Unit 4 - Credit & Payment Types

debit card

A bank card that automatically deducts the amount of a purchase from the checking account of the cardholder

Chapter 13 Bankruptcy

permits debtors with regular incomes to pay all or a portion of their debts under the protection and supervision of the court

Collateral Loan

A type of loan that is backed by the borrower's assets. If a borrower defaults on the loan, the assets it has pledged as collateral can be sold to repay the loan. (i.e. car or house or Pawn Shop)

Annual Fee

This fee is charged by a credit card company each year for use of a credit card. This is a separate fee from interest rate on purchases.

APR (Annual Percentage Rate)

interest rate for a whole year (annualized), rather than just a monthly fee/rate, as applied on a loan, mortgage loan, credit card, etc.

Late Payment Fees

A charge a consumer pays for making a required minimum payment on a credit card after the due date. This fee encourages consumers to pay on time and is typically $25 - $35

FICO Score

A credit score that lenders use to determine an applicant's credit risk and whether to give a loan.

Credit Report

A detailed report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness

Truth In Lending Act

A federal law enacted in 1968 with the intention of protecting consumers in their dealings with lenders and creditors.

store gift card

A form of payment that can only be used in a specific store, on the store's website, or at stores owned by that specific store company. It is important to read the information regarding the expiration date, signature, and how to activate it.

Bankruptcy

A legal process to get out of debt when you can no longer make all your required payments

Revolving/Open End Credit

A line of credit where the customer is allowed to use the funds when they are needed. If the customer pays the entire balance the account will remain open for the customer to use again in the future.

Unsecured Loan

A loan that is issued and supported only by the borrower's creditworthiness; it has no collateral to back it.

Phishing

A method of identity theft carried out through the creation of a website, phone call, e-mail that seems to represent a legitimate company. The victim trusts it and submits personal information that is then used to assume the victims identity.

State Usury Laws

regulations governing the amount of interest that can be charged on a loan. Usury laws specifically target the practice of charging excessively high rates on loans by setting caps on the maximum amount of interest that can be levied. These laws are designed to protect consumers.

garnish wages

when you owe a lot of places and they call employer to get direct deposit from your paycheck to their loan account

Variable Interest Rate

An interest rate on a loan that fluctuates (can go up or down) over time.

Fixed Interest Rate

An interest rate on a loan that stays the same and does not fluctuate (go up or down) over time.

cash card

Is purchased with a specific amount of money that can be used to pay for goods or services

Chapter 7 Bankruptcy

Chapter of the Bankruptcy Code providing for liquidation of the debtor's assets in order to repay the creditors; certain assets or aggregate value of assets of the debtor may be exempt based on state law.

Finance Charge

Expressed as a percentage, this number represents the actual yearly cost of funds over the term of a loan. This includes any fees or additional costs associated with the transaction.

Contactless payment

Payment transactions that can be completed with no physical connection between the payment device and the physical point of sale (POS) terminal or store clerk

Collateral

Property or other assets that a borrower offers a lender to secure a loan. If the borrower stops making the loan payments, the lender can take the asset.

Chapter 11 Bankruptcy

Reorganization of a business where company can operate with pre-bankruptcy management in place while the entitlement of lenders and investors are reorganized to replace a failed capital structure.

Cosigning

The act of signing for another person's debt which involves a legal obligation made by the cosigner to make payment on the other person's debt should that person default. Having a cosigner is way for individuals with a low income or poor/limited credit history to obtain financing.

Credit Limit

The amount of credit that a financial institution extends to a client. The maximum amount a credit card company will allow someone to borrow on a single card

Delinquent

The failure to accomplish what is required by law, such as the failure to make a required payment on a debt.

Default

The failure to promptly pay interest or principal when due. This happens when a debtor is unable to make the required debt repayment.

Minimum Amount Due

The smallest amount of a credit card bill that a consumer can pay, to remain in good standing with the credit card company. Making the monthly minimum payment on time is the least a consumer needs to do, to avoid late fees and to have a good repayment history on his credit report. The amount of the minimum monthly payment is calculated as a small percentage of the consumer's total credit balance.

Grace Period

The time that a payment can be received with no late fees or interest being charged.

Electronic Funds Transfer (EFT)

a computerized cash payments system that transfers funds without the use of checks, currency, or other paper documents

Closed-end Credit

a loan or type of credit where the funds are dispersed in full when the loan closes and must be paid back, including interest and finance charges, by a specific date. The loan may require regular principal and interest payments, or it may require the full payment of principal at maturity.

credit card

a small plastic card issued by a bank, business, etc., allowing the holder to purchase goods or services on credit.

Cashless Society

a society where consumers rely solely on credit cards, debit cards, electronic accounts and checks

mortgage

a specific type of loan that is used to buy real estate

Credit Score

a statistical number that evaluates a consumer's creditworthiness and is based on credit history. Lenders use credit scores to evaluate the probability that an individual will repay his or her debts. A person's credit score ranges from 300 to 850, and the higher the score, the more financially trustworthy a person is considered to be.

Unauthorized Credit Card Charges

charges made on your credit card that you did not approve - this usually happens when your card has been stolen - you are not usually responsible for these charges if you report it to the credit card company

Secure Loan

loan/debt backed or secured by collateral to reduce the risk associated with lending, such as a mortgage. If the borrower defaults on repayment, the bank seizes the house, sells it and uses the proceeds to pay back the debt. Assets backing debt or a debt instrument are considered security, which is why unsecured debt is considered a riskier investment.