Unit 3 study guide for PFL

capacity

borrower's ability to repay a debt

character

borrower's reputation for paying bills and debts on time based on past behavior

what are the three c's?

character, capacity, and collateral.

why is it important to establish and maintain a good credit history?

Having a good credit history helps you be able to get more loans and whenever your are making big purchases, you are likely to be able to buy it because of the good credit history.

what are 3 negatives of filing bankruptcy?

It will damage your credit, it's possible to lose assets, and there are certain look back periods through your transactions prior to bankruptcy.

what are 3 positives of filing bankruptcy?

It will eliminate almost all of unsecured debt, it has the automatic stay order, and it gives you a fresh start to rebuild your credit.

creditor

people, financial institutions, or businesses that lend money

annual percentage rate (APR)

percentage cost of credit on an annual basis

interest rate

percentage of the amount of a loan

interest

price of using someone else's money

collateral

property required by a lender and offered by a borrower as a guaranteed payment of a loan. Also, a borrower's savings, investments, or the value of the asset purchased that can be seized if the borrower fails to repay debt.

payday loan

short-term loan to cove a borrower's expenses until their next payday

loan

sum of money given expecting amount borrowed to be repaid, includes interest

credit

the ability of granting money or something of value in exchange for a promise future repayment

credit responsibilities

the actions or behaviors in which people should engage when they use credit

credit rights

the protections put in place by law to help people obtain and maintain credit

bankruptcy

the state of being completely bankrupt, have no money left, in a lot of debt.

finance charge

total dollar amount paid to use credit

if you can't pay the entire balance each month, what should you do?

You should make the largest payment possible to avoid larger interest payments.

automatic stay

a cease and deceased order which means that the people who you are in debt to can't keep calling you every day and collecting money.

unsecured debt

a debt with no collateral or property attached

what is a credit report

a loan and bill payment history kept by a credit bureau.

what credit responsibilities do you have?

- Pay your bills on time - Pay off your credit card balances in full each month - Compare offers for similar types of credit - Make informed choices about credit usage - Know how much you can afford to spend - Keep your receipts for purchases/ returns to check against purchases/ returns listed on credit card statements - Check monthly statements to make sure charges are correct.

what credit rights do you have?

- You have the right to see your personal information on credit reports - Organization that use credit reports are required to help you understand the report - You have the right to have errors in your credit reports corrected - You have the right to know why you were denied credit I - If you are denied credit because of something in your credit report the lender must give you the name, address, and telephone number of the credit bureau that provided the credit report. - You have the right to know who has requested information about your credit history - Creditors cannot make decisions based on sex, nationality, origin, marital status, color, race, religion, or age nor can they ask for this info. - Neither the length of the loan nor the interest rate may be changed for a fixed-rate loan - Lenders must notify you within 30 days of their decision to make a loan to you or not.

what is a credit history?

A record of a person's payment activity or behavior over a period of time.

What are the advantages to using credit?

Advantages for using credit are convenience, buying and using things now and pay later, buying more expensive items that you couldn't afford to pay all at once, don't have to carry cash, paying for things in emergencies, have spending tracked, and can receive perks.

what is a credit bureau?

An organization that compiles credit information on individuals and makes it available to businesses for a fee.

Why is it best to pay your credit card balance in full each month?

By paying in full each month your credit history is better, and you will avoid interest charges if paid.

what are the three credit bureaus?

Equifax, Experian, TransUnion

what are the keys to a solid credit history/ saving money?

Establishing a credit history, pay all of your bills on time each month, pay all of your bills in full each month, don't open too many credit card accounts, monitor your credit usage, and check your credit reports each year.

what is a FICO score and why do lenders use it?

FICO scores are scores based off of your credit and lenders use it to determine whether or not you will pay the loan back.

what information is needed to calculate an APR?

Information needed to calculate an APR consists of the amount of credit, dollar amount of credit costs, and the length.

why do people with high FICO scores pay lower interest rates than people with low FICO scores?

People with high FICO scores pay lower interest rates because with a higher score you pay more of your bills on time and you are more trustworthy but if you have a lower score that means that you tend to not pay your payments on time and you aren't as trustworthy.

what are preferential payments? what are fraudulent transfers?

Preferential payments are whenever you borrowed some money and you pay it back in installments, it can be used to pay off debt. A fraudulent transfers in when you transfer assets out of your name prior to bankruptcy.

what are some disadvantages of using credit?

Spending money you don't have, buying more than you can afford, paying more than you would if you paid cash, greater likelihood of identity theft, and if you use credit poorly the inability to get credit in the future/ loss of opportunities.

what is the role of the bank's trustee in a bankruptcy case?

They can get the money that you were paying back in the preferential payment to pay off debt.

how are credit reports used by financial institutions and other potential creditors?

They review credit reports of potential borrowers to determine likelihood that a future debt will be repaid and may or may not grant credit.