Credit Test
What to consider when choosing a credit card
- APR (low or high? introductory offer for first months?) - Annual fee (none? is there one? worth it?) - Penalty fees (when does it kick in? anything else?) - Interest calculation (do they use the ADBM? if not, favorable or less favorable method?) - Grace period (How long after you receive the credit card statement do you have to pay the bill before interest kicks in? Is that always the same or does it depend on how much you have due?)
Three factors that can affect your credit score
1. Payment history: If you have a lot of debt and bad habits of missing payment dates in your payment history, the less the lender will want to lend you the money, and the worse your credit score will get. 2. Credit history length: Dependent on how long you've held a credit card, this can also effect your score. Generally, the longer you have had a (good) credit history, the higher your credit score. 3. Amounts owed: Your credit usage is a big factor in your scores, and how often you pay off your debt can also affect this.
How are credit cards and debit cards different?
A credit card can offer perks such as purchase protection
Credit Report
A credit report is a statement containing information about your credit activity and current credit situation- for instance, it has your loan paying history and status of all your credit accounts. It's important because it is a record of your current and past debt- basically your payment history, making it significant because it can impact so many parts of your life, including your ability to take out further loans in the future, buy a house or rent an apartment, buy a car, and can even effect your eligibility for certain jobs.
How are a credit score and credit report related?
A credit score is determined by the factors in your report
What is an annual fee?
A fee charged by a card issuer for being a card holder.
Interest
A sum paid or charged for the use of money or for borrowing money
How do you avoid paying interest on your credit card (or any other loan for that matter)?
Always make the full payment on time
You have a choice between two credit cards: American Express 8.99% or Chase Sapphire 12.99%. Which card offers the better rate?
American Express
The cost of credit expressed as a yearly interest rate is known as:
Annual Percentage Rate (APR)
What information on a Schumer Box should you focus on when choosing a credit card? (hint: choose 3 correct answers)
Annual Percentage Rate (APR) Grace Period Fees
Which of the following could be a SECURED loan? (hint: choose 2 correct answers)
Auto loan Mortgage
If the collateral for your secured loan can be taken away, why get a secured loan at all?
Because they usually have a lower interest rate
How can you build a positive credit history as a college student?
Become an authorized user on an adult's card
Which of the following situations is an example of responsibly taking on debt?
Become an authorized user on an adult's card
What can debt collectors do if you don't make payments towards your loans?
Call you between 8am-9pm to talk to you about your loans
Cash advances and convenience checks
Cash advances and convenience checks allow you to borrow cash from your credit card company, but they usually have higher APRs than purchases, and no grace period in which to pay back the loan. If you do use convenience checks, destroy them before tossing them out.
All of the following may access your credit report EXCEPT...
Colleges and universities
Jim is 23 and has 1 credit card. What would be the best way to improve his credit score? (hint: choose 2 correct answers)
Diversify his credit - get an loan for the car he needs Make sure he makes his payments in full & on time
What are the three main credit reporting agencies?
Equifax, Experian, TransUnion
FICO
FICO stands for Fair Isaac Corporation and its primary use is to determine someone's credit score- also known as how likely you are to repay a loan, which is what lenders use to decide if they should let you borrow or not.
There's no penalty if I pay my credit card balance after the due date.
False
Which types of debt usually CANNOT be erased or reduced?
Federal student loans
What information can you find on a credit report?
Inquiries you've made on new lines of credit
The cost of borrowing money is referred to as
Interest
How can having a thin file impact you?
Lenders may decline your application for a loan
Aisha wants to improve her credit utilization rate. Which of the following can she do? (hint: choose 2 correct answers)
Make several payments in the month instead of a large one Spread her spending among her 3 credit cards
Paying the minimum payment on a credit card every month will:
Make the final amount paid substantially higher than the amount initially charged to the card
The least amount that must be paid on a credit card each month is
Minimum Payment
How can a cardholder avoid paying interest on a credit card?
Pay the balance in full every month
Penalties
Penalties for bouncing checks, going over your limit, and paying late range between $15 and $50 per incident
Which of the following is NOT a typical type of credit?
Pre-Paid Debit Card
How do federal student loans differ from private student loans?
Private loan repayment may start while you're in school
What are the good and bad things about credit cards mentioned in the video?
Some of the good things about credit cards mentioned in the video include: rewards programs, no extra fees, convenience , and protection- that all being if you pay on time and are using a reputable credit card company, like Visa or Mastercard. However, the bad things could include: extra fees and interest (if you do not pay on time) and sketchy sellers/scammers (if you buy from more risky sites).
In what ways can a negative credit report affect your financial goals? Be Specific.
Some of the ways that a negative credit report can affect your financial goals would be in terms of affecting your eligibility to buy a house or a car, rent an apartment, take out any other type of loan or credit, and/or affect your eligibility to get a job.
Schumer Box
Terms and fees of a credit card in an easy to read box on all credit card applications and solicitations
What are the four Cs of credit and why are they important? Explain each.
The four Cs of credit are character- also known as an applicant's credit history; the second C is capacity- the applicant's debt-to income ratio; the third C is capital- the amount of money an applicant has; and the fourth C is collateral- an asset that can back or act as a security for the loan.
Credit Limit
The maximum amount of money that can be charged on a credit card.
How do the banks use this rate to actually calculate your interest?
They use a method of interest calculation called the average daily balance method. At the end of the billing cycle, your total charges and payments for each day of the month are added up and divided by the number of days in the month. That average is then multiplied by the monthly interest rate (that's the 1.25% number). The advantage of this method is that every time you make a payment on your bill, your average daily balance goes down and so does the interest you will owe.
Having a high credit score will allow lenders to give you lower interest rates.
True
It is wise to compare credit card offers before choosing one
True
T/F: A negative credit event (bankruptcy) can have a WORSE impact on a higher credit score.
True
True or False: A cosigner's credit history can be affected by the loan they are cosigned on.
True
Which of the following does NOT contribute to your credit score?
Which banks issued your credit cards
Which is TRUE when you make only the minimum payment each month?
You are charged interest on the remaining balance
Why might someone have a thin file ?
You are relatively new to establishing credit
Which of the following is TRUE about a credit report?
You can get a copy of your credit report for free
All of the following are benefits of having a good credit score EXCEPT...(hint: choose 2 correct answers)
You can get a higher return on your Retirement fund Higher interest rate on credit cards and loans
Which of the following is TRUE about finding errors on your credit report?
You may have to file a dispute with each credit bureau
What may NOT impact the interest rate on your loans?
Your level of education
Consumers aged 21 and younger can get a credit card, but need
a co-signer to show documentation of sufficient income to make payments (a co-signer is also equally responsible for the loan).
Penalty APR
a higher interest rate that is charged on new transactions
Credit Card
a plastic card that holds pre-approved credit, which can be used for the purchase of items now and payment of them later.
debit card
a plastic card that looks like a credit card, but instead of paying it off later, when used, the money is immediately taken out of the account
Although interest is calculated monthly, the actual interest rate is expressed as an ____. In most cases, it will be around ___, which means a monthly interest rate of ____.
annual percentage rate (APR). In most cases, this APR will be around 15%, which means a monthly interest rate of 1.25%.
Where can you get a free copy of your credit report?
annualcreditreport.com
Late payment fee
charged when a cardholder does not make the minimum payment by the due date
over-the-limit fee
charged when the amount of money charged on the account goes over the card's credit limit
The maximum amount you may borrow on a credit card is known as:
credit limit
A cardholder who only makes the minimum payment every month will pay
lots of interest and make slow progress toward paying off what is owed
Examples of penalty fees include:
over-the-limit fee late payment fee returned payment fee
Penalty interest
paid if late payments are made or credit limits are exceeded
How can you avoid paying interest fees on your credit card?
pay off the full balance, on time, each month
What is a good practice when it comes to credit cards?
paying the amount charged in full each month
Using the High Rate Method, you...
put extra money towards loans with the highest interest rate
Benefits of credit cards include:
safe and convenient, bonuses are offered allows you to build a positive credit report needed for reservations and online shopping
Credit card statements
summarize important information about a credit card account (sent to a cardholder monthly) they contain info regarding the card use from the previous month includes: - transactions made in the previous month - the current amount owed on the card - payment due date/minimum payment date
The longer the cardholder takes to pay off the amount of money charged-
the larger the total interest charges will be
Minimum payment
the minimum amount of credit card bill that must be paid monthly
Credit
when goods, services, or money is received in exchange for a promise to pay a definite sum of money at a future date
