Wealth Managment

True or False: If you stop using your credit card for purchases, you won't ever have to pay interest again. Explain.

False: If you have a balance on your credit card, you must finish paying it until the balance is $0.

Which term refers to the amount of time you have between when the billing cycle ends and when you must pay your credit card bill?

Grace period

What are the three most common credit report errors, and what should you do if you find errors?

Identity errors, incorrect account details, and fraudulent accounts. You should dispute the error with a credit agency or with a bank/lender if you find errors.

Fill in both blanks with the correct terms: A _________ percentage of young people have debt than older generations, while their debt amounts tend to be ________.

Larger, lower

Name 2 fees you might see on your credit card statement.

Late fee, balance transfer fee, cash advance fee, interest charge, annual fee,

Explain loan amortization

Loan amortization involves periodic fixed payments that consist of principal and interest. Over time, interest payments will decline and principal payment will increase as a proportion of the fixed payment, allowing you to pay off the loan in the predetermined amount of time.

What term describes the amount you must pay in order to be considered "up-to-date" with your credit card payments?

Minimum payment

Name two types of amortized loans.

Mortgage, student loan, home equity loan, auto loan, etc

In the early repayment phase of an amortized loan, your monthly payment is.

Mostly interest and a little principal

The most important section of your credit report is your trade lines -- the details about each of your credit accounts. List at least 4 pieces of information found in this section.

Name of the creditor/lender Account or other identifier for the type of credit being provided The parties responsible for paying the loan The payment status of the account.

Rather than the borrower paying a small rate of interest in each billing cycle like with a credit card, the borrower uses a payday loan...

Pays a fee when they first receive the loan and must repay it to extend.

Describe how a secured loan is different from an unsecured loan.

Secured loan has an item that can be reclaimed by the lender if the borrower does not make payments. For example, repossess your car or foreclose on your home if you don't make payments. Unsecured, like credit cards or college loans, don't have a THING the lender can retrieve if you don't pay.

Which of these words refers to the length of time you have to pay off an installment loan?

Term

Who tracks all of your credit information?

3 credit agencies

Why are credit card companies more willing to offer a young person a secured credit card than an unsecured card?

With a secured card, you give a deposit (ex: $500) that becomes your spending limit, so the credit card company already has your full credit limit of cash. If you don't pay your bills, the company just uses the money you put down as a security deposit, and they don't lose anything. It's less risky for them.

What are 3 consequences of having low credit when trying to buy a car or home?

Worse rates, might not be approved, may not be loaned all the money you need.

True/False Your salary shows up on your credit report.

False

It's time for Ronda to start repaying her student loans, which are amortized over the next 10 years. Her first month's payment due is $396. How much should she expect to pay next month?

$396

For each action, write YES or NO for whether it will likely decrease your credit score: You request a copy of your credit report You open 5 new credit cards in one month You are 3 months late paying your student loan bill You lose your job, & it takes 4 months to find a new one

1. NO 2. YES 3. YES 4. NO

The default standard repayment plan for Federal student loans has a term of ______ years.

10

Explain how the monthly payment on a loan is affected by each of the following factors: a higher interest rate, a larger down payment, a longer term, and a higher loan amount.

A higher interest rate will increase the cost of borrowing and lead to higher monthly payment. A larger down payment will lead to a smaller loan amount, and thus a lower monthly payment. A longer term spreads the loan amount out over more periods, so will lower the monthly payment. A higher loan amount means more money needs to be repaid, so will lead to a higher monthly payment.

List 2 ways you as a teen or young adult can improve your credit score.

Apply for a secure credit card, authorized user, student loans, begin making small payments

Which item would not appear on a credit report?

Balance from your bank accounts

Why is it important to consider the APR when comparing credit card offers?

Because that is the amount of interest you have to pay if you do not pay your balance in full and on time. Paying interest makes the total cost of your purchase even higher.

List two reasons someone would want access to credit.

Buying something very large, like college education or house, that they cannot afford to pay in full right away Want line of credit as a backup plan, in case they have an unexpected expense they cannot pay for Want to use credit card for points, rewards, etc

When loans are amortized, monthly payments are ___the same____ , while the interest portion of the monthly payment __decreases______ and the principal portion of the monthly payment __increase_____ over time.

Constant, Decreases, Increases

Provide two possible consequences for missing a credit card or loan payment.

Credit score is lowered and interest rate may go up

Name one way that a debit card and a credit card are different

Debit accesses your money from your checking account; credit is like a little loan you must pay back later Debit charges no interest rate; credit card does Debit card comes with your checking account; must apply if you want a credit card

Which of the following is likely to INCREASE your monthly payment?

Decreasing the number of months in your term

Provide three reasons for why it is important to start establishing a credit history as early as possible.

The interest rates, better terms, rent an apartment or set up your utilities

Why should you never tell a salesperson the maximum amount you can afford per month?

They will then try to sell you a car that gets your monthly payment as close to that maximum number as possible in order to increase their total sales price, revenue, commission, etc. You lose some of your negotiating power.

Why is it important to review your credit reports annually?

To see if there is someone else using your account (identity theft) To see if there are any errors

What is meant by the "grace period" on a Federal student loan?

Typically 6 months in length, it's a period after you leave college where you don't have to start repaying your student loans yet

Each of the following represents a good habit if you're trying to prevent ID theft EXCEPT...

Using one very secure password for all of your major financial accounts

Identify 2 reasons why it is important for a young adult to establish credit.

WHY: (1) build credit history, (2) learn to be responsible with their money, (3) emergency access to spending power, (4) earn rewards HOW: Opening a secured or unsecured credit card account, applying for an auto or student loan, becoming an authorized user on parent's credit

Explain how credit card payments work and how a person can avoid getting charged interest.

Whenever someone uses their credit card to make a purchase, their statement balance goes up. If a cardholder pays off their statement balance in full during the grace period/before the due date the following month, they do not accrue interest charges. If they pay less than the full balance, they will be charged interest on their remaining balance AND upcoming purchases. If they pay the minimum monthly payment, it will take a LONG time to pay off the entire balance.

Why is it so important for your credit report to be completely accurate?

you are more likely to have higher interest rates or even get rejected for the loan altogether.

Why is it important to consider the Annual Fee when comparing credit card offers?

You will have to pay an annual fee every year, which could be greater than any total rewards you would earn in that time frame, depending on how you use your card. There are many credit cards with NO annual fee, which is likely a smarter choice for a young person.

I.e You see the APR for a specific card is set at 6.99% - 21.99%. What is this telling you?

Your APR will be within that range, depending on the strength of your credit history

If you select a graduated repayment plan...

Your monthly payments will start lower and end higher

How does increasing the size of your down payment impact your auto loan?

Your principal will be lower, so you will pay less total interest. Your monthly payment will be lower (if you keep the same term), and/or you may be able to pay off the loan more quickly.

Define a "thin file" in your own words.

do not have any credit history or you have very limited credit history

The shorter your term length, the ___higher____ your monthly payments, and the __lower_____ the total interest you will pay.

higher, lower

What are the 2 most important factors taken into account when calculating a credit score?

payment history and amount of debt

What website do you visit to request your free credit reports?

www.annualcreditreport.com