EPF-Unit 9 Vocab

"Means Test"

A method for determining whether someone qualifies for a financial-assistance program. A common means test is the one used to determine eligibility for Chapter 7 bankruptcy. Means testing is also used in distributing Medicare benefits and has been suggested as a solution for the Social Security problem.

grace period

A provision in most loan and insurance contracts which allows payment to be received for a certain period of time after the actual due date.

average daily balance (calculation method)

Uses the actual balance on each day of your billing cycle

20/10 Rule

helps you understand how much credit you can afford. Never borrow more than 20% of yearly net income (excluding home mortgage). Monthly payments should be less than 10% of your monthly net income

Fair Debt Collecting Practices Act

prevents abusive and deceptive practices by debt collectors. The act details the rules a debt collector must follow when trying to collect a debt from you. It prohibits collectors from engaging in abusive debt-collection practices, such as calling you outside of the hours of 8:00 a.m. to 9:00 p.m. local time or communicating with you at work after they have been advised that this is unacceptable or prohibited by the employer.

Equal Credit Opportunity Act

prohibits discrimination in credit transactions on the basis of certain personal characteristics, such as race, color, religion, national origin, sex, marital status, age, or because you receive public assistance.

Fair Credit Billing Act

protects consumers against inaccurate and unfair credit billing and credit card practices. This act requires that a credit card company promptly credits your payments and corrects mistakes on your bill without damage to your credit score. It also lets you dispute billing errors on your credit card and withhold payment for damaged goods.

Fair Credit Reporting Act

protects you against inaccurate or misleading information in credit files maintained by credit reporting agencies. It requires that you must be told what's in your credit file and have the ability to correct any errors.

unsecured loan

refers to any type of debt or general obligation that is not collateralized by a lien on specific assets of the borrower in the case of a bankruptcy or liquidation or failure to meet the terms for repayment.

5 "Cs" of Credit

represent characteristics of a person who is a good candidate to receive credit

Default

1. The failure to promptly pay interest or principal when due. Default occurs when a debtor is unable to meet the legal obligation of debt repayment. Borrowers may default when they are unable to make the required payment or are unwilling to honor the debt. 2. The failure to perform on a futures contract as required by an exchange.

amortization

1. The paying off of debt in regular installments over a period of time. 2. The deduction of capital expenses over a specific period of time (usually over the asset's life). More specifically, this method measures the consumption of the value of intangible assets, such as a patent or a copyright.

Chapter 13

A U.S. bankruptcy proceeding in which the debtor undertakes a reorganization of his or her finances under the supervision and approval of the courts. As part of the reorganization, the debtor must submit and follow through with a plan to repay outstanding creditors within three to five years. In most circumstances, the repayment plan must provide a substantial payback to creditors - at least equal to what they would receive under other forms of bankruptcy - and it must, if needed, use 100% of the debtor's income for repayment.

Chapter 7

A bankruptcy proceeding in which a company stops all operations and goes completely out of business. A trustee is appointed to liquidate (sell) the company's assets, and the money is used to pay off debt.

Judgement Lien

A court ruling that gives a creditor the right to take possession of a debtor's real property if the debtor fails to fulfill his or her contractual obligations. A judgment lien may be made against an individual or business and allows the creditor to access the debtor's business, personal property and real estate, among other assets, to pay the judgment.

credit report

A detailed report of an individual's credit history prepared by a credit bureau and used by a lender to in determining a loan applicant's creditworthiness, including: 1. Personal data (current and previous addresses, social security number, employment history) 2. Summary of credit history (number and type of accounts that are past-due or in good standing) 3. Detailed account information 4. Inquires into applicant's credit history (number and type of inquiries into applicant's credit report) 5. Details of any accounts turned over to credit agency (such as information about liens, wages garnishments via federal, state or county records) 6. Information on how to dispute any of the above information.

Truth in Lending Act

A federal law enacted in 1968 with the intention of protecting consumers in their dealings with lenders and creditors. The Truth in Lending Act was implemented by the Federal Reserve through a series of regulations.

Bankruptcy

A legal proceeding involving a person or business that is unable to repay outstanding debts. The bankruptcy process begins with a petition filed by the debtor (most common) or on behalf of creditors (less common). All of the debtor's assets are measured and evaluated, whereupon the assets are used to repay a portion of outstanding debt. Upon the successful completion of bankruptcy proceedings, the debtor is relieved of the debt obligations incurred prior to filing for bankruptcy.

Garnishment

A legal process whereby payments towards a debt owed by an individual can be paid by a third party - which holds money or property that is due to the individual - directly to the creditor. The third party in such a case is generally the individual's employer and is known as the garnishee. Garnishments are typically used for debts such as unpaid taxes, monetary fines and child support payments.

title loans

A loan where an asset is required as collateral. These loans are popular for two reasons. The first being that with this type of loan, the applicant's credit rating is not considered. The second being that title loans can be approved very quickly and for loan amounts as little as $100 in most cases.

credit rating

An assessment of the credit worthiness of a borrower in general terms or with respect to a particular debt or financial obligation. A credit rating can be assigned to any entity that seeks to borrow money - an individual, corporation, state or provincial authority, or sovereign government. Credit assessment and evaluation for companies and governments is generally done by a credit rating agency such as Standard & Poor's or Moody's. These rating agencies are paid by the entity that is seeking a credit rating for itself or for one of its debt issues. For individuals, credit ratings are derived from the credit history maintained by credit-reporting agencies such as Equifax, Experian and TransUnion.

variable rate offer

An interest rate on a loan or security that fluctuates over time, because it is based on an underlying benchmark interest rate or index that changes periodically.

single-payment credit

Any loan that is to be paid off in one future payment.

capacity

Borrower's ability to repay a debt on a timely basis, determined by deducting total cash outflows from the borrowers total income during (usually) a month

two-year balance

Calculated by making use of your last two month's account activity

adjusted balance method (calculation method)

Calculated by subtracting payment(s)

previous balance method (calculation method)

Calculated on the outstanding balance at the end of the previous billing period

capital

Money invested in a business to generate income. Factors of production that are used to create goods or services and are not themselves in the process.

Chapter 11

Named after the U.S. bankruptcy code 11, Chapter 11 is a form of bankruptcy that involves a reorganization of a debtor's business affairs and assets. It is generally filed by corporations which require time to restructure their debts. Chapter 11 gives the debtor a fresh start, subject to the debtor's fulfillment of its obligations under its plan of reorganization.

character

One of the five key factors (see five C's of credit) considered in evaluation of a loan application is the applicant's credit history and reputation in the community

collateral

Property or other assets that a borrower offers a lender to secure a loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup its losses. Because collateral offers some security to the lender in case the borrower fails to pay back the loan, loans that are secured by collateral typically have lower interest rates than unsecured loans. A lender's claim to a borrower's collateral is called a lien.

Credit Care Accountability, Responsibility and Disclosure (CARD) Act

The act requires that credit card contract terms be presented to consumers in clear language and places new limits on fees and rate increases. Your credit card company generally cannot increase the rate on your existing balance and must tell you forty-five days before increasing the rate for new transactions.

Delinquent

The failure to accomplish what is required by law or duty, such as the failure to make a required payment or to perform a certain action. A delinquent is an individual or corporation with a contractual obligation to make payments against a loan in a timely manner, such as through a mortgage, but payments are not made on time. In the case of a mortgage, the lender can initialize foreclosure proceedings if the mortgage is not brought up to date within a certain amount of time.

conditions

The state of the economy in a country or region. Economic conditions change over time in line with the economic and business cycle, as an economy goes through expansion and contraction. Economic conditions are considered to be sound or positive when an economy is expanding, and are considered to be adverse or negative when an economy is contracting. A country's economic conditions are influenced by numerous macroeconomic and microeconomic factors, including monetary and fiscal policy, the state of the global economy, unemployment levels, productivity, exchange rates, inflation and so on.

Repossession

The taking back of property by a lender or seller from the borrower or buyer, usually due to default.

secured loan

a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan.

installment loan

a loan that is repaid over time with a set number of scheduled payments; normally at least two payments are made towards the loan.

FICO score

a person's credit score calculated with software from Fair Isaac Corporation (FICO).

closed-end loan

a type of credit that should be repaid in full amount by the end of the term, by a specified date.

revolving credit

credit that is automatically renewed as debts are paid off.

Truth-in-Lending Act

requires that lenders use uniform methods for computing the cost of credit and for disclosing credit terms so you can tell how much it will cost to borrow money. It also limits your liability to $50 if your credit card is lost, stolen, or used without your authorization, and it prohibits the unsolicited issuance of credit cards. The Fair Credit Billing Act and the Fair Credit and Charge Card Disclosures Act were later additions to the Truth in Lending Act, as are many provisions of the Credit CARD Act.

payday loans

small-dollar, short-term, unsecured loans that borrowers promise to repay out of their next paycheck or regular income payment

Foreclosure

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

credit

to borrow money from someone with the promise to pay the money back. Credit allows you the opportunity to buy something now and pay for it later. Credit purchases might include buying a car, buying a home, or buying tickets to a concert or a sporting event.