*Chapter 6 Personal Finance Consumer Credit
Equal Credit Opportunity Act
Bans discrimination of credit on the basis of race, color, age, sex, marital status, and other factors.
Five C's of Credit
Character, Capacity, Capital, Collateral, Conditions
consumer credit
Dates back to colonial times.
The three most common types of closed-end credit are
installment sales credit, installment cash credit, single lump-sum credit
closed-end credit
one-time loans that the borrower pays back in a specified period of time and in payments of equal amounts
Cobranding
placing two or more brand names on a product
Fair Credit Reporting Act
regulates the use of credit reports
An example of open-end credit is
revolving check credit
Fair Credit Billing Act
sets procedures for promptly correcting billing mistakes, refusing to make credit card payments on defective goods, and promptly crediting payments
capital
the borrower's assets or net worth
character
the borrower's attitude toward his or her credit obligations
capacity
the borrower's financial ability to meet credit obligations
conditions
the general economic conditions that can affect a borrower's ability to repay a loan
Credit encourages overspending and ties up future income
true
the baby boom generation currently represents 30% of the population and holds __% of debt
60
Most information in your credit file may be reported for only ______ years.
7
collateral
A valuable asset that is pledged to ensure loan payments.
With closed-end credit borrower is permitted to take loans on a continuous basis and is billed for partial payments periodically
False
With open-end credit, the borrower pays back a onetime loan in a specified period of time and with a specified number of payments.
False
An example of closed-end credit is
Installment sales credit
Which federal law provides specific cost disclosure requirements for the annual percentage rate and the finance charge as a dollar amount
Truth in Lending Act
open-end credit
a line of credit in which loans are made on a continuous basis and you are billed periodically for at least partial payment
bank line of credit
a prearranged loan for a specified amount
Which one of the following is not one of the five C's of credit?
climate
incidental credit
credit arrangement that has no extra costs and no specific repayment plan
Two general rules of thumb for measuring credit capacity are
debt payments to income ratio and debt to equity ratio