Types of Credit & Credit Cards

Balance

Amount not paid off, which will incur interest charges on a daily basis.

Loan

An agreement where you are given a fixed amount of money for a fixed period of time that you must pay back, usually with interest

Credit

Any arrangement where you get "stuff" (money, goods, services), and agree to pay for it in the future

Variable interest rate

Credit card interest rate that changes up or down depending on the Prime Lending Rate.

Revolving credit

Open line of credit that can be used for any purchases as long as you're under the limit; payments vary monthly based on size of the debt

Co-signer

Someone who legally agrees to take responsibility for a person's debt if they cannot repay it

Collateral

Something valuable that the lender can take as payment if you can't pay back your loan (like a house or car)

Term

The amount of time you have to repay your principal

Default

The failure to promptly pay when money is due; negatively affects your credit score!

Capacity

What you have left after you pay your bills each month.

Examples of Credit Card Benefits

convenience, record-keeping, emergency cash, perks, purchase protection, fraud prevention, building credit

Penalty Annual Purchase Rate (APR)

higher interest rate used as a punishment against the borrower; can be triggered by the slightest mistake such as just one payment that is received a day late.

the 6 credit card components

includes 16 digit #, security code, expiration date, official cardholder's name, issuer logo, and fraud prevention "smart chip"

Balance Transfer

movement of all outstanding balances from one credit card to a new credit card; typically used by consumers who want to move their debt to a credit card with a lower interest rate, fewer penalties or other benefits

Examples of Credit Card Disadvantages

overuse, fees, debt, ruined credit score

Credit Scores

300 - 550 Bad. 550 - 700 Not so Great. 700 and above Good!

Joint Account

A bank account that is shared between two or more individuals, usually married couples or business partners

Credit Card

A card issued by a financial company giving the holder an option to borrow funds; primarily used for short-term financing

Credit Union

A member-owned financial co-operative. These institutions are similar to banks, except they are created and operated by their members and profits are shared amongst the owners (farmers, educators)

Debit Card

A payment card that deducts money directly from a consumer's checking account to pay for a purchase. Unlike credit cards, they do not allow the user to go into debt. If funds aren't present, the purchase is denied.

Authorized User

A person who has permission to use and/or carry another person's credit card, but isn't legally responsible for paying the bill

Cash Advance

A service provided by many credit card issuers allowing cardholders to withdraw a certain amount of cash, either through an ATM or directly from a bank or other financial agency but at a VERY high interest rate

Schumer Box

A table that appears in credit card agreements showing basic information about the card's rates and fees; required by law to keep companies honest and transparent in their practices

Down Payment

A type of payment made in cash during the onset of the purchase of an expensive good/service; this payment typically represents only a percentage of the full purchase price

Credit Limit

Cap on line of credit.

Unsecured debt

Debt NOT tied to a specific asset or that cannot be repossessed if payments are not made

Secured debt

Debt tied to a specific tangible asset that can be used as collateral and repossessed if payments are not made

Penalty Fees

If you go over your credit limit or make your payment late, you are likely to be charged a flat penalty fee

Variable-rate loan

Interest rate can change, based on prime rate or index rate, over the course of the loan (risky to the borrower)

Annual Percentage Rate (APR)

Interest rate charged for balances on a credit card.

Finance Charge

Interest rate charged for borrowing money.

Fixed-rate loan

Interest rate is determined before loan is granted and remains constant as long as on-time payments are being made (more predictable for the borrower)

Fixed interest rate

Interest rate is stable. It changes only if you get a penalty.

"Teaser" rate

Introductory or Temporary offer.

Installment loan

Loan used to finance a specific purchase for a specific amount of time; regular payments pay the interest and portion of the principal (usually to pay back a loan for something small, like a laptop)

Grace Period

The number of days between a consumer's credit card statement date and payment due date; a narrow window of time during which a consumer owes money to a credit card company for new purchases made

Billing Cycle

The number of days between your last bill and your current bill. Usually 28-31 days

Amortization

The paying off of debt with a fixed repayment schedule in regular installments over a period of time

Interest Rate

The percentage charged for the privilege of borrowing money

Minimum Payment

The smallest amount of a credit card bill that a credit card holder must pay each billing cycle; usually between 3-10%

Credit Card Rewards

benefits offered by some credit card companies that includes a small percentage of cash back, "points" for purchases, travel miles, or gift cards

Principal

the amount originally borrowed

Interest

the amount the borrower must pay for the use of someone else's money

Mortgage

the monthly payment made on a house; used by individuals and businesses to make large real estate purchases without paying the entire value of the purchase up front

15 or 30 years

the period of time a borrower generally needs to repay a home loan, plus interest, until he eventually owns property free and clear