Personal finance ch.6

closed end credit

-One time Loan**** for a specific purpose that you pay back in a specified period of time and in payments of equal amounts -installment sales credit, installment cash credit, and single lump-sum credit -mortgage auntomobile and installment loans for furniture, appliances, and electronics

what to consider when co-signing a loan

-can you afford to pay the loan? if not, your credit rating could be damaged -liability for this debt may prevent you from getting other credit that you want -if you put up collateral, you could lose it if the loan goes into default -check your states law to learn about cosigners right -request that a copy of overdue payment notices be sent to you

what if you are denied credit?

-check your credit file at the credit bureau -if you believe reasons for denial are invalid, fire suit and/or notify federal enforcement agency -Ask the creditor to clarify reason for denial, if you believe the denial is valid... you should apply to another creditor with different standards -take steps to improve you creditworthiness -you have the right to provide a 100 word explanation in your life

your rights under consumer credit laws include

-complain to the creditor and let the creditor know you are aware of the laws -file a complaint with the government -if all else fails, sue the creditor in a federal district court

what do you do if your identity is stolen

-contact the fraud department of each of the three major credit bureaus -contact creditors to check for accounts that have been tampered with or opened fraudulently -file a police report and keep a copy in case your creditors need proof of the crime -check www.privacyrights.org or call -file a complaint with the federal trade commission at (FTC number)

what are the trade offs with each alternative

-depleting savings reduces emergency funds -spending current income will eventually reduce future well-being -spending future income now reduces funds available for future expenses

questions to ask before you use credit for a major purchase

-do i have the cash for the down payment? -do i want to use my savings for this purchase? -does this purchase fit my budget? -could i use the credit ill need in some better way? -can i postpone this purchase? -what are the opportunity costs of postponing this purchase? -what are the dollar and psychological costs of using credit for this purchase?

what are the 3 ways consumers can finance purchases

-draw on their savings -use present earning -borrow against expected future income

smart cards

-have an embedded computer chip -combine credit cards, a driver's license, a health care ID with your medical history and insurance information

advantages of credit

-immidate access to goods and services -permits purchase even when funds are low(christmas time) -a cushion to financial emergencies -advance notice of sales -easier to return merchandise -convenient when shopping -one monthly payment -safer than cash -needed for hotel reservations, car rentals, shopping online -can take advantage of float time/grace period -may get rebates, airlines miles, extended manufactures warranties, or other bonuses. -indicates financial stability

Fair credit billing act

-notify credit of error in writing within 60 days -include your explanation of the error and your account number to the billing inquires address -they must respond within 30 days -credit card company has two billing periods but no longer than 90 days to correct your account or tell you why they think the bill is correct -your credit rating is not affected while items is in dispute

debit cards

-often called bank cards, atm cards, cash cards, and check cards -electronically subtracts from your account at the moment you make a purchase (no delay in payment)

stored value (or gift) cards

-resemble a debit card -used in lieu of paper gift certificates -used for business purposes (travel expenses) -bankruptcy can make the cards worthless

comsumer credit payments should not exceed

a max of 20% of your net (after-tax) income

in order to determine credit score you just need to collect

all financial information with your social security on it

what is credit

an arrangment to receive cash goods or services now and pay for them in the future. (buy now, pay later)

Who provides data to credit bureaus

bureaus get information from banks, court records, finance companies, credit card companies, merchants, and other creditors (car companies)

capacity

can you repay the loan?

What creditors look for (5Cs)

character capacity capital collateral conditions

home equity loans are based on the difference between

current market value of your home and the amount owed on the mortgage

character

do you pay your bills onetime

example of closed end credit

first car - you have monthly payments borrow 20,000 and pay it back monthly

when complaining about consumer credit you should

first try AND SOLVE THE PROBLEM with the creditor -if that does work, there are more formal complaint procedures -there are a variety of consumer credit protection laws and federal agencies who administer and assist with complaint procedures

bank credit cards are

has the lowest rates

consumer credit

is the use of credit for personal needs (except a home mortgage) *major economic force

if you go yo federal court

it might cost you more than you initially owe

you excuse your house payment because it is a

long term liability

experian

most important for credit score

how often should you check credit report

not too often or you could damage your score, check about once a month

how often should you check your credit report

once a month

what steps should you take to improve your creditworthiness

pay bills on time pay bills

Federal Trade commission receives complaints about what

people who feel their credit score isn't right

Home equity loans is a

revolving line of credit

total liabilities / net worth =

should be less than 1 (exclude the value of your home and the amount of its mortgage)

interest on home equity loans are (tax)

tax deductible - only pay interest once you start writing off checks for it

Co signing a loan

the creditor will give you a notice that tells you -you are being asked to guarantee the debt, so consider if you can afford it if the borrower defaults -if the borrow does not pay, you may have to pay up to the full amount and also any late or collection fees -if a payment is missed the creditor can collect the debt from you without first trying to get it from the borrower

the IRS looks closely at

trave land entertainment cards

capital

what are you assets and net worth?

conditions

what economic conditions could affect your ability to repay the loan? *lose your job

collateral

what property do you have to pledge that the lender can repossess if you default on the loan

debt payment to income ratio

your monthly debt payments / net monthly income

Building and maintaining your credit rating

-A GOOD CREDIT RATING IS A VALUABLE ASSET THAT SHOULD BE NURTURED AND PROTECTED -limit your borrowing to your capacity to repay - live up to term of contracts - check to see what is in your credit report

how can you know if you can afford a loan?

-Ask yourself if you can still meet all essential expenses and still afford the monthly loan payments -ask yourself what do you plan to give up in order to make the monthly payment? -are you prepared to make this trade off?

Credit Bureaus

-Consumer reporting agencies collect info -Experian, transUnion, and Equifax -Federal Trade Commission gets about 12,000 complaints about credit bureaus each year

Credit cards ******

- 8/10 US households carry one or more credit cards -1/3 are convenience users and pay balance in full each month -two thirds are borrowers, carrying a balance over a paying finance charges -some use cards for cash advances, paying a transaction fee and interest -co-branding- linking a credit card with a business offering points or rebates on products and services.

how do you protect yourself against debit/creidt card fruad

-sign new cards as soon as they arrive or write (seeID) -treat cards like money and keep them secure -shred anything with your account number on it -dont give your card number over the phone unless you initiate the call and don't write on postcards -get card and receipt after every transaction and check for errors by comparing receipts to bills -notify the card issuer if you don't get your billing statement or if your card is lost or stolen -check your credit report regularly

what do you tell the fraud department when your identify is stolen

-tell them to flag your file with a fraud alert -include a statement that creditors should call you for permission before opening any new accounts in your name

disadvantages of credit

-temptation to overspend -failure to repay loan may lead to loss of income -misuse of credit can create serious long-term financial problems, damage to family relationships, and a slowing of progress toward financial goals -it does not increase total purchase power -credit costs money

travel and entertainment cards

-these cards are not really credit cards -monthly balance is due in FULL -diners club or american express cards -american express is now also issuing credit cards

Fair credit reporting act

-this act regulates the use of credit reports*** -requires the deletion of obsolete information -credit card companies must correct inaccurate or incomplete information -only authorized persons have access to your report -adverse data can be reported for seven years; bankruptcy for ten years

Protection under consumer credit laws

-truth in lending and consumer leasing acts -equal credit opportunity act -fair credit billing act -fair credit reporting act -consumer credit reporting reform act -credit card accountability, responsibility and disclosure act.

When you make purchases online you should

-use a secure browser -keep records of online transactions -review monthly statements-can do so online -read policies of the websites you visit -keep personal info private unless you know who is getting it -shop at businesses you know and trust -never give out your password to anyone online -do not download files sent by strangers

Open end credit

-use as needed until reaching LINE OF CREDIT max -you pay interest and finance charges if you do not pay the bill in full when due -credit cards issued by departments stores, bank credit cards, overdraft protection, incidental credit, and revolving check credit (bank line of credit)

when you receive bad service this is very beneficial when you have a credit card becasue

-you can withhold payment on damaged or shabby goods or poor services as long as you make sincere attempt to resolve the problem with your creditor

if you have bankrupty how much credit will you have

0

how to determine fico score from most important to least

1) payment history 2) amount owed 3) length credit history 4) types of credit used & new credit

How to improve your credit score

1. get copies of your credit report-review for accuracy 2. pay your bills on time 3. understand how your credit score is determined 4. learn the legal steps to improve your credit report 5. beware of credit-repair scams

how much can you borrow up to on home equity loans

85% of the appraised value of the home less amount still owed

smart phones to make purchases is called

Mobile commerce