Personal Finance Chapter 6

grace period for most credit cards

-21-25 days from the date of the bill. once passed, youre charged the APR -If your card doesnt have a grace period, you pay a finance charge with every purchase -Grace period is cancelled if you carry an unpaid balance from previous month, even if its only a penny.

cash advance

-an extremely expensive way to borrow -interest begins immediately and they usually charge a higher interest rate on cash advances -carry an upfront fee of 2-4% of amount advanced -may require you to pay down balance before you pay down high-interest rate cash advance -generally no grace period

undergraduate credit card payment behavior

38% make more than the minimum payment but always carry a balance

cash advance fee

a charge for making a cash advance, paid as either a fixed amount or a percentage of the cash advance. This is on top of the interest

secured credit card

a credit card backed by the pledge of some collateralized asset. -if you can't pay it off, and you have a cd at the bank, goodbye CD

late fee

a fee imposed for not paying your credit card bill on time

over-the-limit fee

a fee imposed whenever you go over your credit limit

annual fee

a fixed annual charge imposed by a credit card

fixed APR

a flat rate. it can still change, 45 days notice

revolving or open credit

a line of credit that you can use and then pay back at whatever pace you like as long as you pay the minimum balance each month and pay interest on unpaid balance. (credit cards, exon charge card)

bank credit card

credit card issued by a bank or large corporation, generally as a Visa or MasterCard -Most have benefits and reward programs

consumer credit

credit purchases for personal needs other than for home mortgages- includes auto loan to credit card debt

what features different types of credit card users find important

credit user=low apr convenience user=long grace period, low annual fee, free benefits convenience and credit user=low apr,long grace period, low annual fee, free benefits

consumer financial protection bureau

helps provide a single location for financial protection and oversight-helps customers make better decisions

the importance of APR

its calculated the same way by all lenders, and the federal Truth in Lending Act requires that all consumer loan agreements disclose the APR in BOLD PRINT.

grace period

length of time given to make a payment before interest is charged against the outstanding balance on a credit card

teaser rates

low initial rates that may last 6 months to a year

compound interest

paying interest on interest

penalty rate

the rate you pay if you don't make your minimum payments on time

variable APR

the rate you pay is tied to another interest rate. EX: the prime rate + the percentage must notify you 45 days before changing its rates

identity theft

the use of identifying information by someone other than you without your knowledge to commit fraud or other crimes

annual percentage rate (APR)

true simple interest rate paid over the life of the loan.

factors that determine your credit score

1)payment history(35%) 2)amount you owe and your available credit (30%) 3)length of credit history (15%) 4)types of credit used (10%) 5) new credit (10%)

advantages of credit cards

-can be used as identification -extends your shopping opportunities -more convenient to purchase items -source of temporary emergency funds -get to use an item before you actually pay for it -if the price of an item you want is about to go up and you purchase on credit today, you pay less -offers "free" extended product warranties and traveler's insurance

drawbacks of credit cards

-more adv. than dis. -too easy to spend money -if you overspend, heafty amount of interest -obligating future income -fees add up

5 C's of credit

1) character-sense of responsibility in respect of debt payment 2) capacity-debt including mortgage should account for less than 36% of gross pay 3) capital-size of your financial holdings or investment portfolio 4)collateral-assets or property offered as security to obtain credit 5)conditions-the impact the current economic environment may have on your ability to repay any borrowings.

if you think your identity has been stolen:

1) contact the fraud department of any of the three major credit bureaus 2) close the accounts that you know have been tampered with 3) file a police report 4) file a complaint with the FTC

CARD act of 2009

1) credit card company must send you a notice 45 days before increasing interest rate, change certain fees, and make other sig. changes to card 2) credit card company has to tell you how long it will take you to pay off your balance.. how much each month to pay off balance within 3 years 3) credit card company cannot increase your interest rate for the first 12 months you open your account unless its a variable interest rate, introductory rate expires, or youre more than 60 days late paying your bill 4) increased rates apply only to new charges 5) restrictions on over the limit transactions 6) cards cannot total more than 25% of initial credit limit 7) protections for underage consumers 8) standard payment dates and times 9) payments are directed to highest interest balance first 10) cant charge you a fee more than $25 unless one of your last 6 payments was late, it can show that the costs resulting from late payments justify a higher fee 11) no inactivity fees

types of credit users

1) credit user-generally carries an unpaid balance from month to month 2) convenience user-someone who pays off credit card balance from month to month 3) convenience and credit user- someone who generally, but not always pays off balance from month to month

whats in your credit report

1)identifying info-address name, ss 2)trade lines or credit accounts 3)inquiries-everyone who has accessed your report within the last 2 yrs appears 4)public record and collection items