of business that today's banks are focused on; they manage the risk of their investments in their customers.

Transactions

The use of credit card by consumer to purchase goods or services

Penalty fees

The very high interest rate charged by the credit card issuer when a borrower violates the card's terms and conditions; triggered most often when cardholders are late making monthly payments.

What steps can you take to avoid identity theft?

Use a shredder to shred any documents with personal information on them. Use a credit card online or in restaurants when you are separated from the card instead of a debit card; you have better fraud protection that way Be smart about email/how you reveal your information online so that people can't get it (hackers) Monitor your accounts for any changes that you haven't done yourself

What is the difference between credit and debit?

When a consumer uses a debit card, the money comes directly from his checking account. When he uses a credit card, the purchase is charged to a line of credit for which he is billed later.

Crowdfunding

When people receive funds from a bunch of people instead of from a bank; common examples are GoFundMe, Kickstarter

Home Equity Line of Credit

Works like a credit card; you are allowed to borrow up to a certain amount for the life of the loan; during that time you can withdraw money as you need it- as you pay off the principal, your credit revolves and you can use it again. Let's say you have a $10,000 line of credit. You borrow $5,000, but then pay back $3,000 toward the principal. You now have $8,000 in available credit; this is revolving credit and a secured loan with your house as collateral

What are the dangers and benefits of a loan?

You get to pay a larger amount of money back in a longer period of time, but you get a lot of interest, so you end up paying more than you would otherwise

(FICO) Credit Scores

You have these for each of the three credit bureaus: Equifax, TransUnion and Experian. Each is based on information the credit bureau keeps on file about you. They influence the credit that's available and the terms lenders might offer; vital

Personal Loans

a loan that establishes consumer credit that is granted for personal use; usually unsecured and based on the borrower's integrity and ability to pay; installment loan; unsecured loan

Co-signing

a second applicant, typically one with a good credit and income history, who guarantees that your credit card balance will be paid if you default

What is a loan?

a thing that is borrowed, especially a sum of money that is expected to be paid back with interest

Credit card rewards (points)

an incentive program operated by credit card companies where a percentage of the amount spent is paid back to the card holder

Down-payments

an initial payment made when something is bought on credit

Minimum payment

The least a consumer needs to pay to avoid late fees and to have a good repayment history on his credit report.

How do you improve your credit score?

-Check your credit report, especially for errors -Set up payment reminders: make sure you make your payments on time! -Reduce the amount of debt you owe - stop using your credit cards, come up with a payment plan that helps to reduce your debt

What are the three major types of credit cards?

-General purpose credit card, which can be used for anything from clothes and food to airplane flights. These provide flexibility in amount paid per month. -Store cards, also known as single or limited-purpose cards, are credit cards that can be used only in a specific store for a specific purpose. -Charge cards, which require you to pay for purchase of services in one lump sum within a given period of time.

What are some indicators that you are a victim of identity theft?

-Your money starts disappearing -Someone has opened a new line of credit in your name -You see withdrawals from bank account you can't explain -Medical providers bill you for services you didn't use -The IRS notifies you that more than one tax return was filed in your name or that you have income from an employer you don't work for

What is a credit score? Who compiles them? Why are they important?

A credit score is a compilation of information about your credit history; compiled by companies like FICO, help someone who's giving you a loan better predict whether you can pay it back; a higher credit score will likely lead to a lower interest rate

Credit reports

A detailed report of an individual's credit history

Annual fee

A fee that's automatically charged once a year to your credit card account for the benefits that come with that credit card.

Mortgages

A loan in which property or real estate is used as collateral; installment loan; secured loan (house as collateral)

Secured Loans

A loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan

Student Loans

A loan offered to students which is used to pay off education-related expenses, such as college tuition, room and board at the university, or textbooks; installment loan; unsecured loan

Installment Loans

A loan that is repaid over time with a set number of scheduled payments; normally at least two payments are made towards the loan. The term of loan may be as little as a few months and as long as 30 years.

Statement billing cycle

A periodic report that credit card companies issue to credit card holders showing their recent transactions, balance due and other key information; issued at the end of each billing cycle, which is usually about one month long.

Auto Loans

A personal loan to purchase an automobile; installment loan; secured loan (car as collateral)

Payday Loans

A relatively small amount of money lent at a high rate of interest on the agreement that it will be repaid when the borrower receives their next paycheck; revolving credit; unsecured loan

Cash advance

A service provided by most credit card and charge card issuers that allows cardholders to withdraw cash, either through an ATM or over the counter at a bank or other financial agency, up to a certain limit

Credit Cards

A small plastic card issued by a bank, business, etc., allowing the holder to purchase goods or services on credit; unsecured, revolving

Principal

A sum of money lent or invested on which interest is paid

Home equity loans

A type of loan in which the borrower uses the equity of his or her home as collateral. The loan amount is determined by the value of the property, and the value of the property is determined by an appraiser from the lending institution; secured loans (house as collateral); installment loan

What should you look for when applying for a credit card?

APR, minimum repayment, annual fee, charges, introductory interest rates, cash back, loyalty points/rewards

Credit Utilization Rate

Amount of outstanding balances on all credit cards divided by the sum of each card's limit, expressed as a percentage. Credit issuers like to see it at 35% or less.

Small Business Loans

An amount of money borrowed from a financial institution by a small business person to start, run, or expand a small business; typically unsecured, but not always; installment usually

Schumer box

An easy-to-read table or "box" that discloses the rates, fees, terms and conditions of a credit card agreement as required under the federal Truth in Lending Act (TILA). It requires that all credit card companies use the same standardized format to disclose certain aspects of a credit card agreement so consumers can easily understand and compare rates and fees associated with a credit card.

Introduction rate

An interest rate charged to a customer during the initial stages of a loan. The rate, which can be as low as 0%, is not permanent and after it expires a normal or higher than normal rate will apply

Variable Rates

An interest rate on a loan or security that fluctuates over time, because it is based on an underlying benchmark interest rate or index that changes periodically

Fixed Rates

An interest rate that does not change over the course of the loan

What is a credit report and why are they important?

Banks check your credit report before approving you for credit cards and loans, including a mortgage or auto loan. Landlords review your credit report to decide whether to rent to you. Some employers check credit reports as part of the application process.

What are credit bureaus? How do they make money? Who are they? How do they get their information? What are some pros and cons of their existence?

Credit bureaus sell four data products: credit services, decision analytics, marketing and consumer assistance services. Credit card companies, banks, credit unions, retailers, and auto and mortgage lenders all report the details of your credit activity to the credit reporting agencies.

Revolving Credit

Credit that is automatically renewed as debts are paid off.

How do banks make money? How does this differ from credit unions?

Credit unions are not-for-profit financial cooperatives, whose earnings are paid back to members in the form of higher savings rates and lower loan rates. Banks are for-profit corporations, with declared earnings paid to stockholders only.

Pawn Shop Loans

Loans that involve an exchange for personal property as equivalent collateral; if the loan is repaid in time, the collateral might be repurchased at its initial price plus interest; revolving credit; secured loan

Unsecured Loans

Loans without a collateral

Credit Unions

Members share ownership and are democratically controlled by these members, who receive better benefits for putting their money there

Interest

Money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt

What are different types of credit? How do they differ in structure and how they are ultimately paid off?

Mortgages and loans are payed back in fixed amounts each month; credit cards and overdrafts are payed back in differing amounts, based on your activity (so, fixed and revolving)

Balance transfer

Moving the outstanding debt from one piece of plastic to another card, usually a new one; typically used by consumers who want to move the amount they owe to a credit card with a lower interest rate, fewer penalties or benefits, such as rewards points or travel miles

Amortization

The paying off of debt with a fixed repayment schedule in regular installments over a period of time for example with a mortgage or a car loan

What are the pros and cons of credit cards?

PROS: You don't have to carry around cash, you get all of your payments back in one bill, you can get rewards on what you buy, you can make larger payments without having to pay right then, you can build credit, you have emergency and fraud protection; if someone steals your credit card info or you lose your credit card, you won't lose any money, you'll just cancel your card and get a new one, unlike with cash CONS: You have to pay back interest, you might have to pay late fees, when it's so easy to spend money, you might easily overspend, if abused they could destroy your credit

What makes up a credit score?

Payment history: (35 percent) -- Your account payment information, including any delinquencies and public records. Amounts owed: (30 percent) -- How much you owe on your accounts. The amount of available credit you're using on revolving accounts is heavily weighted. Length of credit history: (15 percent) -- How long ago you opened accounts and time since account activity. Types of credit used: (10 percent) -- The mix of accounts you have, such as revolving and installment. New credit: (10 percent) -- Your pursuit of new credit, including credit inquiries and number of recently opened accounts.

Banks

Places where people can go to deposit their money, where it will be secure and accumulate interest; focused on making a profit and are controlled by companies

Credit Inquiries

Requests by a "legitimate business" to check your credit. As far as your FICO® score is concerned, classified as either "hard inquiries" or "soft inquiries"; only hard inquiries have an effect on your FICO score

Borrowing from life insurance/retirement funds

Revolving, secured, borrowing from your own life insurance

The Fair Credit Reporting Act

Rights you have as a result of the fair credit reporting act: -You must be told if information in your file has been used against you -You have the right to know what is in your file -You have the right to ask for a credit score -You have the right to dispute inaccurate or incomplete information -Access to your file is limited -You must give consent for reports to be provided to employers

Grace period

The period between the end of a billing cycle and the date your payment is due. During this time, you may not be charged interest as long as you pay your balance in full by the due date.

Collateral

Something provided to a lender as a guarantee of repayment

What are factors that credit lenders consider?

The 5 C's: credit history, capacity, collateral, capital, and conditions

Credit

The ability of the customer to obtain goods or services before payment, based on trust that payment will be made in the future.

Outstanding balance

The amount you owe the bank on purchases made with your credit card; the amount outstanding for your repayment, but a portion of it is the minimum repayment that must be settled, otherwise an interest is charged on this minimum repayment

Annual percentage rate (APR)

The annual rate charged for borrowing or earned through an investment, and is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction but does not take compounding into account.

Rate spread

The difference between the average yield a financial institution receives from loans and other interest-accruing activities and the average rate it pays on deposits and borrowings

Microcredits

The extension of very small loans to impoverished borrowers who typically lack collateral, steady employment, and a verifiable credit history

The 5 C's of Credit

The factors that lenders look for: -Credit history; they will look for your having a good track record, a good credit score, etc. -Capacity; they need to determine whether or not you can comfortably afford your payments - income, employment history might be looked at -Collateral (when applying for secured loans); the value of your collateral will be evaluated -Capital; capital represents the savings, investments, and other assets that can help repay the loan -Conditions; lenders might want to know how you plan to use the money and will consider the loan's purpose; environmental and economic conditions may also be considered

Defaulting (on a loan)

The failure to pay interest or principal on a loan or security when due; occurs when a debtor is unable to meet the legal obligation of debt repayment, also refers to cases in which one party fails to perform on a contract as required by an exchange.

Identity Theft

The fraudulent acquisition and use of a person's private identifying information, usually for financial gain

What variables exist within a loan?

how much is it for, when do you want to pay it back for, what are you using it for, who are you getting it from; these can help determine interest, etc.