Chapter 6 Review

collateral

a form of security to help guarantee that the creditor will be repaid.

bankruptcy

a legal process in which some or all of the assets of a debtor are distributed among the creditors because the debtor is unable to pay his or her debts

credit rating

a measure of a person's ability and willingness to make credit payments on time.

grace period

a time period during which no finance charges will be added to your account.

cosigning

agreeing to be responsible for another person's loan payments if that person fails to make them.

credit

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

creditor

an entity such as a financial institution, merchant, or individual, that lends money.

annual percentage rate

the cost of credit on a yearly basis, expressed as a percentage.

net income

the income you receive (take-home pay, allowance, gifts, and interest).

simple interest

the interest computed only on the principal, the amount that you borrow.

line of credit

the maximum amount of money a creditor will allow a credit user to borrow.

minimum monthly payment

the smallest amount you can pay and remain a borrower in good standing.

finance charge

the total dollar amount you pay to use credit.

consumer credit

the use of credit for personal needs.

open-end credit

credit as a loan with a certain limit on the amount of money you can borrow for a variety of goods and services.

closed-end credit

credit as a one time loan that you will pay back over a specified period of time in payments of equal amounts.