Personal Finance Ch. 6
Vantage score 3.0 (2013)
- common range score- (only 1 score) - does NOT count debt collections paid off - allows consumers with short credit history eligible for credit reports - ignore negative credit history if affected by natural disaster
What information is in your file at Credit Bureaus?
- your employers, position, income - former address - former employer - spouse's name, SS #, income - if you rent or own your home - returned checks
What are the 5 C's of Credit Management?
1. Character 2. Capacity 3. Capital 4. Collateral 5. Conditions
What are the 3 common characteristics of closed end credit ?
1. Fixed period of time 2. Fixed Interest Rate 3. Fixed payment
3 most common type closed-end credit
1. Installment sales credit 2. Installment cash credit 3. Single Lump Sum credit
What are the 5 different components of your FICO score?
1. Length of credit history- 15% 2. Payment history- 35% 3. Amounts owed- 30% 4. Types of credit used- 10% 5. New Credit- 10%
Fair Credit Reporting Act
1. Regulates the use of credit reports, 2. requires the deletion of obsolete info 3. Gives consumers access to their files 4. The right to have erroneous data corrected
What are 6 types of credit?
1. Smart cards 2. Debit cards 3. Gift cards 4. Travel & Entertainment (T&E) cards 5. Smart phones 6. Home equity loans, LOC, HELOC, or second mortgage
Usually after 7-10 yrs a credit reporting agency can't disclose the info in your credit file unless... ? (2 scenarios)
1. being investigated for a credit application of $75,000 or more 2. Application to purchase life insurance of $150,000 or more
What to do if your identity is stolen? (3)
1. contact the fraud departments of each of the three major credit bureaus 2. contact the creditors for any accounts that have been tampered with 3. ***file a police report****
Advantages of Credit?
1. enjoy good & services now 2. Do not have to carry cash 3. Points, rebates, sky miles on purchases 4. May extend manufacturer warranty, provide insurance, roadside service
If you are denied a credit application what can you do? (2)
1. have the right to know why 2. Can get a free copy of your credit report within 60 days to ask for report
How to fix incorrect information in your credit file?
1. notify the credit bureaus in writing 2. Send certified letter requesting a receipt 3. Follow up
Fair Credit Billing Act (FCBA) -3
1. sets procedures for promptly correcting billing mistakes 2. refusing to make credit card payments on defective goods 3. promptly crediting payments Credit Mistakes
How can you protect yourself against credit card fraud?
1. use a secure browser 2. keep records of online transactions 3. review monthly bank and credit card 4. read the policies of web sites you visit 5. keep your personal info private 6. give payment info to businesses you know and trust only 7. never give your password to anyone online 8. do not download files sent to you by strangers
How many people usually pay off their balances in full each month on credit cards?
1/3- convenience users
Equal Credit Opportunity Act (ECOA)
Bans discrimination in the extension of credit on the basis of race, color, age, sex, marital status, and other factors
Cosigning a Loan
Cosigners often pay off debt If you cosign: - make sure you can afford the loan - this debt may keep you from getting a loan (goes on co-signers credit report) - This debt may keep from getting a loan - make sure before you pledge property to secure the loan -check sate laws - request access to loan or copies of past due notices Can destroy your credit!!
Who can only pull your credit report ?
Nobody 1. Sign a document 2. Court Ordered Pulling a credit report many times looking for a credit or loan is called a "HIT"
Credit Card Accountability, Responsibility and Disclosure Act 2009
Places new restrictions on credit card lending and eliminates certain fees- need to give customers fair notice (hurts the revenue of financial institutions)
Consumer Credit Reporting Reform Act of 1997
Places the burden of proof for accurate credit information on the credit reporting agency rather then you - you need to keep a close eye
credit bureau
a reporting agency that assembles credit and other information about consumers
what does closed-end payment usually involve?
a written agreement for each credit purchase and specific payments
Revolving line of credit
arrangement whereby borrowings are permitted up to a specified limit and for a stated period, usually 5-10 years
What is installment cash credit?
direct loan of money for personal purposes, home improvements, or vacation expenses.
Debt to income ratio
dividing monthly debt payments by your net monthly income (after taxes) ***not safe- should not exceed 20% of net income on credit payments!!!**~15% Excludes mortgage
Debt to equity ratio
dividing total liabilities by net worth excludes value of your home or mortgage and no monthly bills (cell phone, bills, light & cable)
line of credit (open)
dollar amount, which may or may not be borrowed, that a lender makes available to a borrower. DANGEROUS unsecured loans = greater risk for bank so you pay a high interest rate on LOC
debit card
electronically subtracts the amount of a purchase from the buyer's account at the moment the purchase is made
Capacity
financial ability to meet credit obligations
conditions
general economic conditions that can affect a borrowers ability to repay a loan
Installment sales credit
loan allows you to receive merchandise (usually high priced items appliance or furniture)
What is the time limit on adverse data for a credit report?
most of info in the credit file is 7 years Personal Bankruptcy 10 years (pay 3x more)
Walking
nickname of man arrested for credit card fraud
T&E
not really credit cards because monthly balance is due in full
What to do if a billing error?
notify creditor in writing within 60 days of when bill was mailed Creditor MUST acknowledge your letter by law within 30 days Creditor may not threaten your credit rating while resolving a billing dispute
closed-end credit
one-time loans that the borrower pays back in a specified period of time and in payments of equal amounts
What are advantages of credit?
pay for them later
Gift card
prepaid cards (like debt card)
What do platinum cards do?
provide emergency medical for travelers
Capital
refers to your assets or net worth
FICO credit score
the higher the score, the less the risk you pose to creditors : range 350-850 Excellent FICO = 800+ (calculated by getting all 3 bureaus different scores)
consumer credit
the use of credit for personal needs (Excludes a home and mortgage)
Convenience users
users of credit cards that pay their balance in full every month
collateral
valuable asset that you pledge to a financial institution to obtain a loan
What are 2 characteristics of an open end credit?
- Credit extended to a certain $$ limit; LOC never expires as long as payments are made - charge, repay, charge again
What are the disadvantages of Credit?
1. Overspending 2. Credit Cost Money
What is one of the biggest advantage of credit according to Mr. Davis?
Grace period or Float period
What are some examples of closed -end credit?
Mortgage loans Automobile loans Installment loans
home equity loan
a loan based on the current market value of a home less the amount still owed on the mortgage
interest
a periodic charge for the use of credit
revolving check credit
a prearranged loan from a bank for a specified amount; also called a bank line of credit
Who can file a complaint on a bank?
anyone, you don't have to go to the bank - report to the federal reserve system
credit
arrangement to receive cash, goods, or services now and pay for them in the future. OR obligating future earnings- spending money not yet earned
Character
attitude toward his or hers credit obligations
Smart Card
computer chip installed
What is incidental credit?
credit arrangement that has no extra costs and no specific repayment plan
Installment cash credit
direct loan of $ for personal purposes, home improvements, or vacation expenses
Cobranding
linking of a credit card with a business trade name offering "points" or premiums toward product or service.
Smart Phones
mobile commerce
Does credit cost money?
yes
Does the fair credit reporting act allow authorized persons to obtain credit reports?
yes
What to do if denied credit?
you can get a free credit report within 60 days of request
What is the average number of credit cards people have?
~8-9
Credit Bureaus
1) Experian information Solutions- formerly TRW 2) TransUnion Credit Union Information Company 3) Equifax Services, Inc. all different values
Can bad credit report cost you a loan or higher interest rates?
yes
open-end credit
line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment
Single Lump Sum credit
loan that must be repaid in total on a specified day, usually within 30 days - 90 days
What is single-lump sum credit?
loan that must be repaid in total on a specified day, usually within 30 to 90 days
What are alternatives to financing current purchases?
savings, present earnings, borrowing
Examples of open-end credit?
Department credit cards (visa, MasterCard) overdraft protection Travel & entertainment cards (American express, DIners Club)