Chapter #6: Credit Cards and Open Credit

Some credit cards also offer low introductory rates called ___.

"teaser rates"

As a result of 2009's CARD Act, credit card late fees are capped at __ for occasional late payments; however, if the cardholder is late more than once in a 6-month period, the fees can be higher.

$25

A method of calculating interest payments on outstanding credit in which interest payments are charged against the balance at the end of the previous billing period less any payments and returns made

Adjusted Balance Method

A credit card issued in conjunction with a specific charity or organization, such as the Sierra Club, Mothers Against Drunk Driving (MADD), the National Rifle Association (NRA), and many colleges and universities. The card bears the sponsoring group's name, logo, or picture. These cards send a portion of their annual fee or a percentage of the purchases back to the sponsoring organization.

Affinity Card

Annual fees for these cards start at $20 and increase to $200 or more, and their interest rates tend to be higher than those of most bank cards.

Affinity Cards

A method of calculating the balance on which interest is paid by summing the outstanding balances owed each day during the billing period and dividing by the number of days in the period

Average daily balance method

(T/F) The interest rate that fixed-rate cards charge is fixed and doesn't vary.

False! The interest rate a fixed-rate credit card charges may indeed change.

___ occurs when someone uses your name, address, Social Security number, bank or credit card account number, or other identifying information without your knowledge to commit fraud or other crimes.

Identity theft

___ credit cards typically charge the prime rate plus a percentage.

Variable-APR

Open credit or revolving credit

___ is a line of consumer credit extended before you make a purchase.

If you're a credit user, the most important decision factor is the ___ because it will be the largest credit expense you face.

APR, or interest rate on the unpaid balance.

the ___ requires that all consumer loan agreements disclose the APR in bold print.

federal Truth in Lending Act

Most financial advisors suggest that your total debt payments, including mortgage payments, should account for ___ of your gross pay.

less than 36 percent

Typically, when you charge a purchase against your credit card, the merchant pays a percentage of the sale, called the ___, to the credit card issuer. This fee averages between ___ and ___ percent

merchant's discount fee / 1 and 3 percent

With a ___ credit card, the rate you pay is tied to another interest rate.

variable-rate

The three primary methods used to determine interest charges on an unpaid credit balance are:

(1) the average daily balance method (2) the previous balance method (3) the adjusted balance method

Bankruptcy information can remain in your file for only ___ years. Other negative information must be removed from your file after ___ years.

10 / 7 Fair Credit Reporting Act (FCRA)

For most credit cards, there's a ___ day grace period from the date of the bill. Once the grace period has passed, you're charged the APR on the balance as determined by the credit card issuer.

21 to 25

All the credit card company needs to do is to inform you in writing at least ___ days before changing its rates.

45

to get the best mortgage rate you'll need a score of ___ or higher and a score of around___ oftentimes serving as a cutoff point for receiving credit for many lenders.

760 / 620

___ and ___ work together in determining your ability to repay any credit card charges.

Capacity and capital

___ refers to the size of your financial holdings or investment portfolio.

Capital

___ refers to your sense of responsibility with respect to debt payment. Have you established a record of timely repayment of past debts, such as student loans?

Character

___ refers to assets or property offered as security to obtain credit.

Collateral

___refers to the impact the current economic environment may have on your ability to repay any borrowing.

Conditions

Credit purchases made for personal needs other than for home mortgages are referred to collectively as ____

Consumer Credit

The ___ provides a single location for financial protection and oversight—and its job is to help consumers make better decisions.

Consumer Financial Protection Bureau (CFPB)

___ users should look for a credit card with a low annual fee and an interest-free grace period.

Convenience

Someone who pays off the credit card balance each month

Convenience User

____involves receiving cash, goods, or services with an obligation to pay later.

Credit

There are two primary credit scoring systems __ and __

FICO and VantageScore

The ___ limits the length of time damaging information can remain in your file. It also limits access to your credit file to those who have a legitimate right to view it, such as a financial institution considering extending you credit, an employer, or a company doing business with you. You also have the right to know who has seen your credit report.

Fair Credit Reporting Act (FCRA)

The interest rate you pay on your balance if you don't make your minimum payments on time.

Penalty Rates

A method of calculating interest payments on outstanding credit using the balance at the end of the previous billing period.

Previous Balance Method

___ cards do not offer revolving credit and require full payment of the balance each month. Aside from the prestige that they may afford holders, their only advantage is their interest-free grace period.

T&E (Travel & Entertainment)

Notification of rate increase. Notification of schedule for payoff. No interest rate increases for the first year. Increased rates apply only to new charges. Restrictions on over-the-limit transactions. Caps on high-fee cards. Protections for underage consumers. Standard payment dates and times. Payments directed to highest-interest balances first. Fee limits. Your credit card company cannot charge No inactivity fees These are because of what?

The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009

___ is the true simple interest rate paid over the life of the loan. It takes most of the costs into account, including interest on the balance, the loan processing fee, and the document preparation fee, but it only sometimes includes the loan application fee and normally does not include the cost of credit reports.

annual percent-age rate (APR)

A ___ is a credit card issued by a bank or large corporation; for example, AT&T and Quicken both issue credit cards, generally as a Visa or MasterCard. Visa and MasterCard don't actually issue cards themselves; rather, they act as franchise organizations that provide credit authorization systems, accounting-statement record keeping, and advertising services and allow banks and large corporations to issue the cards with the Visa or MasterCard name.

bank credit card

In assessing your___, lenders look to both your current income level and your current level of borrowing—that is, lenders are concerned with your level of non-obligated income.

capacity

___ generally carry an up-front fee of 2 to 4 percent of the amount advanced.

cash advances

A ___ user is someone who generally, but not always, pays off all of the balance. For this type of credit user, the ideal card is one with an interest-free grace period, a low interest rate on the unpaid balance, and no annual fee.

convenience and credit

A ___ is a private organization that maintains credit information on individuals, which it allows subscribers to access for a fee. i.e. Experian, TransUnion, and Equifax Credit Information Services.

credit bureau

A ___ generally carries an unpaid balance from month to month. Most credit users don't use the grace period, and the annual fee pales relative to the amount of interest they pay annually.

credit user

___ credit cards, which offer extremely high credit limits and benefits beyond a standard credit card, including things like emergency medical and legal services, travel insurance and services, rebates, and warranties on new purchases.

premium or prestige

A ___ card is a regular bank credit card backed by the pledge of some collateralized asset. If you can't pay what you've charged to your credit card, the issuing bank has a specific asset it can lay claim to.

secured credit card

A ___ card is a credit card that can be used only at a specific company. For example, a Texaco credit card can be used to charge purchases only at a Texaco service station.

single-purpose

In determining what makes an individual creditworthy, most lenders refer to the ___

the "five Cs" of credit

character, capacity, capital, collateral, and conditions

the five Cs of credit

A ____ is a charge account offered by a business. For example, phone and utility companies and even doctors and dentists provide services and bill you later, usually giving you a grace period to pay up. This payment system is a type of open credit account—one in which no cards are involved.

traditional charge account