CFS 4062 (EXAM 1) (CH 5-7)

online banks

Banks that are regulated just like any other bank, even those they operate entirely over the Internet, yet because they avoid the "bricks and mortar" costs of conventional institutions they often pay higher interest rates than other institutions

travel and entertainment (T&E) cards (corporate cards)

Cards issued by non-banks that are often used by businesspeople for food and lodging expenses while traveling.

credit cards

Cards that allow repeated use of credit as long as the consumer makes regular monthly payments.

loan

Consumer credit that is repaid in equal amounts over a set period of time.

credit history

Continuing record of a person's credit usage and repayment of debts

promissory note or note

Contract that stipulates repayment terms for a loan.

credit agreement

Contract that stipulates repayment terms for credit cards.

prestige cards

Credit cards often with a precious metal in the brand name such as "gold," "silver," or "platinum" that require that the user possess superior credit qualifications and offer enhancements such as higher credit limits

bank credit cards

Credit cards that are issued by banks or large financial institutions, such as VISA, MasterCard, and Discover.

Federal law governs _________ accounts and requires that you be sent a disclosure statement of the rules of the account and receive monthly periodic statements outlining the activity

EFT

liquidity

Ease with which an asset can be converted to cash

The most common used scoring system for measuring your credit score is the

FICO system

credit bureau

Firm that collects and keeps records of many borrowers' credit histories.

time deposits

Funds on deposit in a savings account (rather than demand deposits), and technically these require that account holders give 30 to 60 days notice for withdrawals

minimum balance

, the customer must keep a certain amount (perhaps $500 or $1,000) in the account throughout a specified time period (usually a month or a quarter) to avoid a flat service charge (usually $10 to $25 a month).

what are some ways you can build credit history?

- establish both a checking account and savings account - have your phone and other utilities billed in your name - request, acquire, and use an oil company credit card (a gas card) - apply for a bank credit card - ask a bank for a small, short-term cash loan - pay off student loans

What factors are used to calculate your credit score?

1. length of credit history 2. taking on more debt 3. types of credit used, 4. payment history 5. amounts owed

what are the three important aspects of credit card accounts?

1. minimum payment 2. principal 3. default

What are 5 things you can do to protect your credit reputation carefully?

1. protect your credit reputation as carefully as you would safeguard your personal reputation 2. determine your own debt limits rather than rely on a lender before deciding to take on any debt 3. obtain copies of your credit bureau reports regularly, and challenge all errors or omissions you find 4. use complicated ID numbers and login passwords for online credit account management 5. always repay your debts in a timely manner

continuous-debt-method

If you are unable to get completely out of debt every four years (except for a mortgage loan), you probably lean on debt too heavily.

what are 4 downsides of using credit?

1. use of credit reduces financial flexibility 2. it is tempting to overspend 3. there's a possibility of becoming "overstretched" 4. interest is costly

what is the credit approval process?

1. you apply for credit via a credit application 2. the lender obtains your credit history [reports maintained by huge national credit bureaus that maintain data bases on millions of consumers], they gather info from lenders, credit bureaus also calculate and report credit scores to lenders; these scores provide a lender with a way to measure the likelihood that you will repay the debt to be incurred 3. the lender decides whether to accept the application and under what terms (credit agreement, promissory note, tiered pricing)

Always calculate your debt payments-to-disposable income ratio when considering taking on new credit. if the ratio is _______% or higher you should take on no new debt. if your ratio is already that high you should focus your finances in paying down your debts

15%

the min payment on a credit card is typically __________-% of the balance and is barely enough to pay the interest for the month

3-4%

You can receive a free credit report every ______ months by obtaining one from each of the 3 credit bureaus on a rotating basis (there are only 3)

4

credit cards

A credit card is a plastic card with imprinted numbers and a magnetic strip, issued by a bank or business authorizing the holder to use it as payment instead of cash to buy goods or services on credit.

savings account/statement savings account

A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.

checking account/transaction account

A deposit account held at a financial institution that performs transactions that allow for withdrawals and deposits

money market deposit account (MMDA)

A deposit account that requires a larger initial deposit to open (often $2,500), and it requires a minimum balance to be maintained, checks must be written for a minimum amount, and it only allows a limited number of checking transactions per month.

automatic billing (or auto-renewal billing)

A feature that allows a vender to automatically charge a customer's credit (or debit) card or bank account on a regular basis through a recurring profile set up on the account.

sales finance company

A finance company that buys at a discount the installment sales contracts of merchants or that directly finances retail sales.

negotiable order of withdrawal account (NOW)

A interest-earning checking account at a depository institution.

lien

A legal right to keep possession of property belonging to another person until a debt owed by that person is discharged; usually recorded in a county courthouse

unsecured loan

A loan issued and supported only by the borrower's creditworthiness, rather than by a type of collateral, because it is obtained without the use of property as collateral for the loan.

debt-consolidation loan

A loan taken out to pay off several smaller debts

debt-consolidation loan

A loan taken out to pay off several smaller debts.

variable rate loan

A loan where an interest rate on a loan fluctuates over time because it is tied to an underlying benchmark interest rate that changes periodically

fixed rate loan

A loan where the contract calls for the interest rate on a loan to remain fixed either for the entire term of the loan.

add- on interest method

A method of calculating the annual percentage rate for installment loans where interest is calculated by applying an interest rate to the amount borrowed times the number of years.

declining balance method

A method of calculating the annual percentage rate for installment loans where the interest assessed during each payment period (usually each month) is based on the current outstanding balance of the installment loan.

commercial banks

A type of bank that accepts deposits in checking and savings accounts and provides transactional services such as accepting deposits, making business loans, and offering basic investment products

tenancy by entirety

A type of shared ownership of property recognized in most states, available only to married couples, where spouses who own property as tenants by the entirety each own an undivided interest in the property, each has full rights to occupy and use it and has a right of survivorship.

mutual savings banks

A type of thrift institution that also accept deposits and make housing and consumer loans.

savings institutions aka thrift institutions

Accept deposits and provide mortgage and personal loans to individuals.

disposable income

Amount of income remaining after taxes and withholding for such purposes as insurance and union dues.

open-end credit (revolving credit)

An account under which you are allowed to make repeated purchases or obtain loans and you may pay the balance in full or you may pay in installments.

money market account (MMA)

Any of a variety of interest-earning accounts offered by depository institutions that pays slightly high interest rates (compared with regular savings accounts) and offers some checkwriting privileges

tiered pricing

Lenders that offer the lowest interest rates to applicants with the highest credit scores while charging steeper rates to more risky applicants.

interest rate caps

Limits in credit contracts that prohibit how much the interest rate can increase over the life of the loan

money market mutual funds (MMMFs)

Money market accounts offered by a mutual fund investment company (rather than at a depository institution).

credit unions

Not-for-profit institutions that accept deposits and make loans, and the members/owners all share some common bond, such as having the same employer, working for or attending the same school, or living in the same community; insured by the National Credit Union Share Insurance Fund (NCUSIF)

cash advances

Obtained by credit card customers from an ATM or over the counter at a bank or other financial agency, up to a certain limit

electronic money management

Occurs whenever transactions are conducted without using paper documents.

denied credit

People who are turned down in their request for credit, and the law requires they must be told why, and if the reason was one's credit score he/she may request a credit score report at no charge.

fair debt collection practices act (FDCPA)

Prohibits third-party debt collection agencies from using abusive, deceptive, or unfair practices to collect past-due debts

annual percentage yield (APY)

Return on total interest received on a $100 deposit for 365-day period, given the institution's simple annual interest rate and compounding frequency.

affinity cards

Standard bank cards but with the logo of a sponsoring organization imprinted on the face of the card, meaning that the issuing financial institution donates a small percentage of the amounts charged to the sponsoring organization.

minimum payment warning box

The box on credit card statements must show how long it would take to pay off the card's balance by making only the minimum payments, and how much you'd need to pay each month to clear the balance in 36 months.

interest

The charge for the privilege of borrowing money, typically expressed as an annual percentage rate

identity theft

The fraudulent acquisition and use of a person's private identifying information, usually for financial gain.

prime rate

The interest rate banks charge their most credit-worthy customers, and it is sometimes used as a benchmark for other variable-rate loans.

statement date (billing date or closing date)

The last day of the month for which any transactions are reported on a credit card statement

foreclosure

The legal process of taking possession of a mortgaged property as a result of the mortgagor's failure to keep up mortgage payments.

consumer credit counseling agencies

The objectives of these nonprofit agencies are to help the creditor avoid bankruptcy, to provide basic education on financial management, and to negotiate with unsecured creditors on behalf of the borrower to reduce

debt settlement

The process of offering a large, onetime payment toward an existing credit balance in return for the forgiveness of the remaining larger debt.

collateral

This is something pledged as security for repayment of a loan, to be forfeited in the event of a default.

finance charge

Total dollar amount paid to use credit.

T/F few savings accounts or CDs pay enough interest to be considered investments

True

overindebted

When one's excessive personal debts make repayment difficult and cause financial distress.

safety

Your funds are free from financial risk

almost all loan contracts contain an ___________________ clause; this clause states that if any payment is missed all the other remaining payment are immediately due and payable if desired by the lender

acceleration clause

using other types of payment instruments, like certified checks, cashier's checks, and money orders, can provide-

added security for both payer and payee

_________________ credit cards are the most common and include opportunities to use cash advance checks and to make balance transfers among cards

bank credit cards

people seeking small cash loans can seek out __________________________ companies

consumer finance companies

repays the outstanding loan balance if the borrower becomes disabled

credit disability insurance

uses your annual or monthly debt payments including a mortgage divided by your gross annual or monthly income

debt-to-income method

typically you can be in ______________ if you have missed one payment

default

providers of financial services includes:

depository institutions, mutual funds, stock brokerage firms, financial services companies, and insurance companies

_________________________ households should consider lower debt limits rather than a limit based on their combined incomes

dual-earner

the __________________________ act allows you to challenge errors in your credit bureau files

fair credit reporting act (FRCA)

who provides monetary asset management services?

financial services industry

monetary assets

include cash and low-risk, near-cash items that can quickly be converted into cash

financial services

industry Companies that provide monetary asset management and other services.

_________________ companies lend money to their policyholders

insurance companies

the goals are ___________ and _____________ with maximized interest earnings

liquidity and safety

__________________ companies lend money to buy consumer products

sales finance

some loans are ________ with either collateral or consignor. a _____________ loan will tend to have lower interest rate

secured loan

the speed of these electronic transfers makes it more difficult to ___________________

stop payment

it is increasingly common for an electronically scanned, _______________________ check to move through the system

substitute check

a temporarily low intro rate to entice borrowers to apply for a credit card

teaser rate

wage earner plan

this is a bankruptcy protection scheme that allows income earners to satisfy outstanding debts in whole or in part within a specific time frame

in addition to interest, account rules can allow the assessment of annual and _________________ fees; these can exceed the interest charges themselves

transaction

T/F Rent-to-own programs (e.g., furniture) is another alternative lender that will adversely affect your credit

true

t/f always borrow from the most selective borrowers you can find

true

t/f home loans use the declining balance method and are thus called mortgage loans

true

t/f you cannot borrow your way to financial success

true

the calculation of interest on consumer loans is governed by the ___________________ act; this law states that the lender must clearly disclose the APR and the finance charge in dollars

truth in lending act

the ___________________ act requires the disclosure of

truth in lending act; - the annual percentage rate of interest (APR) - the finance charge in dollars

for __________________ rate loan, the payment will go up and down to reflect changes in the interest rate

variable rate loan

since the balance declines each month, the interest will decline as well and the portion of the payment that goes to pay off the loan itself will increase each month (in the declining balance method), this process is called

amortization

the principal portion of each month's payment increases and the interest portion decreases until in the last month almost all of the payment goes towards the principal and the debt is fully repaid is called

amortization

Super NOW accounts

are also available at banks. They pay slightly higher interest rates than a regular checking account but place a limit on the number of checks that can be written each month.

payments levied each time an atm is used

atm transaction fees

the second best way to protect yourself from bad check fees is through an ________________ from your credit card so that the check can be honored

automatic loan (automatic overdraft loan agreement)

the best way to protect yourself from a bad check is through an _______________ from your savings account

automatic transfer (automatic funds transfer agreement)

loans can be taken as a ___________ loan for money or as a _________________ loan to buy an item

cash loan, purchase loan/sales credit

checking accounts are accessed through _____________,_____________, and _______________-

checks, debit (or check) cards, electronic transfers

when a check is paid by your institution it is said to have ___________

cleared

____________________ banks and __________________ banks are insured through the federal deposit insurance corporation

commercial and savings banks

________________________ companies make small cash loans

consumer finance

_______________ companies specialize in lending to people who have somewhat low credit scores

consumer finance companies

_______________ reports are maintained by huge national credit bureaus that maintain data bases on millions of consumers

credit

____________________ insurance features provide that the debt will be paid if you become disabled or die. rather than buy these services you should make sure you simply have adequate disability income and life insurance

credit card insurances

what are good uses of credit?

credit is appropriate in true emergencies, when making reservations, for convenience when you will repay very quickly, to buy certain big ticket items, taking advantage of free credit, for protection against fraud, to obtain an education

repays the outstanding loan balance if the borrower dies

credit life insurance

most lenders now use your _________________ as the source of your credit history

credit report

are companies in the business of collecting debts

debt collection agencies; sometimes collecting debts owed to other businesses for a fee, often they have purchased the debts from the business and are thus collecting it on their own behalf

protects your funds on deposit: - the max insurance on all single-ownership (individual) accounts (held in your name only) is $250,000 - the max insurance on all joint accounts (accounts held with other individuals) is $250,000

deposit insurance

__________________ institutions lend money to their banking customers

depository

__________________ institutions- commercial banks, savings banks and credit unions- are the most commonly used sources of consumer loans

depository institutions

after bankruptcy all or a portion of your debts are ___________________ depending on the type of bankruptcy you obtain

discharged

the_____________ is the date by which the payment is to be received not simply sent

due date

What is the most obvious sign of being overly in debt?

exceeding the earlier described debt limits

this law prohibits the worst abuses but agencies can be very forceful and persistent and still stay within the law

federal fair debt collections practices act

_________________ regulates debt collection practices

federal law

the ______________________ is used to calculate the APR so the APR reflects the full and true cost borrowing

finance charge

consumer credit includes ___________________ credit such as loans and noninstallment credit

installment

___________________ loans typically have a set monthly payment for each month for a specified number of years (fixed interest rate)

installment loans

depository institutions have ______________ accounts

insured

important provisions for the credit card disclosure box are the

interest rate, how the balance is calculated and how and why fees are assessed

stop-payment order

is a notice made by a depositor to his or her bank directing the bank to refuse payment on a specific check drawn by the depositor

certified check

is a personal check drawn on your checking account on which your financial institution imprints the word certified, signifying that the account has sufficient funds to cover its payment

payable death (POD) aka Totten Trust

is an arrangement between a bank or credit union whereby upon the death of the client the assets are immediately transferred to the designated beneficiaries

lifeline banking account

is streamlined checking designed for lowincome customers that has low balance requirements, no monthly fees, and is offered by large financial institutions as a way to offer basic banking services to the broad public

grace period

is the time in days during which deposits or withdrawals can be made and still earn interest from a given day of the interest period.

straight bankruptsy

it provides that a debtor's assets are sold, creditors receive payment, and the debtor is freed from his/her debts.

credit card companies make billions of dollars each year by assessing what 3 things

late-payment, bounced check, and over-the-limit fees; these fees can be avoided simply by not violating these rules of the account

__________________ is important but just as important is a safe place to hold monetary assets and having easy access to the funds

maximizing interest

must be payed each moth

minimum payment of credit card accounts

the financial services industry is broad and diverse and consists of companies that provide

monetary asset management and other services

___________________ are typically those that you hold in a checking and savings account

monetary assets

money market fund (MMF)

money market account in a mutual market account in a mutual fund rather than a depository institution

_________________ accounts pay higher interest rates and often carry benefits such as free checking

money market accounts

managing your credit cards wisely requires that you read and understand all the info contained in your _____________________ statement. all previous balance amounts and new activity on the account since the last statement will be included.

monthly credit (periodic) statements

the most common type of noninstallment credit is

open-ended credit such as with credit cards

under ________________ protection the bank agrees to honor the check even though the funds are not sufficent. many people get in trouble with this method because the bank charges a fee for each event and will allow you to use your debit card freely

opt-in overdraft/bounce protection (should be avoided)

the most important factor in making sense of your credit scores is

past payment history; second largest is amounts you now owe

effective savers know to _________________ thereby making savings the first expenditure of the month; overtime this steady pattern of savings can build substantial amounts for the achievement of goals

pay themselves first

What are examples of predatory lenders that should be abolished or tightly controlled by government regulations?

payday lenders, tax refund anticipation lenders, car title lenders, (most) debt consolidation agencies

the monthly rate applied to the outstanding balance of the loan

periodic interest rate

offers only promise that credit will be granted; they say nothing about the interst rate on the card or the credit limit; these are set after the consumer applies for the card

preapproved credit card offers

the _______________ or total amount owed and the rules for what constitutes default

principal

paying only the min payment will ___________ the amount owed only slightly and perhaps not at all if charges have been made since the billing date

reduce

allow customers to make purchases on credit at any of the outlets of a particular retailer

retail credit cards

___________________ lend money to their clients

stockbrokers

prohibits credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or because one receives public assistance

the Equal Credit Opportunity Act (ECOA)

the periodic interest rate, which is the annual rate divided by 12 is multiplied by the balance owed to determine the interest each month;

the declining balance method (in calculating the dollar amount of interest on a loan)

T/F credit bureaus also calculate and report credit scores to lenders. these scores provide a lender with a way to measure the likelihood that you will repay the debt to be incurred

true

T/F for those with high credit scores they are among the lowest cost sources of credit

true

T/F managing money and making financial decisions are different

true

T/F people with large amounts of money on deposit can and should take advantage of various types of money market accounts

true

T/F some advisors debate "good debt" (e.g., mortgages and student loans) v. "bad debt" (e.g., credit cards) while other advisors state that all debt is bad, there is no such thing as "good debt"

true

T/F the best reason for using credit is to get an education- as long as you borrow as little as possible

true

T/F using a credit card provides added safeguards against fraud as opposed to using a debit card or cash

true

T/F using the continuous-debt method people should be able to get completely out of debts other than their mortgage every 4 years. if not, they are doomed to a debt lifestyle and years of expensive interest payments

true

T/F you can also borrow from sellers through sales finance companies when buying big ticket items such as vehicles, furniture, appliances, and electronics

true

T/F you should always look for the highest annual percentage yield or APY

true

T/F you should never permit vendors or businesses "to pull your credit report" as this very act of examining your credit history can damage your credit

true

T/F you use credit any time you obtain goods, services, or money without paying for it immediately. Using credit is an important part of financial responsibility and to succeed financially you will need a good credit reputation

true

T/F your "credit score" is of less concern to you than keeping your credit report accurate

true

t/f consumers are liable for charges made on a lost or stolen card unless they notify the lender of the loss; notification within 2 days will result in no obligation. and after 2 days, your liability is a max of $50

true

t/f it is sometimes easier to obtain a credit card backed up by collateral' the collateral in these secured credit cards is typically an amount held in a savings account with the institution that issued the card

true

t/f many credit cards are advertised as having a special low teaser or intro rate for the first few months

true

t/f penalty APRs are extremely high, variable interest rates can easily go up, secured credit cards are backed by collateral- are all aspects of credit card accounts

true

t/f understanding the rules of credit cards and consumer loan accounts are essential for maintaining a strong financial status

true

The most selective lenders are at the top of the credit pyramid and they charge the lowest rates because they loan only to the most credit ___________ applicants

worthy

what are some steps to take to get out from under excessive debt?

- determine your account balances and the payments required - focus your budget on debt reduction: stop spending money - contact your creditors - take on no new credit- "cut up your cards" - take care in closing accounts - refinance or consolidate with reputable agencies - avoid bad help- find good help

What are some consumer protection regulations?

- electronic funds transfer act - disclosure statement - periodic statements - fixing errors - protection for lost cards - protect your privacy yourself

What are some good ways to talk about financial matters?

- get to know yourself - focus on commonalities - learn to manage financial disagreements - be honest, talk regularly

what are some practical ways to manage student loan debt?

1. always know your outstanding debt and required monthly payment 2. choose the most advantageous repayment pattern allowed 3. make your repayments on time, every time 4. pay electronically 5. consolidate your student loans 6. investigate government income-based repayment plans

the amount of interest you will earn will depend on what 4 things?

1. amount of money on deposit 2. frequency of compounding 3. method of determining the balance 4. interest rate applied

what are 3 ways to protect yourself from bad check fees

1. automatic funds transfer agreement 2. automatic overdraft loan agreement 3. "opt-in" overdraft/bounce protection should be avoided

what are 3 types of credit card accounts?

1. bank credit cards 2. retail credit cards 3 travel and entertainment cards

what are the worst financial blunders in building and maintaining good credit?

1. fail to regularly check the accuracy of your credit bureau files 2. let a lender's willingness to grant credit be an indicator that you can afford to repay the debt 3. pay more than 14% of your disposable income toward non-mortgage debt payments 4. access disreputable sources of funds or credit 5. view bankruptcy as a "back-up plan" 6. view over-indebtedness as simply a fact of life

what are the worst financial blunders in credit cards and consumer loans?

1. fail to shop for the lowest APR on credit cards and consumer loans; fail to factor the cost of credit into the total cost of an item or service 2. regularly carry balances on credit card account, or making only the min required payment; or paying late 3. co-sign a loan or credit card app for someone 4. misusing a home equity line of credit 5. fail to recognize and use the legal protections available to users of credit cards and loans

what are some of the worst financial blunders in managing checking and savings accounts?

1. keep too much money in a checking or savings account where it earns very little interest 2. fail to reconcile your accounts on a regular basis 3. keep money matters and worries to yourself or fail to resolve differences with your partner 4. fail to check regularly for signs of identity theft 5. postpone establishing savings, investments, and an emergency fund

what are the 10 signs of over-indebtedness?

1. not knowing how much you owe 2. running out of money 3. paying only the minimum amount due 4. exceeding debt limits (most obvious sign) 5. requesting new credit cards and increases in credit limits 6. paying late or skipping credit payments 7. taking add-on loans 8. using debt- consolidation loans 9. experiencing garnishment 10. experiencing repossession or foreclosure

what are 3 short term goals that you could have related to credit cards and consumer loans?

1. pay all your credit card balances in full each month or certainly no longer than 2 or 3 months later 2. use student loans for direct education expenses only rather than to maintain a better lifestyle 3. choose installment loans based on the lowest annual percentage rate (APR) rather than monthly payment and years to repay. NEVER make a decision about a loan based on the monthly payment f

what are the three ways you can save?

1. pay yourself first, not using the money that is simply left over at the end of the month 2. have an emergency fund (3-6 month safety net) 3. have short-term goals and monthly savings amounts

what are 3 aspects of credit card accounts?

1. preapproved credit card offers 2. annual and transaction fees 3. liability for lost or stolen cards

What are 5 things that you should do related to managing checking and savings accounts?

1. use a free, interest-earning checking account for your day-to-day spending needs 2. start now to build an emergency fund sufficient to cover three months of living expenses 3. use a pay-yourslef -first approach as you begin to build other savings through high-interest accounts 4. secure your electronically accessible accounts with strong user IDs, PINs and passwords. Check regularly for identity theft 5. use all your checking and savings accounts appropriately by never overdrawing accounts and by reconciling them monthly

you can earn up to ________% more in interest by holding funds outside of a checking account

2%

a ratio of _________% or less is desirable when considering debt-to-income methods

36%

you should also understand the conditions under which the lender will charge a very much higher penalty APR; such rates can be assessed any time the borrower is _________ or more days late or make a payment that is returned (paid with a bad check) with any debt through the same lender

60

fixed-time deposit

A certificate of deposit that has a specific time period that the savings must be left on deposit; otherwise a penalty is assessed for early withdrawal.

cashier's check

A check drawn on the account of the financial institution itself and, thus, backed by the institution's finances

student checking account

A checking account offered by credit unions and banks that is better for students than another type of bank account, usually because they offer excellent benefits, including a low minimum balance, minimized fees, and free online bill pay

money order

A checking instrument bought for a particular amount with a fee assessed based on the amount of the order

bankruptsy

A constitutionally guaranteed right that permits people (and businesses) to ask a court to find them officially unable to meet their debts

garnishment

A court order directing that money or property of a third party (usually wages paid by an employer) be seized to satisfy a debt owed by a debtor to a plaintiff creditor

credit application

A form and/or an interview that requests information that sheds light on your ability and willingness to repay debts, such as your income, assets, and debts.

tenancy in common

A form of joint ownership in which two or more parties own the asset, but each retains control over a separate piece of the property rights.

service credit

A form of open-end credit granted to consumers by public utilities, physicians, dentists, and other service providers that do not require full payment when services are rendered

student loan

A form of unsecured credit that is designed to help students pay for university tuition and books, and sometimes their living expenses.

home equity credit line

A loan in which the lender agrees to lend a maximum amount within a term where the collateral is the borrower's equity in his/her home.

a-ratio method

A method of estimating the annual percentage rate for installment loans where it is an add-on loan.

store-value cards

A payment card with a monetary value stored on the card itself, not in an external account maintained by a financial institution, that is usually issued in the name of an individual account holder.

bitcoin

A peer-to-peer experimental digital cash currency based on an open source cryptographic protocol that can be bought at an exchange and transferred through a computer or smartphone without an intermediate financial institution

credit statement (billing statement)

A periodic report that credit card companies issue to credit card holders showing their recent transactions, balance due and other key information

prepaid cards

A plastic payment card that is easy to use and reloadable, and it may be used almost anywhere to buy online, make bill payments, get cash at ATMs, pay bills, get direct deposits, and make everyday purchases.

debit cards

A plastic payment card that provides the cardholder electronic access to his/her bank account(s) at a financial institution.

gift cards

A stored value card that often has an activation fee, expiration date (no shorter than five years), and an inactivity fee if there are no transactions within a year.

CD Laddering

A strategy in which an investor divides the amount of money to be invested into equal amounts to certificates of deposit (CDs) with different maturity dates; it decreases both interest rate and re-investment risks.

installment loan

A system of credit that is repaid by the borrower in regular installments, such as equal monthly payments that include interest and a portion of principal

community banks

A type of commercial bank that focuses on providing traditional banking services in their local communities, where they obtain most of their core deposits locally and make many of their loans to local businesses

prepayment penalty

An additional fee imposed by many loan agreements where a borrower pays off a loan early, before its scheduled pay-off date.

credit

An arrangement in which goods, services, or money is received in exchange for a promise to repay at a future date.

electronic benefit transfer (EBT)

An electronic system that allows state welfare departments to issue benefits via a magnetically encoded payment debit cards

credit score

An indication of a person's credit worthiness or how likely the individual will be able to repay any credit extended in a timely manner.

certificate of deposit (CD)

An interest-earning savings instrument purchased for a fixed period of time, such as 6 months or 1, 2, or even 5 years.

line of credit

An open-end credit account between a financial institution, usually a bank, and a customer that establishes a maximum loan limit that the bank will permit the person to borrow.

variable-rate (adjustable-rate) certificates of deposit

Certificates of deposit that pay an interest rate that is adjusted (up or down) periodically.

acceleration clause

Clause in a credit contract that that allow a lender to require a borrower to repay all of an outstanding loan if certain requirements are not met, such as missing one or more repayments.

depository insitituitons

Financial institutions in the United States that are legally allowed to offer checking and savings accounts to individuals and businesses as well as provide loans.

card registration service

Firm that will notify all companies with which you have debit and credit cards if your cards are lost or stolen

reaffirm a debt

If you repay a single dollar of the old debt, and it means you reaffirm the debt. Thus you have agreed that you are personally liable for the whole debt again.

means test

In bankruptcy a court determines whether an individual debtor's Chapter 7 filing can be presumed to be an abuse of the bankruptcy laws requiring dismissal or conversion of the case.

credit report

Information compiled by a credit bureau from merchants, utility companies, banks, court records, and creditors about your payment history.

credit freeze (or credit report freeze)

It prevents a credit reporting company from releasing your credit report to merchants and financial institutions without your consent

fair credit reporting act (FCRA)

One part of the law requires that credit reports contain only accurate relevant information and allows consumers to challenge errors or omissions of information in their reports.

rewards credit card

One that pays the cardholder cash back or airlines miles for future use

bots or chatbots

Online texting services offered by all financial institutions and other venders who provide information and services, which can conduct human-like conversation formerly reserved for people.

debit limit

Overall maximum you believe you should owe based on your ability to meet repayment obligations.

subprime borrowers

People with poor credit histories who are required to pay lenders more than others for credit.

debt payments-to-disposable income method

Percentage of disposable personal income available for regular debt repayments aside from set obligations.

ATM cards

Plastic cards to make purchases and withdraw money from ATMs that require use of a PIN number.

invitation-to-apply

Refers to a credit card offer sent without any prior screening, thus one must fill out the application and see if it is approved.

prescreened

Refers to a credit card offer that a bank aims at certain consumers based on their borrowing histories, and card approval is likely although not necessarily for the interest rate and credit line outlined in the offer.

preapproved

Refers to a credit offer based on a pre-qualification of the individual's credit from a credit bureau report, and upon acceptance the issuer obtains more detailed credit information and sets an interest rate.

minimum payment

The amount due monthly on a credit card statement that is no smaller than the amount required by the creditor.

tiered interest

The combination of a base interest rate and a higher rate paid on interest-earning accounts

consolidated loan

The combining of several unsecured debts into a single, new loan that is more favorable, and it may result in a lower interest rate, lower monthly payment or both.

finance charges

The cost of credit or the cost of borrowing; it is interest accrued on, and fees charged for some forms of credit; the dollar cost of credit for all interest and fees over and above the amount borrowed

Share draft account

The credit-union version of a negotiable order of withdrawal (NOW) account.

transaction date

The date on which a credit cardholder makes a purchase or receives a credit.

chargeback

The law provides that customers may dispute charges to their credit card when goods or services are not delivered within the specified time frame, goods received are damaged, or the purchase was not authorized by the credit card holder.

credit limit

The maximum amount your credit issuer established for you to borrow on a credit card or line of credit

posting date

The month, day, and year when a credit card issuer processes a credit card transaction and adds it to the cardholder's account balance.

joint tenancy with right of survivorship (joint tenancy)

The most common form of joint ownership, especially for husbands and wives. In this case, each person owns the whole of the asset and can dispose of it without the approval of the other(s).

FICO score

The most widely known credit scoring system developed by Fair Isaac Corporation and used by 90-plus percent of companies when making lending decisions.

rule of 78s (sum of the digits

The most widely used method of calculating a prepayment penalty where the lender allocates the interest charge on a loan across its payment periods using the numerical values to the sum of all the digits of the periods.

credit utilizaition ratio

The percentage of a consumer's available credit that he or she has used, which is a key component of one's credit score; a high credit utilization ratio can lower your score.

interest-rate risk

The risk that an investment's value will change due to a change in the absolute level of interest rates

payment due date

The specific day by which the credit card company should receive payment from the cardholder.

monetary asset management

The task of maximizing interest earnings and minimizing fees on all of your funds kept readily available for day-today living expenses, emergencies, and savings and investment opportunities; encompasses how you handle all of your monetary assets, including cash on hand, checking accounts, savings accounts and certificates of deposit, and money market accounts

billing cycle

The time period between when credit statements are sent to borrowers, which is usually about one month.

penalty rate (default rate)

The very high interest rate charged by the credit card issuer when a borrower violates the card's terms and conditions.

credit-monitoring service

These companies allow one to access his/her credit report as often as daily and obtain a personal FICO credit score.

retail sellers and businesses

These include department stores, clothing stores, oil companies, and car rental agencies that issue plastic cards that only may be used as open-end credit at one of their locations.

negative option

This is a business practice in which a customer agrees to have goods or services to be provided automatically, and the customer must either pay for the service or specifically decline it in advance of billing.

annual percentage rate (APR)

This is the annual rate that is charged for borrowing expressed as a percentage number that represents the actual yearly cost of funds; how the cost of credit is most accurately expressed

default

This is the failure of a borrower to make a scheduled interest or principal payment, and it is something all borrowers want to avoid.

grace period

This is the period of time a creditor, such as a credit card company, gives you to pay your new charges without having to pay interest on the new balance.

deficiency balance

This occurs when the sum of money raised by the sale of the repossessed or foreclosed collateral fails to cover the amount owed on the debt plus any repossession expenses (collection, attorney, and court

refinancing

This occurs when you refinance or rewrite a loan for an even larger amount before it has been completely repaid

non-sufficient funds (NSF)

This term is used in the banking industry to signify that there is not enough money in an account in order to honor a check drawn on that account. This is also known as a "bounced check" or "bad check."

Savings and loan associations (S&Ls)

Thrift institutions that focus primarily on accepting savings and providing mortgage and consumer loans.

repossession

When a financial institution takes back an object that was either used as collateral or rented or leased for nonpayment of a loan

cosigner

When a person (the cosigner) accepts the legal obligation to make payment on another person's debt should that person default.

electronic funds transfers (EFTs)

When funds are shifted electronically (rather than by check or cash) among various accounts and to and from other people and institutions.

transaction fees

Whenever a credit card is used for a balance transfer or cash advance such fees are charged to the account

credit receipt

Written evidence of any items returned that notes on a credit card statement the specific amount of the transaction, which will be charged back to the credit card company and eventually to the merchant

debt-to-income method

Your monthly debt repayments (including your prospective mortgage, and any other loan or alimony payments you must make) are divided by your gross monthly income and multiplied by 100.

consumer statement

Your version of disputed information in your credit report when the credit bureau refuses to remove the disputed item

average-balance account

a service fee is assessed only if the average daily balance of funds in the account drops below