finance chapter 5 Credit is an arrangement to receive cash, goods, or services now and pay for them in the future

Equal Credit Opportunity Act (ECOA)

) states that race, color, age, sex, marital status, and certain other factors may not be used to discriminate against you in any part of a credit dealing

◦Installment credit,

, in which the debt is repaid in equal installments over a specified period of time, exploded in America with the advent of the automobile in the early 1900s

"Five Cs of Credit":

1.Character refers to the borrower's attitude towards his or her credit obligations 2.Capacity is the borrower's ability to pay additional debts 3.Capital is the borrower's assets or net worth 4.Collateral is a valuable asset that is pledged to ensure loan payments 5.Conditions affect a borrower's ability to repay a loan

Debt payments-to-income ratio

Calculated by dividing your monthly debt payments (excluding your house payment) by your net monthly income Experts recommend spending no more than 20% of your net 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 debt A debt-to-equity ratio of 1.0 is the upper limit of debt obligations

"Chapter 13" Bankruptcy

Individual debtor with regular income proposes a plan for using future earnings or assets to eliminate his or her debts over a period of time ◦Debtor normally keeps all or most of his / her property Information provided to the court is the same as what is required under Chapter 7 Plan may last up to five years Debtor makes payments to a court-appointed trustee

Chapter 7" Bankruptcy

Must submit a petition to the court that lists assets and liabilities and pay a filing fee of $350 Many, but not all, debts are forgiven Assets are sold to pay creditors, but debtor can keep some assets (Social Security payments, unemployment compensation, net value of home, vehicle, etc.) Release from debt does not release the debtor from alimony, child support, certain taxes, fines, certain debts arising from educational loans, or debts that you fail to disclose properly to the bankruptcy court ◦Debts arising from fraud, driving while intoxicated, or certain other acts or crimes may also be excluded from debtor release

Credit Bureaus

are agencies that collect information on how promptly people and businesses pay their bills ◦Experian, TransUnion and Equifax are the 3 major credit bureaus

Home equity loans

are loans based on your home equity - the difference between the current market value of your home and the amount you still owe on the mortgage

Closed-end credit

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

Bankruptcy

is 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

Open-end credit

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

Consumer Credit Counseling Services ("CCCS")

is a non-profit company that provides debt counseling services to families and individuals

Credit

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

Failure to repay

may result in loss of income, valuable property, and your good reputation ◦Could lead to court action and bankruptcy

Consumer credit

refers to the use of credit for personal needs (except a home mortgage) enables people to enjoy goods and services now - a car, a home, an education - or it can provide for emergencies

Temptation to overspend ◦

◦Can create serious long-term financial problems, damage family relationships, and delay progress toward financial goals

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

Annual Percentage Rate ("APR")

◦The percentage cost of credit on a yearly basis ◦APR is the key to comparing total financing costs, regardless of the amount of credit or how much time you have to repay it

Finance charge

◦The total dollar amount you pay to use credit ◦Includes interest costs and sometimes other costs, such as service charges, credit-related insurance premiums, or appraisal fees