Personal Finance Final

Statements must be mailed at least ____ before the payment due date, and various ____ cannot be charged prior to the 21st day (commonly referred to as grace period).

21 days; finance charges, penalties, and fees

Activation fees, annual fees, and other specified fees may not exceed...

25% of the credit limit during the first year of use

If you are more than 60 days late in making the minimum payment, the issuer may charge you the interest default rate, which is typically...

28 to 35%

The bottom 50% of US households pay less than _____ of income taxes

3%

Customers must be notified ____ days in advance before their account is closed

30 days

Standard FICO formula

35%: record of paying bills on time over time; 30%: debt to credit ratio; 15%: length of credit history; 10%: new accounts and recent applications for credit; 10%: mix of credit cards and loans

After one year or the introductory rate expires, the card holder must be notified....

45 days in advance of any rate change

How many people are receiving food stamps?

47 million people, or 15% of the population

____ of households pay no federal income taxes.

47%

How many students drop out of high school every day?

7,000 students

Range of credit scores

780-850: best; 720-779: good; 661-719: ok; 620-660: subprime; 560-619: bad; 500-559: worst; 300-499: toxic

What is a contract?

A binding agreement entered into voluntarily by two (bilateral) or more (multilateral) parties that the courts will enforce.

Universal default

Ability of lender to unilaterally change terms of loan upon learning the customer has defaulted or missed a loan payment to another lender

Principal

Amount of money borrowed or loaned

Credit

Amount of money lender willing to loan subject to repayment terms and conditions

Default rate

An accelerated rate of interest, typically 28 to 35%, charged on your credit balance as a penalty when the issuer did not receive at least the minimum payment by the due date and time or your payment is not honored by your bank.

Voluntary requests to see your report are...and involuntary requests are...

Authorized by you so that a lender, landlord, employer, etc. can legally get a copy of your credit report; involuntary usually come from lenders interested in soliciting you by mail for a pre-approved credit offer

Bad debt

Borrowing money to support a lifestyle beyond one's means, shopping to feel good on a bad day, buying something to get a "high," shopping to kill time, keeping up with your peers, etc.

Payments are "on-time" if received

By 5pm at the location of the payment office on the due date

Cashier's check

Check purchased by you from a bank, payable to a third party designated by you. Considered a "good" check because it is issued by the bank after they have received your funds.

Credit card fraud

Commonly caused by a dishonest clerk, waiter, cashier, or thief who copies your account number and expiration date directly from your card or a discarded receipt. Notify bank immediately.

What do you do if your identity has been stolen?

Contact the three major credit bureaus and put a "fraud alert" on your account, close all of your accounts as soon as possible, contact your creditors, file a police report, keep detailed record of who you contact and when.

Charge card

Credit card issued by a retailer allowing you to charge purchases made only with their store-stores frequently offer discounts at the register on all purchases made that day in order to entice you to open an account. Seems great but usually charged high rates of interest.

Good debt

Education, car, mortgage, starting a well-thought out business

Balance transfer fee

Fee charged when you transfer balance from one credit card provider to another. Fee is usually 2 to 5% of the balance being transferred.

How do financial institutions make money?

From the interest, fees, and penalties they charge you

Revolving credit

Funds made available to you for your use, at any time, subject to terms of repayment. Credit cards provide a revolving line of credit which, when you use the funds, will require you to make at least a minimum payment each month. As you repay all or a portion of the funds you have used, you can make new charges up to your maximum credit limit. So you can reuse your credit line over and over...it revolves.

Payday loan

High interest short term loan intended to be repaid by future paychecks

Cardholder statements must show...

How many months it will take to pay your balance if only the minimum payment is made, a toll-free number for credit counseling services, a late payment warning and a minimum payment warning

How can interest be charged on penalties and fees

If you carry a balance, in subsequent months, you may be paying interest not only on your purchases, but on the added penalties and fees, and oftentimes at a higher interest rate

Credit report

Individual financial report card which tells whether you have been making your credit card and loan payments on time

Why is retirement not the biggest problem?

It is longevity. Most people are living long past they planned for, saved too little along the way, and depleted their assets too son.

Adjustable rate of interest

Loan's interest rate may change at various specified times

Variable rate of interest

Loan's interest rate moves up and down based upon a benchmark interest rate not controlled by the lender. One example would be to base the variable rate on the "prime rate" of interest which is supposedly the lowest interest rate banks charge their best customers.

Fixed rate of interest

Loan's interest rate remains at a "fixed" rate for the term of the loan.

FICO score

Mathematical number used by lenders to determine if you are a good or bad credit risk. Based upon the delinquency and default rate of a large number of people with similar credit history, therefore indicates how likely you are to repay a loan or credit balance as agreed.

Overdraft fees

May not be charged unless cardholder agrees to them. Only one such fee allowed during a billing cycle.

Installment debt

Money borrowed to purchase large items such as a car or furniture, paying for them over time in regular intervals until loan paid back in full.

Should you respond to calls or emails from the IRS?

Never! The IRS only contacts you via snail mail

Is your credit score a part of your credit report?

No, your credit report is what is used to generate your credit score

Prepaid card

Not linked to a bank account. Were designed to provide less affluent a secure way to carry money but banks have found they can be quite lucrative with fees such as activation fees, inactivity fees, loading money onto card, checking balance, using an ATM for cash, etc.

Common issues with credit reports

Not yours, error with Social Security number, clerical error, mistakenly reported payments or charges, closed account still showing up

How can you improve your FICO score?

Pay at least the minimum balance due on time over time; manage your total debt/credit ratio (try to keep below 30%); preserve credit card history; create the right credit mix; do not apply for a lot of additional credit at once; avoid DUIs, bill collectors, and other "character flaws"

Certified check

Personal check the bank guarantees as being supported by funds in your account, payable to any third party you designate. Amount of check gets immediately deducted from your account along with service fee.

Deferred interest plan

Plan enabling consumers to buy big-ticket items, paying no interest or a low "teaser" rate of interest over a promotional period. If entire balance is not paid off by the end of the period, interest begins and you may also be retroactively charged for the interest on the entire balance during the promotion.

What periods must be for a minimum of six months?

Promotional rate periods

Identity theft

Someone gets a hold of your personal information, such as your Social Security number, passwords, credit card number, phone number, etc. Uses this information to open accounts in your name and make purchases. Can happen through loss or theft of a purse or wallet, dumpster diving or going through your trash, stealing from your mailbox, postal forwarding of your mail, phishing, hacking, etc.

Consideration

Something of value is exchanged for promises by parties to a contract. Must be deemed sufficient in a court of law.

Gift cards

Stored value cards from specific retailers or merchants that don't expire for five years at least

What type of debt now exceeds credit card debt?

Student loan

Payments in excess of the minimum must be applied to...

The balance with the highest interest rate

"Go-To" rate

The interest rate you are charged on unpaid credit card balances, in addition to the variable rate, to determine the total rate of interest on your account. Your go-to rate is based on your credit history.

Debt

The state of owing something such as money

Bankruptcy

This is a LAST resort. Can negatively impact your credit score for up to 10 years. Additional credit provided to you will be at accelerated rates of interest. Does NOT relieve you of obligations of alimony, child support, or student loans. Always get legal advice before pursuing.

Who are millionaires?

Those who are financially independent, living the life they want to lead, and able to take care of themselves without financial hep from government sources.

When should you make credit card payments?

Two days before the due date if paying online, five days before when paying by mail.

Introductory rate

When a new account is opened, there can be no interest rate increase for the first 12 months unless an introductory rate has come to an end, or you are more than 60 days late with a payment, or you are on a variable rate tied to an index

Breach

When a party does not adhere to the terms and conditions of the contract, the contract is considered breached.

Does your employer need your permission to do a credit check before hiring you?

Yes

Credit card theft

Your credit card is missing or stolen. Contact bank immediately.

If you are notified 45 days in advance of a significant change in terms, such as a rate or fee increase, issuer must give you the chance to...

close the account and pay off the balance at the old interest rate

Credit limit increases for those under 21 must be subject to the...

co-signer's permission

The Card Act and the Federal Reserve's new rules apply only to...

consumer, not business credit cards

The total information about you on your credit report determines your....

credit score

Your credit card company cannot charge you ____ for not using your card

inactivity fee

Wealth is a ______.

lifestyle

Your credit card company cannot charge you a fee that is greater than your...

minimum payment

Interest rate increases can only be applied to ____ for an account in good standing

new charges

After increasing rates on consumer accounts, issuer must...

review account once every six months to determine if rate increase or charges should be dropped

A debit card is a ____ line of credit

secured

Your credit card company cannot charge you more than one fee for a _____

single transaction or event that violates your cardholder agreement

If your credit card company increases your card's APR, it must...

tell you why and reevaluate that rate increase every six months

The burden of saving and investing for retirement and healthcare is shifting ever more from....

the employer to the employee

Beyond 60 days, you may be liable for...

the full amount of charges

The more often interest is calculated...

the higher the interest rate becomes

An unused credit hold may not create an overdraft charge unless...

the hold is executed (i.e. on a hotel room or car rental)

The top 10% of US households earn _____ and pay _____ of income taxes

$113,000 or more; 70%

The top 5% of US households earn ______ and pay ______ of income taxes

$160,000 or more; 60%

Credit card companies cannot charge you a fee of more than ___ unless one of your last six payments was late, in which case your fee may be up to ___

$25; $35

The top 1% of US households earn _______ and pay _______ of income taxes

$400,000 or more; 40%

Current law states your loss is limited to ___ if you contact your bank within two days of discovering your credit card has been stolen

$50

Beyond two days, you may be liable for up to...

$500

How many people receive a Social Security check every month?

1 out every 6

What is a security freeze?

A new technique that has become popular due to large-scale hacking of business and governmental data centers. It can be used to deny access to your credit information so that a potential new creditor is not able to access your information in order to approve the request.

Grace period

A period in the billing cycle during which no penalty is due as long as payment is received on time.

Interest

Cost of money paid by borrower to obtain use of the principal. Often expressed as an Annual Percentage Rate (APR) of the principal.

What kinds of things can void an entire contract?

Fraud, misrepresentation, mental incompetence, duress

Being ____ is the cornerstone of wealth

Frugal

Do most millionaires earn more than $100,000 a year?

No

Debtor

Person or entity with debt which owes repayment

Stop payment

Requesting bank to reject payment of a check when presented

Three major reporting agencies

Transunion (Empirica score); Equifax (Beacon score); Experian (Experian model)

Credit card issuers may not raise interest rates on...

prior charges

Payment must be ____ not ____ by the due date

received, postmarked

After one year, however...

there is no cap on fees!

An estimated 78% of households have....

two people working

A credit card is an _____ line of credit

unsecured

Paying your balance each month ___ your credit score

will not hurt

The only federally mandated website for free credit reports is...

www.annualcreditreport.com

The best time to establish credit is when...

you don't need it