*Chapter 6 Personal Finance Consumer Credit

Equal Credit Opportunity Act

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

Five C's of Credit

Character, Capacity, Capital, Collateral, Conditions

consumer credit

Dates back to colonial times.

The three most common types of closed-end credit are

installment sales credit, installment cash credit, single lump-sum credit

closed-end credit

one-time loans that the borrower pays back in a specified period of time and in payments of equal amounts

Cobranding

placing two or more brand names on a product

Fair Credit Reporting Act

regulates the use of credit reports

An example of open-end credit is

revolving check credit

Fair Credit Billing Act

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

conditions

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

Credit encourages overspending and ties up future income

true

the baby boom generation currently represents 30% of the population and holds __% of debt

60

Most information in your credit file may be reported for only ______ years.

7

collateral

A valuable asset that is pledged to ensure loan payments.

With closed-end credit borrower is permitted to take loans on a continuous basis and is billed for partial payments periodically

False

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

False

An example of closed-end credit is

Installment sales credit

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

open-end credit

a line of credit in which loans are made on a continuous basis and you are billed periodically for at least partial payment

bank line of credit

a prearranged loan for a specified amount

Which one of the following is not one of the five C's of credit?

climate

incidental credit

credit arrangement that has no extra costs and no specific repayment plan

Two general rules of thumb for measuring credit capacity are

debt payments to income ratio and debt to equity ratio