Personal Finance Unit 3

credit report

A credit report is Summary of public record information, credit information, account detail, and personal information.

credit score

A credit score is a single number similar to GPA that includes payment history, amounts owed, length of credit history, new credit, types of credit used.

List and describe two advantages and two disadvantages of credit.

Advantages • One advantage is that credit expands your purchasing power and raises your standard of living • Credit also provides emergency funds Disadvantages- • Purchases cost more over time when using credit. • While using credit, merchants pay fees to credit card companies that they pass on to customers.

What is a credit freeze and when might you chose to ask for one?

Credit freeze allows you to deny access to your credit information for a period of time. You might ask for one when your credit card may be stolen.

What is one way you can protect your credit card?

Don't lend anyone your card or leave it lying around

What is the difference between a FICO score and a Vantage or Transrisk score?

FICO score is the score that most banks use while Vantage/Transrisk scores are competing scores that are usually not used.

What is one way you can protect your credit card online?

Made sure the site is secure before entering your credit card number

What is the Office of the Comptroller of the Currency?

The government agency that is responsible for making sure banks follow the rules is the office of the Comptroller of the Currency.

what is a usury law

Usury law tells when high interest rates can go > for example you can't charge 100% interest.

credit rating

credit rating is a measure of creditworthiness based on your credit and financial history.

What are the components of a FICO score

o Payment history (35%) o Amounts owed (30%) o Length of credit history (15%) o New credit (10%) o Types of credit used (10%)

What steps should you take to build credit?

• Begin with a savings account • Open a checking account • Open a store credit account • Apply for a credit card • Get a small loan o Cosigner- someone who promises to pay your loan if you fail to pay (parents)

What are the five c's of credit worthiness?

• Character- will you repay debt? • Capacity- can you repay the debt? • Capital- do you have sufficient assets to support the debt? o Your assets should be more than you net worth • Conditions-what affects your ability to pay the debt? o How secure is your job? How is the employment situation in your geographic location and in your occupation? • Collateral- What assets are pledged to support the debt? o Property pledged to assure repayment of the loan such as the house, car, or furniture being purchased

what is closed end credit

• Closed end credit is a loan for a stated amount that must be repaid in full by a certain date. • Closed end credit has a set payment amount every month. • An example of closed end credit is a car loan.

What are two creditors' responsibilities to you?

• Creditors have the responsibility to inform customers about rules and regulations. • Use reasonable methods to contact customers who fall behind

What are two ways you can avoid unnecessary credit costs

• Do not increase spending when your income increases • Keep your credit accounts to a minimum

List and describe two reasons why credit costs may vary.

• One reason why credit costs may vary is economic conditions. If the economy is in a good place, your credit may be less expensive, but if the economy is not in a good place, the costs of credit may rise. • Another reason why credit costs may vary is the source of credit. Depending on where you get your credit, the credit costs will be different.

what are two sources of credit

• One source of credit is retail stores, which are department stores (macy's, neiman marcus) that will give you a card that you can use only at that store • Another source of credit is credit card companies like visa, mastercard, American express, and discover.

List and describe three of the ways a person can qualify for credit.

• One way a person can qualify for credit is income. Income is money that comes in at a regular rate. • Another way a person can qualify for credit is a financial position. A financial position is based on capital. Capital is the value of the property that you possess (such as bank accounts, investments, real estate, and other assets) after deducting your debts. • The last way a person can qualify for credit is collateral. Collateral is property pledged to secure repayment of a loan.

What is open end credit

• Open end credit is when a borrower can spend up to a certain amount. • This has varying payment depending on how much you spend. • One example of open end credit is credit cards.

what is service credit

• Service credit is when a service is provided in advance and you pay later. • Examples of service credit are telephone and utility bills.

List and describe the five credit laws we went over in class.

• The Consumer Credit Protection Act protects money borrowers by mandating complete disclosure of terms and conditions of finance charges and transactions, by limiting the garnishment of wages, and by regulating the use of charge accounts. • The Fair Credit Reporting Act regulates the collection, dissemination, and use of consumer information by requiring consumer reporting agencies to follow protective standards. • The Fair Credit Billing Act provides a mechanism for addressing billing errors in open-end credit accounts. • The Equal Credit Opportunity Act prohibits credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or because a person receives public assistance in whole or in part. • The Fair Debt Collection Practices Act prohibits debt collectors from using abusive, unfair, or deceptive practices to collect on alleged debt from consumers.

Who can limit the interest rates and fees that credit card companies can impose

• The government and banks can limit the interest rates and fees that credit card companies can impose.

list and describe three sources of credit advice

• Three sources of credit advice is friends, family, the Wall Street Journal. • Friends and family are people you love and trust to give you the best credit advice. • The Wall Street Journal is a popular business newspaper that gives commentary on politics, credit, and market (stocks)