Personal Finance Final
Statements must be mailed at least ____ before the payment due date, and various ____ cannot be charged prior to the 21st day (commonly referred to as grace period).
21 days; finance charges, penalties, and fees
Activation fees, annual fees, and other specified fees may not exceed...
25% of the credit limit during the first year of use
If you are more than 60 days late in making the minimum payment, the issuer may charge you the interest default rate, which is typically...
28 to 35%
The bottom 50% of US households pay less than _____ of income taxes
3%
Customers must be notified ____ days in advance before their account is closed
30 days
Standard FICO formula
35%: record of paying bills on time over time; 30%: debt to credit ratio; 15%: length of credit history; 10%: new accounts and recent applications for credit; 10%: mix of credit cards and loans
After one year or the introductory rate expires, the card holder must be notified....
45 days in advance of any rate change
How many people are receiving food stamps?
47 million people, or 15% of the population
____ of households pay no federal income taxes.
47%
How many students drop out of high school every day?
7,000 students
Range of credit scores
780-850: best; 720-779: good; 661-719: ok; 620-660: subprime; 560-619: bad; 500-559: worst; 300-499: toxic
What is a contract?
A binding agreement entered into voluntarily by two (bilateral) or more (multilateral) parties that the courts will enforce.
Universal default
Ability of lender to unilaterally change terms of loan upon learning the customer has defaulted or missed a loan payment to another lender
Principal
Amount of money borrowed or loaned
Credit
Amount of money lender willing to loan subject to repayment terms and conditions
Default rate
An accelerated rate of interest, typically 28 to 35%, charged on your credit balance as a penalty when the issuer did not receive at least the minimum payment by the due date and time or your payment is not honored by your bank.
Voluntary requests to see your report are...and involuntary requests are...
Authorized by you so that a lender, landlord, employer, etc. can legally get a copy of your credit report; involuntary usually come from lenders interested in soliciting you by mail for a pre-approved credit offer
Bad debt
Borrowing money to support a lifestyle beyond one's means, shopping to feel good on a bad day, buying something to get a "high," shopping to kill time, keeping up with your peers, etc.
Payments are "on-time" if received
By 5pm at the location of the payment office on the due date
Cashier's check
Check purchased by you from a bank, payable to a third party designated by you. Considered a "good" check because it is issued by the bank after they have received your funds.
Credit card fraud
Commonly caused by a dishonest clerk, waiter, cashier, or thief who copies your account number and expiration date directly from your card or a discarded receipt. Notify bank immediately.
What do you do if your identity has been stolen?
Contact the three major credit bureaus and put a "fraud alert" on your account, close all of your accounts as soon as possible, contact your creditors, file a police report, keep detailed record of who you contact and when.
Charge card
Credit card issued by a retailer allowing you to charge purchases made only with their store-stores frequently offer discounts at the register on all purchases made that day in order to entice you to open an account. Seems great but usually charged high rates of interest.
Good debt
Education, car, mortgage, starting a well-thought out business
Balance transfer fee
Fee charged when you transfer balance from one credit card provider to another. Fee is usually 2 to 5% of the balance being transferred.
How do financial institutions make money?
From the interest, fees, and penalties they charge you
Revolving credit
Funds made available to you for your use, at any time, subject to terms of repayment. Credit cards provide a revolving line of credit which, when you use the funds, will require you to make at least a minimum payment each month. As you repay all or a portion of the funds you have used, you can make new charges up to your maximum credit limit. So you can reuse your credit line over and over...it revolves.
Payday loan
High interest short term loan intended to be repaid by future paychecks
Cardholder statements must show...
How many months it will take to pay your balance if only the minimum payment is made, a toll-free number for credit counseling services, a late payment warning and a minimum payment warning
How can interest be charged on penalties and fees
If you carry a balance, in subsequent months, you may be paying interest not only on your purchases, but on the added penalties and fees, and oftentimes at a higher interest rate
Credit report
Individual financial report card which tells whether you have been making your credit card and loan payments on time
Why is retirement not the biggest problem?
It is longevity. Most people are living long past they planned for, saved too little along the way, and depleted their assets too son.
Adjustable rate of interest
Loan's interest rate may change at various specified times
Variable rate of interest
Loan's interest rate moves up and down based upon a benchmark interest rate not controlled by the lender. One example would be to base the variable rate on the "prime rate" of interest which is supposedly the lowest interest rate banks charge their best customers.
Fixed rate of interest
Loan's interest rate remains at a "fixed" rate for the term of the loan.
FICO score
Mathematical number used by lenders to determine if you are a good or bad credit risk. Based upon the delinquency and default rate of a large number of people with similar credit history, therefore indicates how likely you are to repay a loan or credit balance as agreed.
Overdraft fees
May not be charged unless cardholder agrees to them. Only one such fee allowed during a billing cycle.
Installment debt
Money borrowed to purchase large items such as a car or furniture, paying for them over time in regular intervals until loan paid back in full.
Should you respond to calls or emails from the IRS?
Never! The IRS only contacts you via snail mail
Is your credit score a part of your credit report?
No, your credit report is what is used to generate your credit score
Prepaid card
Not linked to a bank account. Were designed to provide less affluent a secure way to carry money but banks have found they can be quite lucrative with fees such as activation fees, inactivity fees, loading money onto card, checking balance, using an ATM for cash, etc.
Common issues with credit reports
Not yours, error with Social Security number, clerical error, mistakenly reported payments or charges, closed account still showing up
How can you improve your FICO score?
Pay at least the minimum balance due on time over time; manage your total debt/credit ratio (try to keep below 30%); preserve credit card history; create the right credit mix; do not apply for a lot of additional credit at once; avoid DUIs, bill collectors, and other "character flaws"
Certified check
Personal check the bank guarantees as being supported by funds in your account, payable to any third party you designate. Amount of check gets immediately deducted from your account along with service fee.
Deferred interest plan
Plan enabling consumers to buy big-ticket items, paying no interest or a low "teaser" rate of interest over a promotional period. If entire balance is not paid off by the end of the period, interest begins and you may also be retroactively charged for the interest on the entire balance during the promotion.
What periods must be for a minimum of six months?
Promotional rate periods
Identity theft
Someone gets a hold of your personal information, such as your Social Security number, passwords, credit card number, phone number, etc. Uses this information to open accounts in your name and make purchases. Can happen through loss or theft of a purse or wallet, dumpster diving or going through your trash, stealing from your mailbox, postal forwarding of your mail, phishing, hacking, etc.
Consideration
Something of value is exchanged for promises by parties to a contract. Must be deemed sufficient in a court of law.
Gift cards
Stored value cards from specific retailers or merchants that don't expire for five years at least
What type of debt now exceeds credit card debt?
Student loan
Payments in excess of the minimum must be applied to...
The balance with the highest interest rate
"Go-To" rate
The interest rate you are charged on unpaid credit card balances, in addition to the variable rate, to determine the total rate of interest on your account. Your go-to rate is based on your credit history.
Debt
The state of owing something such as money
Bankruptcy
This is a LAST resort. Can negatively impact your credit score for up to 10 years. Additional credit provided to you will be at accelerated rates of interest. Does NOT relieve you of obligations of alimony, child support, or student loans. Always get legal advice before pursuing.
Who are millionaires?
Those who are financially independent, living the life they want to lead, and able to take care of themselves without financial hep from government sources.
When should you make credit card payments?
Two days before the due date if paying online, five days before when paying by mail.
Introductory rate
When a new account is opened, there can be no interest rate increase for the first 12 months unless an introductory rate has come to an end, or you are more than 60 days late with a payment, or you are on a variable rate tied to an index
Breach
When a party does not adhere to the terms and conditions of the contract, the contract is considered breached.
Does your employer need your permission to do a credit check before hiring you?
Yes
Credit card theft
Your credit card is missing or stolen. Contact bank immediately.
If you are notified 45 days in advance of a significant change in terms, such as a rate or fee increase, issuer must give you the chance to...
close the account and pay off the balance at the old interest rate
Credit limit increases for those under 21 must be subject to the...
co-signer's permission
The Card Act and the Federal Reserve's new rules apply only to...
consumer, not business credit cards
The total information about you on your credit report determines your....
credit score
Your credit card company cannot charge you ____ for not using your card
inactivity fee
Wealth is a ______.
lifestyle
Your credit card company cannot charge you a fee that is greater than your...
minimum payment
Interest rate increases can only be applied to ____ for an account in good standing
new charges
After increasing rates on consumer accounts, issuer must...
review account once every six months to determine if rate increase or charges should be dropped
A debit card is a ____ line of credit
secured
Your credit card company cannot charge you more than one fee for a _____
single transaction or event that violates your cardholder agreement
If your credit card company increases your card's APR, it must...
tell you why and reevaluate that rate increase every six months
The burden of saving and investing for retirement and healthcare is shifting ever more from....
the employer to the employee
Beyond 60 days, you may be liable for...
the full amount of charges
The more often interest is calculated...
the higher the interest rate becomes
An unused credit hold may not create an overdraft charge unless...
the hold is executed (i.e. on a hotel room or car rental)
The top 10% of US households earn _____ and pay _____ of income taxes
$113,000 or more; 70%
The top 5% of US households earn ______ and pay ______ of income taxes
$160,000 or more; 60%
Credit card companies cannot charge you a fee of more than ___ unless one of your last six payments was late, in which case your fee may be up to ___
$25; $35
The top 1% of US households earn _______ and pay _______ of income taxes
$400,000 or more; 40%
Current law states your loss is limited to ___ if you contact your bank within two days of discovering your credit card has been stolen
$50
Beyond two days, you may be liable for up to...
$500
How many people receive a Social Security check every month?
1 out every 6
What is a security freeze?
A new technique that has become popular due to large-scale hacking of business and governmental data centers. It can be used to deny access to your credit information so that a potential new creditor is not able to access your information in order to approve the request.
Grace period
A period in the billing cycle during which no penalty is due as long as payment is received on time.
Interest
Cost of money paid by borrower to obtain use of the principal. Often expressed as an Annual Percentage Rate (APR) of the principal.
What kinds of things can void an entire contract?
Fraud, misrepresentation, mental incompetence, duress
Being ____ is the cornerstone of wealth
Frugal
Do most millionaires earn more than $100,000 a year?
No
Debtor
Person or entity with debt which owes repayment
Stop payment
Requesting bank to reject payment of a check when presented
Three major reporting agencies
Transunion (Empirica score); Equifax (Beacon score); Experian (Experian model)
Credit card issuers may not raise interest rates on...
prior charges
Payment must be ____ not ____ by the due date
received, postmarked
After one year, however...
there is no cap on fees!
An estimated 78% of households have....
two people working
A credit card is an _____ line of credit
unsecured
Paying your balance each month ___ your credit score
will not hurt
The only federally mandated website for free credit reports is...
www.annualcreditreport.com
The best time to establish credit is when...
you don't need it