6.2 Study Guide
explain how debt impacts a person's net worth
assets- your liabilities = net worth
What benefits does a borrower receive from maintaining a positive credit history?
being able to borrow more and longer terms
What's the number one reason you should review each of your three credit reports every year?
being able to prevent thief and fraud
5 credit disasters to avoid AND how long each stays on your report if vou make that credit error.
charge offs- 7 years debt collections- 7 years bankruptcy- 10 years fore closure- 7 years repossession- 7 years tax liens lawsuits
top 3 things you think are most important for a college student
choose a card that is right for you make your payments on time don't let your balance grow
what is the relationship between an emergency fund and credit/loans?
emergency fund has no interest or fees credit/loans has interest and fees
As a high school student, which of the common errors listed would you be most concerned about? Why?
incorrect dates, opened accounts and inquiries I didn't authorize. Because they just seem more dangerous
What 4 questions should you ask yourself before using credit to make a purchase?
necessary? monthly payments fit in budget? save instead of borrow? is it worth the added interest?
give examples of species things could do to increase his net worth by next year
pay down on bills save money
what type of information would be included on a credit report?
payment history- 35% debt to credit ratio- 30% length of credit history- 30% types of credit- 10% new credit account- 10%
What benefit do lenders get from reviewing a prospective borrower's credit report?
to see if you'll be able to pay money
why might it be important to track your net worth?
to see if your fine is increase or decrease
why is it important to maintain a good credit report and score
you get a better chance of getting approved the higher credit score you have the more power to get more, bragging rights
Aelita identifies an error on her credit report: her address is totally wrong she's never lived at the listed address. What should she do next?
you need to contact the ones who created the report.
Credit Bureau
A consumer-reporting company that collects and sells information about how individual people manage their credit (e.g. Equifax)
Credit Report
A document with information about a person's credit activity and history
Fair Credit Reporting Act
A federal law that helps to ensure the accuracy, fairness and privacy of the information in consumer credit bureau files
Payment History
A history of the payments you have made on all credit you have obtained; 35% of your credit score is based on this
Equal Credit Opportunity Act
A law that protects consumers from discrimination in the granting or denying of credit
Bankruptcy
A legal proceeding carried out to allow individuals or businesses freedom from their debts, while simultaneously providing creditors an opportunity for repayment
Credit Utilization Rate
A measurement of your outstanding debt divided by your total available credit; a general rule of thumb is to keep this under 30%
High Rate Method
A method of debt repayment whereby the borrower prioritizes paying down debts with the highest interest rates first
Debt Snowball Method
A method of debt repayment whereby the borrower prioritizes paying down debts with the smallest balances first
Authorized User
A person who has permission to use and/or carry another person's credit card, but isn't legally responsible for paying the bill
Credit History
A record of a person's use of credit over time; 15% of your credit score is based on the length of your credit history
Credit Score
A three-digit number (ranging from 300-850) based on an individual's credit history detailed in a credit report
Types of Credit
Also known as your credit mix. This can include a mix of accounts from credit cards, retail accounts, installment loans, finance company and mortgage loans. 10% of your credit score is based on this.
Credit
An agreement in which a borrower receives something of value now and agrees to repay the lender in the future, generally with interest
Debt Settlement
An agreement made between a creditor and a consumer in which the total debt balance owed is reduced and/or fees are waived, and the reduced debt amount is paid in a lump sum instead of revolving monthly
Collections
An attempted recovery of a past-due credit obligation or debt by a collection department or agency
Soft Inquiry
An inquiry into your credit history as part of a background check. This does not affect your credit score
Hard Inquiry
An inquiry into your credit history, typically in advance of applying for a loan. Hard inquiries can negatively affect your credit for 12 months and remain on your credit history for two years.
Where can you access your credit score for free?
Annual Credit Report.com
name two reasons that paying your credit card or loan bil late has serious consequences.
Can build up affect credit history, saying you dont pay on time
Amounts Owed
How much you owe each creditor individually and in total; 30% of your credit score is based on this
Fast forward to age 45. Which error type would you now be mi concerned with? Why?
Incorect balances or limits. the main one you need the most.
Default
Long-term failure to repay a loan according to the terms agreed to, which has a substantial negative impact on the borrower's credit score
How would you decide whether an error is worth disputing?
Maybe an opinion from professinal, Which ones are common
FICO Score
The most commonly used credit score
New Credit
The number of recently opened credit accounts and all new credit inquiries; 10% of your credit score is based on this
What is a credit score?
a number that helps lenders assist how well you manage your financial
