Personal Finance Chapter 4

Once you turn 18, you should regularly check your credit report . . .

For errors or signs of identity fraud

What is The Second Foundation?

Get out of and stay out of debt

_____________ require the borrower to put up collateral for the loan.

secured loans

How you spend and give your money . . .

Is a reflection of your personal values

Which of the following is part of the formula that determines a person's FICO score?

their history of payments made to lenders

Something that credit card commercials don't show you is . . .

People making payments for months or years on those credit card purchases

Credit cards that offer flashy rewards like airline miles often . . .

charge a high annual fee

Loans that directly help you advance in life, such as student loans, are acceptable debts.

false

There are certain things, like renting a car or booking a hotel room, that you cannot do without having a credit card.

false

Leasing a car is a method of financing where someone __________________.

Makes monthly payments on but does not own the vehicle

What is the danger of putting up collateral for a loan?

You can lose the loan collateral if you fail to make the payment

A car is a depreciating asset.

true

A credit score is an indicator of how well someone pays off their debt, not how well they handle money.

true

When you buy with credit, you typically spend more than you would with cash or a debit card.

true

When you finance a new car, you will end up paying more than the sticker price.

true

While it may not always appear so, the majority of Americans live paycheck to paycheck.

true

Making purchases with a credit card means that you're borrowing money with interest, and _________ pay much higher interest rates.

young people

Your greatest tool to building wealth is _____________.

your income

Describe marketing tactics that the credit industry uses to trick people into getting into debt.

-low-or zero-interest introductory rates that will later become higher interest rate and hidden fees -require only the minimum monthly payments, which keep you in debt -offer cash back and other rewards, which is hardly any money

Credit isn't a wealth-building tool, it's a business that makes money for . . .

Credit card companies, banks, and lenders

What is the difference between an appreciating asset and a depreciating asset? Give examples of both.

An appreciating asset's equity goes up like a house. An depreciating asset is where the value goes down like a car.

Banks and lenders use credit scores to determine . . .

The likelihood that someone is able to repay debt

Predatory lenders get their negative reputation from . . .

Charging high fees for loans and targeting desperate people

Credit card companies make the most profit from ______________.

Charging interest to customers who only pay part of their monthly debt

Explain why the importance of a good credit score is a myth.

FICO score does not measure how wealthy someone is or how well you manage your money. It only shows how good you are at making payments on your debt.

When a homeowner takes out a home equity line of credit (HELOC), that loan can only be used for home repairs and renovations.

False

Car lease agreements come with a stipulation that you must pay a penalty if you___________.

Go over the pre-established mileage cap

Explain the debt snowball method. How can it help you get out of debt?

It is the best way to get all debts paid off as quickly as possible. 1. List your debts from smallest to greatest based on minimum payments. 2. Attack smallest debt with a vengeance 3. Every time you pay off a debt, add the amount you were paying on that debt to your next debt payment. This creates the snowball! 4. Repeat this method & plow your way through debt.

Explain why debt and credit are a bad idea. How could they negatively affect your life?

Keeps in a cycle of paying off past instead of focusing on future, keeps you from focusing and achieving your goals

When looking over your credit report, it's important to make sure . . .

No lines of credit have been opened under your name without your knowledge

What is the best way to avoid falling into debt?

Only buy things that you can purchase with cash

The smartest way to buy a car is to ________________.

Pay for it in cash

The debt snowball method involves . . .

Paying off debts from smallest to largest

List three ways the credit card industry makes money off of customers.

Through interest charges, late fees payments, cash advance fees, merchant fees

Which is an example of an appreciating asset?

a home

Credit card companies charge stores a 2-3% fee for every purchase made with credit cards. This is called a(n) . . .

merchant fee

The ________ is the total amount of the car loan, plus taxes and fees.

principal