Ch. 6 Intro to Consumer Credit

Equal Credit Opportunity Act

Bans discrimination in the extension of credit in the basis of race, color, age, sex, marital status, and other factors

Fair Credit Billing Act (FCBA)

Sets procedures for promptly correcting billing mistakes, refusing to make credit card payments on defective goods, and promptly crediting payments

installment cash credit

a direct loan of money for personal purposes, home improvements, or vacation expenses - no down payment and make payments in specified amounts over a set period of time

home equity loan

a loan based on the current market value of a home less the amount still owed on the mortgage -borrow up to 85% of its appraised value - interest you pay on a home equity loan is tax deductible

FICO score

a number generally between 350 and 850 that rates how risky a borrower is - the higher the score, the less risky for the lender

interest

a periodic change for the use of credit

revolving check credit

a prearranged loan from a bank for a specified amount that you can use by writing a special check; bank line of credit - repayment made in installments over a set period - finance charges are based on the amount of credit used during the month and on the outstanding balance

credit bureaus

a reporting agency that assembles credit and other information about consumers

credit

an arrangement to receive cash, goods, or services now and pay for them in the future used for business purposes

revolving line of credit

an arrangement whereby borrowings are permitted up to a specified limit and for a stated period, usually 5 to 10 yrs

collateral

an asset that you pledge to a financial institution to obtain a loan

cosigners

asked to take the risk that a professional lender will not take

capital

assets or net worth

character

borrower's attitude toward credit obligations -most important factor

debt payments-to-income ration

calculated by dividing your monthly debt payments (not including house payment) by your net monthly income - spend no more than 15-20% of your net after-tax income on consumer credit payments

debt-to-equity ratio

calculated by dividing your total liabilities by your net worth - do not include the value of your home and the amount of its mortgage -if it reaches 1, then you have probably reached the upper limit of debt obligations - ration for business firms is 0.33 - 0.5

borrowers

carry balances beyond the grace period and pay finance charges

incidental credit

credit arrangement that has no extra costs and no specific repayment plan

convenience users

credit card users that pay off their balances in full each month

debit cards

electronically subtracts the amount of a purchase front the buyer's account at the moment the purchase is made

capacity

financial ability to meet credit obligations to make regular loan payment as scheduled in the credit agreement -checks sources of income and expenses

conditions

general economic conditions that affect your ability to repay a loan - focuses on security

installment sales credit

loan that allows you to receive merchandise, usually high-priced items such as large appliances or furniture - make down payment, sign a contract to repay balance, plus interest and service charges in equal installments

single lump-sum credit

loan that must be repaid in total on a specified day, usually w/in 30 to 90 days -used on a single item

open-end credit

loans are made on a continuous basis and you are billed periodically for at least partial payment -cards issued by dept. stores, bank cards, travel and entertainment cards, overdraft protection

closed-end credit

one-time loans that the borrower pays back in a specified period of time and in payments of equal amounts -mortgage loans, automobile loans, installment loans - usually involve a written agreement for each credit purchase - down payment or trade-in may be required

Credit Card Accountability, Responsibility, and Disclosure Act

places new restrictions on credit card lending and eliminates certain fees

Consumer Credit Reporting Reform Act

places the burden of proof for accurate credit information on the credit reporting agency

Fair Credit Reporting Act

regulates the use of credit reports, requires the deletion of obsolete information, and gives consumers access to their files and the right to have erroneous date corrected

line of credit

the dollar amount, which may or may not be borrowed, that a lender makes available to a borrower

cobranding

the linking of a credit card with a business trade name offering "points" or premiums toward the purchase of a product or service

consumer credit

the use of credit for personal needs (except a home mortgage) by individuals and families