16,17,18, 19- financial literacy Questions and Answers Graded A+

16,17,18, 19- financial literacy Questions and Answers Graded A+ Credit the use of someone else's money, borrowed now with the agreement to pay it back later debtor a person who borrows money from others (This money, called debt, and must be repaid.) creditor a person or business that loans money to others Income Financial position Collateral Qualifying for Credit: true When your earnings exceed your expenses, you have the capacity to take on debt Job Interest Dividends Alimony Royalties Sources of income include: Capital the value of property you possess (such as bank accounts, investments, real estate, and other assets) after deducting your debts. (tells the creditor that you have accumulated assets, which indicates responsibility) Collateral property pledged to assure repayment of a loan. balance due. The principal (amount borrowed) plus interest for the time you have the loan. finance charge total dollar amount of all interest and fees you pay for the use of credit. Advantages of credit Purchasing power Emergency funds Convenience Deferred billing Proof of purchase Safety Disadvantages of credit Higher costs Finance charges Tie up income Overspending Open-end credit where a borrower can use credit up to a stated limit annual percentage rate (APR) the cost of credit expressed as a yearly percentage. grace period a timeframe within which you may pay your current balance in full and incur no interest charges. Closed-end credit loan for a specific amount that must be repaid in full, including all finance charges, by a stated due date. (aka installment credit) Does not allow continuous borrowing or varying payment amounts Often used to pay for very expensive items, such as cars, furniture, or major appliances Service credit involves providing a service for which you will pay later Sources of Credit Retail stores Credit card companies Banks and credit unions Finance companies Pawnbrokers Private lenders trues Store credit customers often receive discounts, advance notice of sales, and other privileges not offered to cash customers or to customers using bank credit cards. finance company an organization that makes high-risk consumer loans Loan sharks unlicensed lenders who charge illegally high interest rates. usury law a state law that sets a maximum interest rate that may be charged for consumer loans. pawnbroker (or pawnshop) a legal business that makes high-interest loans based on the value of personal possessions pledged as collateral private lenders parents, relatives, friends credit history the complete record of your borrowing and repayment performance. credit bureau business that gathers, stores, and sells credit information to other businesses TransUnion Experian Equifax National Credit Bureaus credit report written statement of a consumer's credit history, issued by a credit bureau to businesses.(You can order a copy of your credit report ). When you are denied credit, you can get a free credit report if you ask within 30 days of being denied. subscribers businesses that pay a monthly fee to the credit bureau for access to this information. info includes: Names Addresses Credit balances On-time payment record Failing to pay your property taxes Filing for bankruptcy Filing for divorce Applying for a marriage license Announcing the birth of a child Announcing a job promotion Being involved in a lawsuit Types of Information Stored creditworthy whether you are a good risk five Cs of credit: Character Capacity Capital Conditions Collateral Character a responsible attitude toward honoring obligations, often judged on evidence in the person's credit history. ex: stability, will you repay the debt? capacity The financial ability to repay a loan with present income. Can you repay the debt? true When you add up all that you own (assets) and subtract all that you owe (liabilities), the difference (net worth or capital) should be sufficient to ensure payment of your debt. Do you have sufficient assets to support the debt? conditions things that affect your ability to repay a debt. How secure is your job? How secure is the firm for which you work? How is the employment situation in your geographic location and in your occupation? collateral property pledged to assure repayment of a loan, such as the house, car, or furniture being purchased. cosigner someone who promises to pay if the borrower fails to pay. credit rating a measure of creditworthiness based on an analysis of your credit and financial history. Excellent credit rating Good credit rating Fair credit rating Poor credit rating point system the credit bureau assigns points based on factors such as amount of current debt, number of late payments, number and types of open accounts, current employment, and amount of income credit score When your points are added up, tells potential creditors the likelihood that you will repay debt as agreed FICO score asdfghjkl yes Credit reports are requested for credit applications, employment applications, and insurance reasons. Consumer Credit Protection Act aka Truth-in-Lending Law. requires lenders to fully inform consumers about all costs of a credit purchase before an agreement is signed. Fair Credit Reporting Act gives you the right to know what is in your file and who has seen your file Fair Credit Billing Act requires creditors to resolve billing errors within a specified period of time. Equal Credit Opportunity Act designed to prevent discrimination in the evaluation of creditworthiness. Discrimination is treating people differently based on prejudice rather than individual merit. Fair Debt Collection Practices Act designed to eliminate abusive collection practices by debt collectors. debt collector person or company hired by a creditor to collect the overdue balance on an account Comparison shopping involves checking several places to be sure you are getting the best price for equal quality Impulse buying occurs when you buy something without thinking about it and making a conscious decision Garnishment a legal process that allows part of your paycheck to be withheld for payment of a debt. Limit your spending Make payments Read and understand terms Contact creditor to resolve problems Responsibilities to Creditors Assisting consumers in making wise purchases by honestly representing goods and services. Informing customers about all rules and regulations, interest rates, credit policies, and fees. Cooperating with established credit reporting agencies. Establishing and adhering to sound lending and credit policies. Using reasonable methods of contacting customers who fail to meet their obligations and assisting in solving credit problems. Creditors' Responsibilities to You Credit Card Fraud ppl stealing identities or credit cards, While the credit card holder's liability is limited to $50, the merchant is not protected from loss. Merchants often raise their overall prices to cover such losses. Safeguarding Your Cards Sign and activate cards immediately. Carry only cards you need. Keep a list of cards and information about them in a safe place. Notify creditors if a card is lost or stolen. Watch card during transactions. Tear up old receipts Do not lend cards or leave them lying around. Destroy expired cards. Do not give credit card information by phone or online to people or businesses you don't know. Keep receipts and verify charges on statements. Encryption a code that protects your account name, number, and other information. it is made unreadable to others trying to read it Phishing a scam that uses online pop-up messages or e-mail to deceive you into disclosing personal information. They send messages that appear to be from a business that you normally deal with, such as your bank or Internet service provider (ISP).