Finance Chapter 6

Fair Credit Billing Act

-Notify creditor of error in writing within 60 days -include your explanation of the error and your account number to the billing inquiries address -they must respond within 30 days - credit card company has two billing periods but no longer than 90 days to correct your account or tell you why they think the bill is correct -your credit rating is not affected while item is in dispute -you can withhold payment on damaged or shoddy goods or poor services if you have paid for them with a credit card, if you make a sincere attempt to resolve the problem with your creditor

What to do if you believe the reason you were denied credit is valid?

-apply to another creditor with different standards -take steps to improve your creditworthiness -you have the right to provide a 100 word explanation in your file

Home equity loans (not a mortgage)

-based on the difference between the current market value of your home and the amount owed on the mortgage -borrow up to 85% of the value of the home

How many U.S. households are convenience users?

1/3

How many people are borrowers?

2/3

According to the fair credit reporting act adverse data can be reported for ________ years; bankruptcy can be reported for __________ years.

7;10 - unless for a credit application of $75,000 or more or buying over $150,000 of life insurance (fraud can be an issue)

How many people carry credit cards in the U.S?

8/10 U.S. households carry one or more credit cards

Capacity

Can you repay the loan? -what is your income

Open- End Credit

Use as needed until reaching line of credit max - credit cards, department store cards, bank credit cards

Capital

What are your assets and net worth? - what can be sold? what can be converted to cash?

Collateral

What property do you have to pledge that the lender can repossess if you default on the loan? -car loans, home loans

Credit

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

670-739

average U.S. range, considered good

FICO credit score

based on trans union credit report free with discover credit card

Who provides data to credit bureaus?

bureaus get information from banks, finance companies, credit card companies, merchants, other creditors

The 5 C's that creditor look for

character capacity capital collateral conditions

Credit bureaus

collect information -if they weren't there it would be harder to get a loan -Experian, Trans Union and Equifax

Character

do you pay bills on time?

Cash advances and credit cards

expensive, only use in emergencies

579 or lower

indication of a very risky borrower

800+ (850 max)

indication of an exceptional borrower

740-799

indication of very dependable borrower

What if your identity is stolen?

it means your social got stolen -contact fraud department of each of the 3 major credit bureaus - tell them to flag your file with fraud alert - include statement that creditors should call you for permission before opening any new accounts in your name -contact creditors to check for accounts that have been tampered with or opened fraudulently -file a police report, keep a copy

How are home equity loans set-up?

like a revolving line of credit -borrowings are permitted up to a specified limit for a stated period of time, usually 5-10 years - interest paid is deductible as mortgage interest

co-branding

linking a credit card with a business offering rebates on products and services -generally larger rewards for items from that business than using a regular credit card

Closed-End Credit

one time loans for a specific purpose that you pay back in a specific period of time, and in payments of equal amounts. - mortgage, automobile, and installment loans for furniture, appliances and electronics

When do you pay interest and finance charges with open ended credit?

only if you do not pay the bill in full when due

What's a borrower?

people who carry a balance over, paying finance charges

What are convenience users?

people who pay balance in full each month

580-669

some lenders will approve borrowers with this score

Consumer credit

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

Conditions

what economic conditions could affect your ability to repay the loan? -outside of you

debit cards are similar to what?

writing a check

What do you ask yourself before you take out a loan?

-can you afford the loan? -what do you play to give up in order to make the payment?

Things to consider if you do co-sign

-can you afford to pay the loan? -liability for this debt may prevent you from getting other credit that you want - if you put up collateral, you could lose it if the loan goes into default -request that a copy of overdue payment notices be sent to you

What if your are denied credit?

-check your credit at the credit bureau -if you believe reasons are invalid file suit and/or notify federal enforcement agency -ask the creditor to clarify reason for denial

Advantages of credit

-current use of goods and services -permits purchase even when funds are low - a cushion for financial emergencies - easier to return merchandise -convenient for shopping - one monthly payment - safer than cash - needed for hotel, car reservations and shopping online - can take advantage of float time/grace period (if you pay bills on time) - may get rebates, airline miles, or other bonuses - indicates financial stability

Building and maintaining your credit rating

-limit your borrowing to your capacity to repay -live up to the terms of contracts -check to see what is in your credit report

Travel and entertainment cards

-not really credit cards -monthly balance is due in full -american express just started issuing credit cards

Fair Credit Reporting Act

-regulates the use of credit reports -credit card companies must correct inaccurate or incomplete information -only authorized persons have access to your report -adverse data can be reported for 7 years; bankruptcy for 10 years

Stored value (or gift) cards

-resemble debit card -used in lieu of paper gift certificates -sometimes used for business purposes -bankruptcy can make the cards worthless

How to protect yourself against debit/credit card fraud

-sign new cards when they arrive -treat cards like money-keep them secure -shred anything with your account number on it -don't give your number over the phone unless you initiate the call, and don't put it on postcards -get card and receipt after every transaction: compare receipts to bills when they arrive, checking for errors -notify the card issuer if you don't get your billing statement, or if your card is lost or stolen -check credit card report regularly

Disadvantages of credit

-temptation to overspend - failure to repay loan may lead to loss of income - it does not increase total purchasing power (credit costs future income) - credit costs money (if you do not pay the balance in full/ if there is an annual fee)

If you co-sign a loan the creditor will give you a notice that tells you?

-you are being asked to guarantee the debt -if the borrower does not pay, you may have to pay up to the full amount and also any late or collection fees -if a payment is missed the creditor can collect the debt from you without first trying to get it from the borrower

How to improve your credit score

1) get copies of your credit report-review for accuracy 2) understand how your credit score is determined 3) beware of credit-repair scams

5 ways to understand how your credit score is determined

1) pay your bills on time (paying minimum) 2) keep your outstanding debt low 3) the longer the credit history the higher the score* 4) the more credit cards you have may hamper your score 5) applying for new credit temporarily lowers your score - if applying for loan/mortgage don't open new card don't cancel card unless it has an annual fee