Chapter 10: Credit
Credit bureau
A company that collects information about consumers credit history and sells it to lenders
Bankruptcy
A legal process in which people who cannot pay their debts must surrender most of their property
Credit rating
A measure of your credit worthiness
credit rating
A record of your past borrowing and repayments
Acceleration Clause
A statement in a credit contract that requires you to repay the entire loan immediately if you miss a payment
Net worth
All your assets- everything you own=net worth
Truth in Lending Act
An act which requires lenders to inform borrowers of all direct, indirect and true costs of credit.
Cosign a loan
Asking another person usually a parent to agree to pay a debt for you if you become unable to pay
Five things to know about your credit
FICO score, capacity, debt to income ratio, liquidity ratio, net worth
Consumers should take every credit card that is offered to them so they will have a variety of choices
False
Interest on unsecured loan is usually lower than on a secured loan
False
Married couples should have credit in only one of their names
False
On a revolving charge account the slower you reduce the balance the less interest you will pay overall
False
Liquidity Ratios
How fast you can turn your assets into cash to make payments
Capacity
How much money you have, Can you afford the loan?
pawnbroker
If you want to get cash for personal property such as jewelry or a TV
debt to income ratio
Income vs expeses
FICO score
Like your credit score, affects your rates
capacity
Measure of financial ability to repay a loan
Fair Debt Collection Practices Act
Prohibits unfair, abusive, and deception methods of collecting debt
Credit
The ability to borrow money in return for a promise of future repayment
equity
The difference between the amount owed on a home and the home's value
Annual Percentage Rate (APR)
The finance charge calculated as a percentage of the amount borrowed
ATM Machines enable you to receive a cash advance and add it to your credit card bill
True
Credit cards are usually one of the most expensive forms of borrowing
True
Few people can pay for a home without borrowing
True
The Equal Credit Opportunity Act makes it illegal to refuse credit on the basis of race, color, religion, national origin, sex, marital status or age
True
The Fair Credit Billing Act helps consumers correct credit card billing mistakes
True
The Fair Credit Reporting Act of 1971 gave consumers a way to check their credit reports
True
balloon payment
a final loan payment that is much larger than the regular monthly payments
debt consolidation loan
a large loan used to pay off a number of smaller loans
secured loan
a loan backed by something of value pledged to ensure payment
Creditworthiness
a measure of your ability and willingness to repay a loan
credit bureau
company that collects information about your credit history and sells it to lenders
collateral
property pledged to back a loan
credit
the ability to borrow money and pay it back lateral
credit limit
the maximum amount that you may charge on your credit account
grace period
the time between the billing date and the payment due date when no interest is charged
finance charge
the total amount a borrower must pay for a loan
