Personal Finance Ch. 6

Vantage score 3.0 (2013)

- common range score- (only 1 score) - does NOT count debt collections paid off - allows consumers with short credit history eligible for credit reports - ignore negative credit history if affected by natural disaster

What information is in your file at Credit Bureaus?

- your employers, position, income - former address - former employer - spouse's name, SS #, income - if you rent or own your home - returned checks

What are the 5 C's of Credit Management?

1. Character 2. Capacity 3. Capital 4. Collateral 5. Conditions

What are the 3 common characteristics of closed end credit ?

1. Fixed period of time 2. Fixed Interest Rate 3. Fixed payment

3 most common type closed-end credit

1. Installment sales credit 2. Installment cash credit 3. Single Lump Sum credit

What are the 5 different components of your FICO score?

1. Length of credit history- 15% 2. Payment history- 35% 3. Amounts owed- 30% 4. Types of credit used- 10% 5. New Credit- 10%

Fair Credit Reporting Act

1. Regulates the use of credit reports, 2. requires the deletion of obsolete info 3. Gives consumers access to their files 4. The right to have erroneous data corrected

What are 6 types of credit?

1. Smart cards 2. Debit cards 3. Gift cards 4. Travel & Entertainment (T&E) cards 5. Smart phones 6. Home equity loans, LOC, HELOC, or second mortgage

Usually after 7-10 yrs a credit reporting agency can't disclose the info in your credit file unless... ? (2 scenarios)

1. being investigated for a credit application of $75,000 or more 2. Application to purchase life insurance of $150,000 or more

What to do if your identity is stolen? (3)

1. contact the fraud departments of each of the three major credit bureaus 2. contact the creditors for any accounts that have been tampered with 3. ***file a police report****

Advantages of Credit?

1. enjoy good & services now 2. Do not have to carry cash 3. Points, rebates, sky miles on purchases 4. May extend manufacturer warranty, provide insurance, roadside service

If you are denied a credit application what can you do? (2)

1. have the right to know why 2. Can get a free copy of your credit report within 60 days to ask for report

How to fix incorrect information in your credit file?

1. notify the credit bureaus in writing 2. Send certified letter requesting a receipt 3. Follow up

Fair Credit Billing Act (FCBA) -3

1. sets procedures for promptly correcting billing mistakes 2. refusing to make credit card payments on defective goods 3. promptly crediting payments Credit Mistakes

How can you protect yourself against credit card fraud?

1. use a secure browser 2. keep records of online transactions 3. review monthly bank and credit card 4. read the policies of web sites you visit 5. keep your personal info private 6. give payment info to businesses you know and trust only 7. never give your password to anyone online 8. do not download files sent to you by strangers

How many people usually pay off their balances in full each month on credit cards?

1/3- convenience users

Equal Credit Opportunity Act (ECOA)

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

Cosigning a Loan

Cosigners often pay off debt If you cosign: - make sure you can afford the loan - this debt may keep you from getting a loan (goes on co-signers credit report) - This debt may keep from getting a loan - make sure before you pledge property to secure the loan -check sate laws - request access to loan or copies of past due notices Can destroy your credit!!

Who can only pull your credit report ?

Nobody 1. Sign a document 2. Court Ordered Pulling a credit report many times looking for a credit or loan is called a "HIT"

Credit Card Accountability, Responsibility and Disclosure Act 2009

Places new restrictions on credit card lending and eliminates certain fees- need to give customers fair notice (hurts the revenue of financial institutions)

Consumer Credit Reporting Reform Act of 1997

Places the burden of proof for accurate credit information on the credit reporting agency rather then you - you need to keep a close eye

credit bureau

a reporting agency that assembles credit and other information about consumers

what does closed-end payment usually involve?

a written agreement for each credit purchase and specific payments

Revolving line of credit

arrangement whereby borrowings are permitted up to a specified limit and for a stated period, usually 5-10 years

What is installment cash credit?

direct loan of money for personal purposes, home improvements, or vacation expenses.

Debt to income ratio

dividing monthly debt payments by your net monthly income (after taxes) ***not safe- should not exceed 20% of net income on credit payments!!!**~15% Excludes mortgage

Debt to equity ratio

dividing total liabilities by net worth excludes value of your home or mortgage and no monthly bills (cell phone, bills, light & cable)

line of credit (open)

dollar amount, which may or may not be borrowed, that a lender makes available to a borrower. DANGEROUS unsecured loans = greater risk for bank so you pay a high interest rate on LOC

debit card

electronically subtracts the amount of a purchase from the buyer's account at the moment the purchase is made

Capacity

financial ability to meet credit obligations

conditions

general economic conditions that can affect a borrowers ability to repay a loan

Installment sales credit

loan allows you to receive merchandise (usually high priced items appliance or furniture)

What is the time limit on adverse data for a credit report?

most of info in the credit file is 7 years Personal Bankruptcy 10 years (pay 3x more)

Walking

nickname of man arrested for credit card fraud

T&E

not really credit cards because monthly balance is due in full

What to do if a billing error?

notify creditor in writing within 60 days of when bill was mailed Creditor MUST acknowledge your letter by law within 30 days Creditor may not threaten your credit rating while resolving a billing dispute

closed-end credit

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

What are advantages of credit?

pay for them later

Gift card

prepaid cards (like debt card)

What do platinum cards do?

provide emergency medical for travelers

Capital

refers to your assets or net worth

FICO credit score

the higher the score, the less the risk you pose to creditors : range 350-850 Excellent FICO = 800+ (calculated by getting all 3 bureaus different scores)

consumer credit

the use of credit for personal needs (Excludes a home and mortgage)

Convenience users

users of credit cards that pay their balance in full every month

collateral

valuable asset that you pledge to a financial institution to obtain a loan

What are 2 characteristics of an open end credit?

- Credit extended to a certain $$ limit; LOC never expires as long as payments are made - charge, repay, charge again

What are the disadvantages of Credit?

1. Overspending 2. Credit Cost Money

What is one of the biggest advantage of credit according to Mr. Davis?

Grace period or Float period

What are some examples of closed -end credit?

Mortgage loans Automobile loans Installment loans

home equity loan

a loan based on the current market value of a home less the amount still owed on the mortgage

interest

a periodic charge for the use of credit

revolving check credit

a prearranged loan from a bank for a specified amount; also called a bank line of credit

Who can file a complaint on a bank?

anyone, you don't have to go to the bank - report to the federal reserve system

credit

arrangement to receive cash, goods, or services now and pay for them in the future. OR obligating future earnings- spending money not yet earned

Character

attitude toward his or hers credit obligations

Smart Card

computer chip installed

What is incidental credit?

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

Installment cash credit

direct loan of $ for personal purposes, home improvements, or vacation expenses

Cobranding

linking of a credit card with a business trade name offering "points" or premiums toward product or service.

Smart Phones

mobile commerce

Does credit cost money?

yes

Does the fair credit reporting act allow authorized persons to obtain credit reports?

yes

What to do if denied credit?

you can get a free credit report within 60 days of request

What is the average number of credit cards people have?

~8-9

Credit Bureaus

1) Experian information Solutions- formerly TRW 2) TransUnion Credit Union Information Company 3) Equifax Services, Inc. all different values

Can bad credit report cost you a loan or higher interest rates?

yes

open-end credit

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

Single Lump Sum credit

loan that must be repaid in total on a specified day, usually within 30 days - 90 days

What is single-lump sum credit?

loan that must be repaid in total on a specified day, usually within 30 to 90 days

What are alternatives to financing current purchases?

savings, present earnings, borrowing

Examples of open-end credit?

Department credit cards (visa, MasterCard) overdraft protection Travel & entertainment cards (American express, DIners Club)