FINL 041 Unit 5 - Credit
consumer credit
amount of credit used by individuals to buy products, such as goods and services and is used as an advance which is required to pay for the purchases
variable rate
an APR that is going to change with the health of the economy, usually each month
credit bureaus
companies tasked with keeping track of your credit/ the three main _______ _________ are Equifax, Experian, and TransUnion
mortgage
credit provided for the purchase of a house
loan length
how long it will take you to pay off that debt
compound interest
interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan
credit
money that a lender will let you use, usually for a fee, and allow you to pay back in the future
cosign
signing for another person's debt which involves a legal obligation made by the cosigner to make payment on the other person's debt should that person default
periodic rate
the APR divided by the billing cycles per year - APR/Period Cycle
late fees
the amount charged if you don't pay your bill on time
credit limit
the maximum amount that you can borrow from your lender
ADB (average daily balance)
the method for calculating your finance charge on credit card balances - When purchasing a credit card, pay attention to whether the lender is going to charge you an ______ excluding or including new purchases.
grace period
the number of days you have to pay your bills before the lender can charge interest
prime rate
the rate most reputable banks will charge their most trustworthy borrowers
interest (or APR)
the rate you will be charged for each year you are in debt to the lender
interest (payments)
the rent you pay for borrowing money/ most of these come from the annual percentage rate or APR
noninstallment credit
the simplest type of consumer credit where an individual has to pay a lump sum amount of credit instead of making monthly payments/ it is an excellent way to avoid interest payments
minimum (monthly payment)
the smallest payment your creditor will accept per month
finance charge
the total cost of the loan
personal loan
unsecured financing for use in a variety of endeavors which involves an application review based on your income, credit rating, and other financial data.
net salary
your income after taxes are taken out
higher
A FICO score will be anywhere from 300 to 850; the _________ your score, the better your credit worthiness.
including
ADB ___________ new purchases - Companies who use this method will charge interest on the balance plus any new purchases made in that billing cycle. - To calculate this, you have to divide the number of days in the billing cycle - Periodic Rate x Average Daily Balance = Monthly Finance Charge
excluding (this is cheaper than adding interest for each purchase over the month)
ADB ___________ new purchases — Companies who use this method only charge interest on the balance, and it does not matter if you make purchases during that billing cycle. - Periodic Rate × Balance = Average Daily Balance
limit
After assessing the risk by loaning you funds, the credit card company will set a spending ______ on that card.
grace period
Always look at the ______ ________ that the credit card company offers. Most companies offer around 20 -30 days before you have to pay the bill without having to pay interest.
c. (300 to 800)
Based on the reading, what is the range of credit scores? a. 1.00 to 4.00 b. 1200 to 2000 c. 300 to 800 d. 100 to 250
double (the credit company will have to decrease the amount of interest payment each month because you owe less on the principal)
By making minimum payments only, you are not paying any money towards the principal, just the interest. Always figure out the interest amount, and then pay at least __________ that amount per month.
before
Evaluate the terms ________ you sign any contracts - interest rates may be quite high on personal loans, especially those from quick-cash places.
rates
For personal loans, start at your financial institution, but don't hesitate to check _______ at other institutions and evaluate the offers.
all of the above
If a company does not care about your credit rating to determine if you are likely going to pay back their loan, which of the following is true? - they want to loan you the money so they can just earn money on the interest. - it will likely charge a much higher interest rate so they can make more money - if a consumer with a bad credit rating can purchase something, the company is probably taking advantage of their situation - all of the above
don't (every time your score gets checked, the inquiry could result in a lower FICO credit score)
If the lender doesn't list a required credit score for a particular rate, ______ submit a formal loan application to check your rates.
13
If the prime rate is 8% and a credit card's variable rate is 5%, your credit card APR will be ____%.
more (the loan would cost you $1,000 + $516 for interest by the time you pay off the loan, in fifty months)
If you borrowed $1000 from your credit union at a compounded interest rate of 20%, you would pay ________ than you would pay for a simple interest loan of the same amount.
collateral
If you don't pay off a secured loan, you can lose the ___________ that you set.
15
If you have a credit card with an interest rate that exceeds ____%, consider getting rid of that card and utilize other payment tools.
rating
If you have a good credit score, you will have a good credit _______.
Consumer Credit
In 1968, Congress passed the ____________ ________ Protection Act, which is designed to protect consumers from fraudulent credit companies.
once
It is critical that you order your credit report at least _______ a year to see if you have any problems with your credit, so you can resolve any issues. - request a report at www.annualcreditreport.com or call 877-322-8228
APR
Late fees will not only incur a penalty fee, but the credit card company may also increase your ______.
worthiness
Lenders rely on your credit history to make decisions regarding your applications for jobs, housing, large purchases, etc. and credit __________.
credit card
Look for hidden fees, service fees, and any other small print that is included with the _______ _______ you are applying for.
500
Many credit card companies don't charge a yearly fee, but some will charge over $______ to use their credit cards each year.
half (they have accumulated more debt than they can pay; and they have to pay interest on their debt)
More than ______ of all American households spend more money than they make.
four
Most American families own at least ______ credit cards today.
monthly
Most credit card companies charge a periodic interest rate which is usually __________.
compound
Most loans, including credit card debt, are ____________ interest loans.
waived (you are in charge and knowledge is power)
Nearly 9/10 cardholders have successfully had a late payment fee _________ after asking their credit card company about it, and 2/3 had their requests for a lower interest rate approved.
1950
Origin of the credit card - One evening in the _______s, a New York businessman, Frank McNamara, was mortified when he realized he had invited friends to dine out and he had left his wallet at home. He wanted to give the restaurant some sort of guarantee that even though he could not pay his bill at that time he would pay his bill in the future. A few months later, he returned and purchased his meal with a cardboard credit card, the Diner's Club Card.
increase (they want you to use their card because they want your business)
Revolving open-end credit companies might ___________ your spending limit without your knowledge, which could lead to unplanned debt.
true
T/F - A lender is trying to make money from you by having you borrow their money.
false (creditors should be aware of your ability to pay before they loan you their money)
T/F - Creditors knowingly let you spend more money than you can pay back.
true (most companies offer a grace period of around 20 -30 days)
T/F - If a credit card does not offer a grace period or if that period is less than 20 days, you may want to reevaluate whether you want the card.
true
T/F - If your credit score is poor, the interest rates on personal loans can be even higher than those on credit cards.
true
T/F - Paying back the money owed to lenders that gave you credit is the key to building a credit history.
true
T/F - Paying car payments on time and in full each month gives an individual a chance to repair his/ her credit score.
true (a loan is a long-term commitment - be aware of its terms)
T/F - Read all of the small print and ask the lender any questions that you have before signing a loan application.
false (your actual rate is influenced by your credit rating)
T/F - You will always pay the exact ARP rate listed in bold on a credit card application.
college
The American Bankruptcy Institute reveals that 19% of the people who filed for bankruptcy last year were __________ students.
finance
The ________ charge is the total cost the lender is charging you to use their money - It includes the interest plus any additional fees.
budget
The amount you will be able to charge on your credit card each month is equal to the amount your _________ allows for card payment.
cash
The best scenario would be to save enough money to be able to pay _______ for everything you purchase, that way you won't accrue any interest on that debt.
credit
The cost of ________ is determined by the amount of the loan, service fees charged by the lender, an annual percentage rate, the length of time you are going to use a creditor's money, and the amount you are able to pay each month towards that loan.
budget
The easiest way to avoid debt is to stick to your _________.
credit score (rating)
The five biggest factors that affect your ________ _________are your payment history, the amount you owe, the length of your credit history, new credit/ the number of new accounts you have, and the types of credit in use.
balances
The key to avoiding credit card ___________ is being able to pay it in full each month.
balance (the amount of money you still owe on a card or loan)
The more you can pay on the __________ each month, the less you will pay in monthly interest payments.
month
The prime rate changes every _______. - if the economy recesses, the prime rate could rise drastically
income
There is a direct correlation between your ________ and the spending limit you will be given by the loan institution.
simple
Though most loan agencies will not consider a ___________ interest loan, you might have a relative or friend who will give you one. ex. You borrowed $1000 from your grandfather at a simple rate of 20%. You pay $20 a month for fifty months. The loan costs you $1000 + $200 for interest.
FICO
To make your credit history more readily available and universal to creditors, in 1956 a company called Fair Isaac Corporation devised a way to translate our credit history into a number system that will give merchants a way to know your credit worthiness almost instantaneously. It is called the ________ score or credit score.
signature (an institution will loan you the money with just a signature)
Unsecured loans are commonly known as "__________" loans.
simple
Usually the best type of loan would be a __________ interest loan.
all of the above
What is a good example of noninstallment credit? - 30 days same as cash - 30 days free interest - 90 days same as cash - all of the above
interest
What is the best way to describe a consumer's "cost of credit"? - what consumers will pay for using credit from a lender, often referred to as _________ payments
entire
What is the best way to reduce credit card balances? - Pay the ________ amount due each time you make a purchase.
debt
What was the main reason for the stock market crash in the 1920s? - Americans had accumulated too much ________.
decimal
When you multiply by percentages, you need to make sure the ____________ point is in the right place. - ex. 1.5% = 0.015
loan
When you take out a _______, you begin to build a credit rating/ score.
Fair Isaac Corporation
Which company developed a way to translate a person's credit history into a number system resulting in a credit score? - National Credit Society - Fair Isaac Corporation - Bureau Division - Federal Money Division
(making) charitable contributions
Which method is not intended to help you know whether you are keeping good track of your credit? - paying your bills on time - completing loan applications accurately - avoiding bankruptcy - making charitable contributions
First Trans-Nation
Which of these is NOT one of the three credit bureaus in the business of tracking your credit and providing you with a credit rating? - Equifax - First Trans-Nation - TransUnion - Experian
revolving credit score credit
Which of these is not one of the three types of credit discussed in lesson 5.4? - installment closed-end credit - noninstallment credit - revolving credit score credit - revolving open-end credit
furniture (for a new home)
Which option is NOT an example of "good debt"? - student loans to pay for a college education - mortgages to buy a home - furniture for a new home - auto loans, particularly if the vehicle is essential to doing business
all of the above
Which option is something you should consider when shopping for a loan? - the interest rate - the type of loan - where you are going to get the loan - all of the above
all of the above
Which option should consumers consider when they are offered credit when they did not ask for it ex. mail offers? - is there a variable rate - are there hidden fees, service fees, and small print - is the company credible and reputable - all of the above
lowest (the lower the interest rate, the sooner you can pay off that loan and the less money you will have to spend)
You need to shop for the ________ interest rate.
1/3
You should never pay more than ____ of your net salary to pay for a home.
freedom
You want to establish and maintain a high credit rating because that rating will give you much more financial _________ to make future purchases on cars, homes, etc.
Free
_______ annual credit reports are required by the Fair Credit Reporting Act (FCRA).
Good debt
________ _______ is an investment that will grow in value or generate long-term income. ex. student loans, mortgage, etc.
Installment closed-end (AKA non-revolving)
__________ ______-_____ credit is used for a defined time period and amount along with an interest payment. Repayments on this type of consumer credit are usually made in equal installments. Companies usually retain the title of goods and services until full payment is made. ex. Mortgage loans, business loans, and car loans
Revolving open-end (the type of credit that will cause most of your difficulty)
__________ ______-_____ credit is usually associated with credit cards. With this, the consumer is given a certain amount of credit that they can use to purchase goods and services. The only way to stop this revolving is either getting rid of the card or having it taken away.
Consumer debt
____________ _______ is defined as money, goods, or services that are given to an individual instead of having them paying for it. ex. credit cards, store cards, purchasing cards, loans, and mortgages
Secured
____________ loans require collateral but usually offer more money at lower interest rates than unsecured loans.
noninstallment
_____________ credit is usually offered for a short term. If it is extended, be sure to take advantage of the opportunity.
repossessed (repossession doesn't just hurt the person losing an item, but all the members of the credit union/ lender will have to help recover that debt)
______________ items are taken possession of by a lender because the consumers hadn't paid their agreed-upon payments.
credit card
a card linked to a lender that allows you to postpone payment
credit history
a compilation of how a person has paid their bills, which shows whether the subject is typically late with payments, has defaulted on an obligation, or has filed for bankruptcy
simple interest
a quick method of calculating the interest charge on a loan - multiply the daily interest rate by the principal by the number of days that elapse between payments
