Basics of Credit, Credit Cards, and Credit scores & Reports
APR for Purchases
is the interest rate that's applied to credit card purchases.
Minimum Payment:
is the lowest amount of money that you are required to pay on your credit card statement each month.
Penalty APR and When it Applies
nterest rate charged on new transactions if the penalty terms in the contract are triggered
Why should a person shop around with different lenders?
A person should shop around with different lenders to have experience with loans and credit, different contracts, different lenders, and different deals.
A credit card is
A plastic card that you can use to access a line of credit that has been established in advance.
A credit history is
A record of the borrowers past loan and credit related transactions
A credit report is
A record, created by a CRA, of an individuals credit history
When do lenders report?
They report all information positive and negative.
Why might a lender check a person's credit history?
To evaluate their credit report score
Why is it important to read a monthly statement closely?
To make sure everything is correct and not wrong.
Describe the recommended amount to borrow.
Total amount should be less than 20% of annual net income, Monthly payment should be less than 10% of monthly net income
Minimum Interest Charge:
Typically $0.50-$2 per month
APR for Cash Advances
Withdrawing cash from an ATM using a credit card
Credit availability depends on
if investors trust you and will pay you back if the loan is approved
A credit score reflects a particular
info in the entire credit report
Account Number:
is a unique string of numbers and, sometimes, letters and other characters that identifies the owner of a service and permits access to it.
Current Balance:
is the amount currently owing on your card account.
Credit Line:
is the amount of money that can be charged to a credit card account.
What is the disadvantage of doing this?
It takes longer
Give 2 examples of a credit card reward
1. Cash Rebates 2.Travel insurance
What are two examples of the purpose of credit providing long‐term benefits.
1. Investing in human capital and education loans 2. Purchasing a car to get to and from work
What are 3 examples of closed-end credit?
1. Mortgage 2.Automobile 3.Loan
What are three ways a credit card is a convenient payment tool?
1. No need to carry large amounts of cash 2. Useful in emergencies 3. Often required to hold a reservation
Identify four positive credit card behaviors
1. Pay credit card balances in full every month 2. Pay credit card bills on time 3. Be conscious of how credit cards affect your credit history 4. Check monthly credit card statements for errors
List 5 strategies to build a positive credit history.
1. Set up automatic payments- small closed end loan 2. Credit card with a cosigner 3.Secured Credit Card 4.Authorized user on a credit card 5. pay bill on TIME, don't max out your credit cards, apply for credit sparingly, different credit accounts, check your credit score every year.
What are the types of credit account information?
1. Type of credit 2. Loan amount of credit limit 3. date 4. Account balance 5. Payment information
Give 2 advantages of a credit card:
1.Convenient payroll tool 2.useful for emergencies
What is a credit application?
A form requesting information about a credit applicant
What is closed-end credit?
A loan in which they buyer must repay the amount in a specific number of equal payments
What is a credit score?
A number created to help a lender evaluate the risk associated with lending a consumer money.
A lender is
A person or organization who makes funds available for others to borrow
For Credit Card Tips from the Federal Reserve Board:
Go to the Federal Reserve Board website
What does a score indicate about a consumer?
Helps predict if the consumer will payback credit.
A higher score typically means what?
Higher chance of credit repayment
In addition to access to credit, what are two other ways an individual's credit history may impact them?
Housing public utility services employment insurance rates
How to Avoid Paying Interest on Purchases
Pay your bill in full by the due date
APR for Cash Advances
s a service provided by most credit card and charge card issuers. The service allows cardholders to withdraw cash, either through an ATM or over the counter at a bank or other financial agency, up to a certain limit.
Individuals must pay back?
the goods and services you buy with credit
Days In Billing Cycle:
the number of days between the last statement date and the current statement date.
Give an example of closed end credit
Automobile/education loans and mortgages
What types of public record information may be in a credit report?
Information from federal, state, county public court records
What is the trade‐off to no credit history check?
There are often higher interest rates and fees
Summarize why reading a contract carefully is important and what a person should consider.
Outlines how and when you will pay money back? Are the terms favorable?Is the loan feasible in present AND future? Are the terms consistent throughout the life of the loan
When do inquiries typically have no impact?
Inquires not initiated by you, inquires not related to credit, and checking your own credit report
The cost of credit is expressed as
APR- Annual Percentage Rate.
APR for Balance Transfers
Act of transferring debt from one credit card to another
Set‐up and Maintenance Fees:
Annual fee: Yearly fee that may be charged for having a credit card, set-up fee: Fee for opening an account, Participation Fee: Monthly fee for having the credit card, Additional Card fee: Fee to have a second person on the account.
What is the only government sponsored credit report website?
AnnualCreditReport.com
Purchases & Other Charges
Any last minute changes or emergency changes that need to be added.
Annual Percentage Rate (APR) for Purchases
Interest rate paid for purchases, multiple interest rates may be listed, final interest rate may depend on the creditworthiness of applications.
Transaction Fees
Balance Transfer fees, Cash advance fees, other
In addition to access to credit, what are two other ways an individual's credit history may impact them?
Pay bills on time, Don't max out credit cards, apply for credit sparingly.
Penalty Fees
Late payment fees: Charged when a cardholder does not make the minimum monthly payment by the due date, Over the limit fee: Charged if the account balance does over the set credit limit, Returned Payment fee: Applies of the cardholder does not have enough money to cover a payment.
When do data furnishers report?
Lenders report typically when money is owed to them.
If an error is found on their credit report, a consumer should:
Contact the CRA and the company that provided the incorrect information. If the error is found, information must be provided to all three CRA's.
Payment Due Date:
Contract language specifying when payments are due on money borrowed.
Give an example of open end credit:
Credit Cards
What are 3 examples of open-end credit?
Credit card, loan, extended line of credit
What is credit?
Credit is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately, but promises either to repay or return those resources at a later date.
Who, most commonly, produces scores?
Credit reporting agencies
Summarize why credit cards are safer than debit cards for online shopping.
More protection against fraud, Money is not connected to depository institution account, Less liability for unauthorized credit card changes.
Does a consumer have one or multiple scores?
Multiple scores
How are credit scores accessed?
Must be ordered separately, usually costs a fee, The 3 CRA's are the primary source, Scores may differ between each CRA
Why may consumers overspend when using a credit card?
Needs and wants
What can happen if credit is not managed responsibly?
Negatively impact quality of life and financial well being.
What are three benefits to using money saved or invested instead of credit?
No contract, no interest/fees, not spending one future income
How often can a free credit report be requested?
One free credit report annually from each of the three credit report agencies.
Who reports to CRA's?
Depository institutions, Credit card companies, retail stores that offer credit accounts, and mortgage and finance companies
What is the minimum payment?
Due each month so the card has a balance.
What are the names of the three credit reporting agencies?
Equifax Experian TransUnion
What is open-end credit?
Extended line of credit established in advance
What are the score ranges of the two most common systems?
FICO 300-850, Vantage score 501-990
Describe each type of alternative credit:
Payday Loans: A short term loan that provides immediate cash by securing a borrower's written check or automatic withdrawal form Title Loan: The borrower gives the lender their automobile title or personal property in exchange for cash (based on the value of the item Rent To Own: The borrower leases tangible items with the condition that the item will be owned by the renter if the term of rent is completed Pawn Loan: The same as a title loan, except for the Lender gets to keep the item Refund Anticipation Loan: The lender gives the borrower a loan based upon their anticipated tax refund.
What are three examples of personal information on a credit report?
Personal info Credit account info Public record info
What information is included in a credit score?
Personal info, credit account history, credit account inquiries and public records.
What types of information does it include?
Personal information, Credit requested, Information about the applicant's ability to repay credit
List 5 examples of information not in a credit report
Race and gender Religion and nationality Criminal Background Non-credit despostionary institutions accounts Buying habits
Why is reading the Schumer Box information closely important?
Reading the schumer box information is important because It's important to disclose terms and fees of credit cards
If you lose your credit card, what should you do?
Report to your credit card company
When are inquiries potentially negative?
Seeking additional credit and shopping for the same type of loan within a 14 day period
Describe how an individual obtains a credit card.
Shop around for one (Comparing offers and figure out which is best), Complete a credit application( A form requesting information about a person's ability to repay), Approval (Applicant may or may not be approved, depending on the creditworthiness), also be 21, or have a cosigner, have proof of sufficient income to make payments
How could shopping around impact your credit score?
Shopping around would impact your credit score by raising it up.
Why should you check your statements monthly?
So you can check to see if your card has been stolen or anything you don't recognize.
Why is time the only way to remove potentially negative information from a credit report?
Some negative info stays on the report for 7-10 years
A borrower is
Someone who receives something with the promise to return it or to repay what is borrowed
What does it mean if an individual receives a pre‐ approved credit card application?
That they have passed the initial credit check.
How are credit reports created?
The lender reports a consumer's account history to CRA's, the CRA's keep record of a consumers account history, and then finally the credit reports keep record of an individual's credit history
What impact does only paying the minimum payment have on a consumer?
Your interest rate goes so you end up paying more than needed.
How much are you liable for?
Your liable for how much you spend till you either hit your limit or max your card
What are two strategies to acquire and positively manage small lines of credit?
get a small closed- ended loan, set up automatic payments , get credit card with cosigner.
Previous Balance:
means that there is a balance that was not previously included in payment.
