Personal Finance Chapter 11
What should you put in writing if you take out a private loan?
everything
How can getting into too much debt prevent you from reaching financial goals?
Can trap you in perpetual debt, unable to invest or save
Which of the three C's of credit has to do with reputation? What reputation do lenders look for?
Character, repaying debt on time
What should you do when you receive your credit card statement?
Check the list of transactions with the receipts
How does a debt consolidation loan work?
Combines all old debt into a new loan with a more manageable payment schedule
Who is a greater credit risk - a typical borrower from a consumer finance company or a typical bank borrower? Why?
Consumer finance company, their credit was too poor to get it from a bank
Why is it best to avoid a loan that involves a balloon payment?
If you cant pay it, you will get caught up in more debt
What information do you need to provide when you apply for a loan?
Income, employment history, residence, credit history
Identify three types of cost involved in using credit.
Interest and fees, increased cost of merchandise, opportunity cost
Why is it a good idea to compare the APR on different revolving credit cards?
It can vary significantly and affect the cost of using credit
In what way is a smart card different from other types of credit cards?
It has a chip that contains all types of other information
What is a serious long-term disadvantage of declaring bankruptcy?
It remains on their credit history for ten years
What can you do if you find an error in your credit report?
Request the credit bureau reinvestigate
What is credit?
The supplying of money, goods, or services in exchange for future money
Why are consumers advised to avoid loan sharks?
They are illegal and charge excessive interest
How can consumers who don't qualify for credit still obtain credit?
They can partner with a cosigner
Give two reasons why you should save all your credit card receipts.
To keep a running total of how much you've spent, and check them against your monthly bill
What is the purpose of the Truth in Lending Act?
To make it easier for consumers understand credit and loan agreements
What precautions do people need to take when using credit?
Against theft, impulse buying, overspending, not paying for the items
What does a collection agency do? How is the agency paid?
A business that collects unpaid debt for others, they earn a percentage of the debt collected
What is a credit bureau?
A firm that collects info about the credit worthiness of costumers
Most credit cards provide open-end credit. What does this mean?
Credit that you use repeatedly and pay for monthly
When asked to give credit references, what can you do if you haven't used credit before?
Give personal references, like teachers and businesspeople
What is the difference between a home equity loan and a home improvement loan?
Home equity = whatever use, home improvement = home improvement.. usually close end
What is the difference between a minimum payment and a credit limit?
Minimum payment is what you pay no matter what, while credit limit is how much money the creditor will lend
What is the difference between a private label credit card and a general purpose card?
Private label = one retailer, general purpose = all around
How does having good credit help you obtain credit in the future?
Provides proof of your financial responsibility
List four warning signs of a debt problem.
Spend more than they make, reach limit on most credit cards, skipping payments on bills, using credit cards for everything
Where do credit bureaus get their information?
Stores, banks, other creditors
What does repossession involve?
Taking away property that was failed to be payed for
What action should you take if you discover an error in a credit card statement?
Write a letter
