Ch. 6 Intro to Consumer Credit
Equal Credit Opportunity Act
Bans discrimination in the extension of credit in the basis of race, color, age, sex, marital status, and other factors
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
installment cash credit
a direct loan of money for personal purposes, home improvements, or vacation expenses - no down payment and make payments in specified amounts over a set period of time
home equity loan
a loan based on the current market value of a home less the amount still owed on the mortgage -borrow up to 85% of its appraised value - interest you pay on a home equity loan is tax deductible
FICO score
a number generally between 350 and 850 that rates how risky a borrower is - the higher the score, the less risky for the lender
interest
a periodic change for the use of credit
revolving check credit
a prearranged loan from a bank for a specified amount that you can use by writing a special check; bank line of credit - repayment made in installments over a set period - finance charges are based on the amount of credit used during the month and on the outstanding balance
credit bureaus
a reporting agency that assembles credit and other information about consumers
credit
an arrangement to receive cash, goods, or services now and pay for them in the future used for business purposes
revolving line of credit
an arrangement whereby borrowings are permitted up to a specified limit and for a stated period, usually 5 to 10 yrs
collateral
an asset that you pledge to a financial institution to obtain a loan
cosigners
asked to take the risk that a professional lender will not take
capital
assets or net worth
character
borrower's attitude toward credit obligations -most important factor
debt payments-to-income ration
calculated by dividing your monthly debt payments (not including house payment) by your net monthly income - spend no more than 15-20% of your net after-tax income on consumer credit payments
debt-to-equity ratio
calculated by dividing your total liabilities by your net worth - do not include the value of your home and the amount of its mortgage -if it reaches 1, then you have probably reached the upper limit of debt obligations - ration for business firms is 0.33 - 0.5
borrowers
carry balances beyond the grace period and pay finance charges
incidental credit
credit arrangement that has no extra costs and no specific repayment plan
convenience users
credit card users that pay off their balances in full each month
debit cards
electronically subtracts the amount of a purchase front the buyer's account at the moment the purchase is made
capacity
financial ability to meet credit obligations to make regular loan payment as scheduled in the credit agreement -checks sources of income and expenses
conditions
general economic conditions that affect your ability to repay a loan - focuses on security
installment sales credit
loan that allows you to receive merchandise, usually high-priced items such as large appliances or furniture - make down payment, sign a contract to repay balance, plus interest and service charges in equal installments
single lump-sum credit
loan that must be repaid in total on a specified day, usually w/in 30 to 90 days -used on a single item
open-end credit
loans are made on a continuous basis and you are billed periodically for at least partial payment -cards issued by dept. stores, bank cards, travel and entertainment cards, overdraft protection
closed-end credit
one-time loans that the borrower pays back in a specified period of time and in payments of equal amounts -mortgage loans, automobile loans, installment loans - usually involve a written agreement for each credit purchase - down payment or trade-in may be required
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 date corrected
line of credit
the dollar amount, which may or may not be borrowed, that a lender makes available to a borrower
cobranding
the linking of a credit card with a business trade name offering "points" or premiums toward the purchase of a product or service
consumer credit
the use of credit for personal needs (except a home mortgage) by individuals and families