Chapter 8

briefly explain how the use of credit helped increase the average American's standard of living in the 20th century.

because credit increased people's ability to buy more goods and services, people bought luxuries as well as necessities.

Many states have passed laws allowing consumers to "freeze" their credit reports and files. Why?

because of increase in identity theft.

identify the "five Cs" of credit.

character, capacity, capital, conditions, and collateral

Describe the special protections provided for young consumers under the credit card accountability responsibility and disclosure act (Credit CARD Act)

credit card issuers must now verify proof of income or otherwise require a cosigner before issuing a credit card to someone under the age of 21. also they can't raise the credit limit for cardholders under 21 with a cosigner.

Explain how collateral protects creditors.

if you do not repay your debt as agreed, the creditor can seize the pledged property(collateral) and sell it to repay the debt

Loan qualification are based on three things. Name them.

income, financial position, collateral

What is a credit bureau?

it is a business that gathers, stores, and sells credit information to other businesses

Explain how closed-end credit works. How does it differ from open-end credit? Under what circumstances do consumers usually use closed-end credit.

it is a loan for a specific amount that must be repaid in full by a specified due date. closed-end credit doesn't let you go over your amount that you took out but if you make payments the open end credit will let you borrow more and more. they use it to pay very expensive items.

what is the annual percentage rate (APR)? Is APR typically fixed or variable?

it is the cost of credit expressed as a yearly percentage. it is usually a variable rate

Donna's assets are $4,500; her liabilities are $1,750. Find Donna's capital. How to do it: 4500 - 1750 = ?

$2,750.00

Tyler hires a credit guard service to monitor his credit files. He pays a $100 fee to subscribe to the service, plus a $25 monthly fee. He can request one free copy of his credit report each year; additional copies are $10 each. In the first year, Tyler requested three copies of his credit report. What was the total amount of fees Tyler paid the credit guard service during the first year? How to do it: 25 x 12= ? 300 + 100 = ? 400 + 20 = ?

$420.00

Cameron takes out a six-month loan at his bank for $500. The annual interest rate for the loan is 8 percent. If Cameron pays back the loan as agreed, what is the total amount (principal plus interest) he will pay the bank? How to do it: I = 500 x 0.08 x 6/12 I= ? 20 + 500 = ?

$520.00

Mia takes out a 12-month loan at her credit union for $750, payable in 12 equal monthly installments of $67.50. If Mia makes all required monthly payments, how much interest did she pay on the loan? How to do it: 67.50 x 12 = ? 810 - 750 = ?

$60.00

A local furniture store hires Vinnie's Creditor Services to collect a debt from Alice, who has stopped making payments on bedroom furniture she purchased several months ago. Alice still owes the store $1,500. If Vinnie collects the debt, his fee will be 40 percent of the amount collected. How much will Vinnie earn if he collects the entire debt from Alice? How to do it: 1500 x 0.4 = ?

$600.00

The financial ability to repay a loan with present income is known as ?

Capacity

(fill in) A responsible attitude toward honoring obligations is called ?

Character

(fill in) Property pledged to assure repayment of a loan is called ?

Collateral

(fill in)A(n) ? is someone who promises to pay if the borrower fails to pay.

Cosigner

Credit reports are issued by ?

Credit bureaus

(fill in) A credit ? is a written statement of a consumer's credit history.

Report

(fill in) When a credit bureau adds up your credit points, they result in a credit ?

Score

On a FICO score, new credit is rated based on ?

The number of recently opened accounts and the number of recent credit inquiries

Before granting you credit, a creditor will check into your past credit performance.

True

Businesses can make credit inquiries on you without your permission, but usually those inquiries do not count toward your credit score.

True

Credit bureaus are permitted to charge a reasonable fee for freezing or unfreezing a consumer's credit reports and files.

True

If the economy is slowing and unemployment in your area is rising, creditors may be less willing to grant you a loan.

True

If you hire a credit guard service company, you will be notified whenever anyone accesses your credit file for any reason.

True

Some banks allow minors to establish savings accounts with small balances and waive normal fees charged to other depositors.

True

The Account Detail section of a credit report shows the monthly balances for all of a consumer's credit accounts as well as credit limits on each account.

True

The fee charged by a debt collector is often about half of the amount collected.

True

The two major factors used to evaluate consumers' creditworthiness are credit rating and credit score.

True

How much credit card debt does the average American carry today?

almost $5,000

How can you obtain a copy of your credit report? How much does this typically cost?

you can get a free credit report from each of the three major credit bureaus or if you already have done that it costs $10 or more

A consumer request that requires the credit bureaus to deny all access to a consumer's credit information or files is called a ?

Credit freeze

(fill in) A(n) ? is a person or company hired by a creditor to collect the overdue balance on an account.

Debt collector

(fill in) ? is treating people differently based on prejudice rather than individual merit.

Discrimination

The Consumer Financial Protection Bureau was created by the ?

Dodd-Frank Wall Street Reform and Consumer Protection Act

Identify the three big national credit bureaus and explain how credit bureaus gather credit information.

Equifax, TransUnion, Experian. they gather information from businesses (subscribers) who pay a monthly fee to the credit bureau for access to this information. Subscribers supply names, addresses, credit balances, on-time payment record. they also get it from public records.

(fill in) A(n) ? credit rating is earned by a customer who usually pays all bills within the grace period, but occasionally takes longer.

Fair

Any negative information that could harm your ability to get credit remains in your credit report for 10 years.

False

Collateral refers to financial assets you possess that are worth more than your debts.

False

Once credit is established, most people should plan on having at least eight to ten credit cards at any given time.

False

The Fair Credit Billing Act prohibits creditors from denying credit to someone based solely on marital status.

False

When a bill is paid within 15 days of its due date, this is considered an automatic grace period.

False

When you are denied credit, you can obtain a credit report for $15 if you ask within 30 days of being denied.

False

Simon pays his bills on the due date or within a ten-day grace period. This would probably earn him a(n) ?

Good credit rating

(fill in) Your credit ? is the complete record of your borrowing and repayment performance

History

Which of the following is often the first step people take to establish a good credit record? -apply for a car loan -open a savings account -open a store credit account -apply for a credit card

Open a savings account

(fill in)Your credit ? is a measure of creditworthiness based on an analysis of your credit and financial history.

Rating

Credit bureaus gather information from businesses, called ?, that pay a monthly fee to the credit bureau.

Subscribers

This law requires lenders to fully inform consumers about all costs of a credit purchase before an agreement is signed.

The Consumer Credit Protection Act

Which of the following might be included in your credit report?

Your occupation, your martial status, and your address (all of above)

explain the difference between a consumer finance company and a sales finance company.

a consumer finance company makes most of its loans to consumers who are buying durable goods whereas sales finance companies make loans to consumers through authorized representatives, such as car dealerships.

What is a line of credit?

a pre-established amount that can be borrowed on demand with no collateral.

Explain the process of making payments on your credit card account. What is a minimum payment? When are credit payments due? What happens if your payment is late?

once you make a credit purchase you must pay the creditor the balance due which is principle plus interest for the time you have the loan. Minimum payment is the least amount you may pay that month under your credit agreement. they are due 10 to 25 days from receiving the bill. you will be charged a late fee.

Discuss the disadvantages of using credit.

there are Fees and finance charges, reduction of future buying power, it can cause overspending, and identity theft is possible.

What is a credit guard service? How does it work and what is the cost?

they are available to consumers who wish to hire a company to monitor their credit files at the three major credit bureaus. you are notified whenever anyone accesses your credit file for any reason. you have to pay $15 to $50 a month.

Why was the Fair Debt Collection Practices Act passed? What are the terms of the law?

to eliminate abusive collection practices by debt collectors. it prohibits use of threats, obscenities, and false and misleading statements to intimidate the consumer into paying.

What protections are provided to debtors under the credit CARD Act of 2009?

unfair consumer credit card rates and fees. credit card companies must also abide by clear and uniform rules before certain actions can be taken against a consumer or before a consumer can be charged additional rates and fees.