CSM 204 Exam 2 - Fulmer

Advantages of credit

-Float time and grace period -Rewards programs (cash back, merchandise) -Indicates financial stability -Safer than cash or debit cards -Convenient when shopping -Cushion for emergencies -Easier to return merchandise -One monthly payment -Borrowing for college education -Increases the amount of money a person can spend to purchase goods and services now

Debt problems

-Paying only the minimum -Growing balances -Missing or late payments -Intentionally using overdraft protection -Dipping into savings regularly -Not discussing money or only discussing money -Depending on overtime pay -Not knowing how much you owe -Exceeding credit limits -Being denied credit -Having your credit card revoked Are signs for what?

Disadvantages of credit

-Temptation to overspend -Potential damage to credit rating -Decreases total purchasing power -Credit costs money -Minimum payment is dangerous -Decreases the amount of money that will be available to spend in the future

practical purchasing strategies

-Timing purchases (electronics cheaper in January) -Store selection -Brand comparison (generic vs store brand) -Label information -Price comparison -Evaluate warranties -Service contracts Are what?

Renting advantages

-easy to move -less maintenance -more room than apartment -minimal financial commitment Are what?

Advantages of buying a home

-established neighborhood (previously owned) -no previous ownership (new home) -pride of ownership - financial tax benefits -lifestyle flexibility Are what?

Disadvantages of buying a home

-financial commitment and uncertainty -possibility of repairs or replacements (previously owned) -higher living costs -limits regarding mobility Are what?

disadvantages of leasing a car

-no ownership interest in the vehicle -a need to meet requirements similar to qualifying for credit -possible additional costs incurred for extra mileage, certain repairs, turning the car in early, or even moving Are what?

Renting disadvantages

-no tax benefits -limitations regarding remolding -may have restrictions regarding pets, other activities Are what?

advantages of leasing a car

-only small cash outflow may be required for the security deposit -monthly lease payments are usually lower than monthly financing payments -the lease agreement provides detailed records for business purposes -you are usually able to obtain more expensive vehicle, more often Are what?

financial benefits

A common advantage associated with home ownership is:

Arbitration

A legally binding decision by a third party is:

Collateral

A valuable asset that is pledged to ensure loan payments is which of the Five Cs of credit?

CARD Act

All of these are under what act? -Limits rate increase in one year -Restricts rate increases to new purchases -Must inform of rate of increase 45 days in advance -Statement 21 days prior to due date. This statement must display due date and late fee prominently, and disclose length of repayment if only minimum is paid. -Disclosure must be on internet -Restricts over limit penalties -No cards issued to consumers under 21 without cosigner

Credit

An arrangement to receive goods or services now and pay later

Installment Loans

An example of Closed-Ended Credit?

A credit card

An example of Open-Ended Credit is?

false

Comparative housing involves the purchase of an individual living unit in a multiunit complex or building. True or false?

phase two- evaluation alternatives

Comparison shopping, selecting options (mechanical, convenience, aesthetic), new or used, buy or lease belong in what stage of making major consumer purchases?

Open-Ended (Revolving) Credit

Credit cards and/or lines of credit that you apply for and stay open until its not used appropriately. A line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payments. Adjusted balance method and average daily balance method.

True

Credit encourages overspending and ties up future income. True or False?

Open-Ended (Revolving)

Debit Cards, Smart Cards (Act card), Stored Value Cards, Travel and Entertainment Cards, Smart Phones, and Home Equity Loans are examples of what type of credit?

Fair Credit Billing Act

Establishes procedures for consumers and creditors to follow when billing errors occur on periodic statements for revolving credit accounts. Sets procedures for promptly correcting billing mistakes or errors, refusing to make credit card payments on defective goods, and promptly crediting payments. Used for correcting credit mistakes up to $50

Improve your credit rating

Getting copies of your credit report and verify that the info is correct, PAYING BILLS ON TIME, understanding how the score is determined, learning the legal steps, and being aware of credit-repair scams are all ways to what?

2 billing cycles or by no longer than 90 days

How long does the creditor have to fix the mistake?

Notify creditor within 60 days with account number and explanation of the error.

How soon should you notify a creditor of credit mistakes and what should you include?

Pay off the largest balances first

If you become overextended, what should you not do?

phase 3- determining purchase price

Knowing info about the vehicle, dealing with person of authority to lower price, getting the starting price information in advance, getting the price prior to mentioning trade-in, looking for rebates or low interest rates, and comparing financing alternatives belong in what stage of making major consumer purchases?

phase 4- post purchase activities

Lemon Laws, automobile operation costs (insurance,title,gas), and motor vehicle maintenance (oil,services) belong in what stage of making major consumer purchases?

7 years

Most of the information in your credit file except bankruptcy may be reported for how many years?

Location

Most real estate professionals believe the most important factor in selecting a home is:

True

Parents or family members are often the cheapest source of loans. True or False?

Consumer Credit Reporting Reform Act

Places the burden of proof for accurate credit information on the credit reporting . Amended the Fair Credit Reporting Act.

Consumer Credit Reporting Reform ACt

Places the burden of proof for accurate credit information on the credit reporting agency. Places new restrictions on credit card lending and eliminates certain fees. To establish fair and transparent practices relating to the extension of credit under an open-end consumer credit plan, and for other purposes.

phase one- preshopping actiivities

Problem identification (needs vs wants) and information gathering belong in what stage of making major consumer purchases?

Equal Credit Opportunity Act

Prohibits credit discrimination based on sex and marital status. if you think you can prove that a creditor has discriminated against you for any reason prohibited by the ECOA, may sue for actual damages plus punitive damages of up to $10,000.

Truth in Lending Act

Provides specific cost disclosure requirements for the annual percentage rate and the finance charges as a dollar amount. If a creditor fails to disclose info required under the act, gives inaccurate info, or does not comply with the rules regarding credit cards or the right to cancel them, you may sue for actual damages; Class Action Suit

Fair Credit Reporting Act

Regulates the use of credit reports, requires the deletion of obsolete information, and gives consumers access to their files and the right to have erroneous data corrected. Allows only authorized persons to obtain credit reports. Requires disclosure to consumers of the name and address of any consumer reporting agency that supplied reports used to deny credit, insurance, or employment. Gives them the right to know what is in their files.

Fair and Accurate Credit Transactions

Requires the federal trade commission to issue proposed rules to address identity theft concerns. Defines identity theft as fraud committed or attempted.

True

The best way to compare the cost of two different loan options is to consider Annual Percentage Rate. True of False?

Capital

The borrower's assets or net worth, money, savings or checking accounts, investments, stocks, bonds is which of the Five Cs of credit?

Character

The borrower's attitude toward is or her credit obligations is which of the Five Cs of credit?

Capacity

The borrower's financial ability to make meet credit obligations, capacity to make payment (debt ratio), income, and expense statement is which of the Five Cs of credit?

Conditions

The general economic conditions that can affect a borrower's ability to repay a loan is which of the Five Cs of credit?

you become overextended

These are steps you should take in case what? 1.Determine how much is owed and to whom 2.Develop a budget focused on debt reduction and stick to it 3.Contact creditors and seek extension of repayment periods.

Single Pay Loans

These loans have short-term need for the money and single payment cash flow to pay it back

Credit bureaus

These places collect credit and other info about consumers:

Debt payment-to-income ratio

This general rule of credit capacity is calculated by dividing your monthly payments by your net monthly income (all payments not including mortgage as a percent of you take home pay, general guideline is 15%)

Installment Loans

This is a loan that allows you to receive merchandise, usually high-priced items; down payment or a trade-in may be required. Is a direct loan of money for personal purposes, home improvements, expensive vacations. No down payment made and make payments in specified amounts over a period set.

Debt-to-equity ratio

This other rule of credit capacity is calculated by your total liabilities by your net worth

Closed-Ended Credit

Use it for the purpose intended then its closed, involves a specified amount. One-time loans that the borrower pays back in a specified period of time and in payments of equal amounts.

Consumer Credit

Used for personal needs (except home mortgages) by individuals and families. Ties up future income.

Security deposit Living expenses Monthly rent Utilities Renter's insurance

What are some costs of renting?

Installment Loans, Mortgage Loans, Automobile Loans

What are some examples of Closed-Ended Credit?

Commercial banks, credit unions, consumer finance companies, life insurance companies, federal savings banks

What are some sources of consumer credit?

Consumer credit counseling Your financial institution

What are some ways to manage your debt?

go to the place of purchase Manufacturer's headquarters Consumer agency

What are some ways to resolve consumer complaints?

Character Capacity Capital Collateral Conditions

What are the Five Cs of Credit?

Pay on time Limit borrowing Control the number of inquires

What are the best ways to build and maintain your credit score?

1. Preshopping Activities 2.Evaluation Alternatives 3.Determining Purchase Price (negotiating phase) 4. Post-purchase Activities

What are the phases of making major consumer purchases?

Equifax, Trans Union, Experian

What are the three credit Bureaus where you can check you credit score?

Open-Ended (Revolving) Closed-Ended

What are the two types of credit?

Mediation

What consumer agency only gives you a recommendation?

The cosigner takes on all the debt

What happens if the loaner does not pay?

credit rating

What is the major factor that affects a applicant's qualification for a mortgage?

Warranties

What is the term for a written guarantee from the manufacturer or distributor of a product that specifies the conditions under which the product can be returned, replaced, or repaired?

Service Contracts

What is the term for an agreement between a business and a consumer to cover the repair costs of a product?

Reverse Mortgages

What term refers to a loan based on the equity in a home, that provides elderly homeowners with tax-free income and is paid back with interest when the home is sold or the homeowner dies?

Consumer Credit

What term refers to a type of credit that sustainsforce for our economy. The aging of the baby boom generation has added to the growth of consumer credit. Represents 30% of population and holds nearly 60% of debt

APR (Annual Percentage Rate)

What term refers to the percentage cost of credit on a yearly basis, and yields a true rate of interest for comparison with other sources of credit?

Finance Charge

What term refers to the total dollar amount you paid to use credit?

Lender risk vs Interest rate

What trade-off in credit deals with financing that requires low fixed payments with a large final payment or only a minimum of up-front cash, increase your borrowing cost. Usually better option except when variable rates are very low or rates will only go up?

Term vs Interest costs

What trade-off in credit deals with long-term finance---smaller payments, but higher total interest?

Chapter 13

What type of bankruptcy is known as regular income plan or wage earner plan that stays on your record for ten years? It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years.

Chapter 7

What type of bankruptcy is known as straight bankruptcy or immediate liquidation plan, that leaves one hugely in debt/bail out of everything?

Parent cosigning for child (car)

When is it okay to cosign for a loan?

Finance Companies

Which consumer credit source often lends money to consumer without established credit?

30 days

Within how many days does a creditor have to respond to a mistake?

housing choices

•Interest income lost •Time and cost of commuting to live in less expensive area •No tax advantages for renters •No equity build up for renters •Time and money tor repair/improve lower priced home •Time and effort to custom build Are what opportunity costs of what?

Finding and evaluating a property to purchase

•Selecting location •Using real estate agent •Conduct a home inspection or hire a inspector •Mortgage company will want an appraisal Are tips for what?