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MFLD MOD4

Module 4 Credit

TermDefinition
Amortization The process by which loan payments are applied to the principal, or amount borrowed, as well as the interest on a loan according to a set schedule.
Annual Percentage Rate (APR) The finance charge or total amount it costs per year to use credit, calcu¬lated as a percentage of the amount borrowed (percentage rate), including interest, transaction fees, and ser¬vice charges.
Annual Fee A yearly fee that may be charged for having a credit card.
Annual Percentage Yield (APY) The actual interest rate an account pays per year with compounding included; calculated the same way by all banks/credit unions.
Assets What a person owns, such as cash, stocks, bonds, real estate, and personal possessions.
Bankruptcy Legal process for selling most of the debtor’s property to help satisfy debts that can’t be repaid, in exchange for (a) relieving debtors of the responsibility of paying their financial obligations or (b) protect¬ing them while a plan is created and they
Balance Transfer Act of transferring debt from one credit card to another.
Borrower The person or organization that is receiving the money from the lender.
Budget A plan for managing money, dividing up expected income and expenses among spending and sav¬ing options based on personal goals during a given time period.
Capacity Ability to repay a loan from present income; one of three factors in credit scoring.
Capital The value of personal items that one owns, including savings, investments, and property, one of three factors used in credit scoring.
Cash advance Includes withdrawing cash from an ATM using a credit card.
Cash flow A measure of the money a person receives and spends.
Character Refers to trustworthiness; one of three factors in credit scoring (e.g., paying bills on time shows financial responsibility). Creditworthiness indicating a responsible attitude toward living up to agreements.
Credit When goods, services, and/or money are exchanged for a promise to pay back a definite sum at a future date.
Creditworthiness An individual’s ability and willingness to pay the money back.
Closed-end Credit or Revolving Credit An extended line of credit established in advance so the borrower does not have to apply for credit each new time credit is desired.
Contract Legally enforceable written or oral agreement between two or more parties to do or not do something.
Credit Amount of money a creditor is willing to loan another to purchase goods and services, based on trust and the expectation that the money will be repaid as promised with interest.
Credit card Card that enables holder to charge expenses for purchases or to get money, often with interest; synonymous with “buy now, pay later.”
Credit Limit Maximum dollar amount loaned.
Creditworthiness A measure of one’s ability and willingness to repay a loan.
Credit rating/score A measure of creditworthiness based on an analysis of the consumer’s financial his¬tory, often computed as a numerical score, using the FICO or other scoring systems to analyze the consumer’s credit. A creditor’s evaluation of a person’s willingness and a
Credit Reporting Agency Keeps a record of consumer’s credit transactions.
Debit card Card used to pay for goods and services directly from a checking account by transferring funds electronically from one’s checking account to the store’s account to pay for a purchase; also called check cards.
Debt Entire amount of money owed to lenders.
Depreciation Decline in a product’s value that starts the moment a product is purchased (car).
Fair Credit Billing Act Protects consumers from broken, undelivered, unsatisfied purchases made with credit cards.
Fixed Rate APR An interest rate that cannot change during the period of time outline in the credit card agreement.
Interest Payment for the use of someone else’s money; usually expressed as an annual rate in terms of a per¬cent of the principal (the amount owed).
Introductory Rate APR that may be charged after the credit card is opened.
Late Payment Fee Charged when the cardholder does not make the minimum monthly payment by the end of the due date.
Lender Is the person or organization that has the resources to provide and individual with a loan.
Liabilities Amount a person owes, such as unpaid bills, credit card charges, personal loans, and taxes.
Lifestyle The way people choose to live their lives, based on values they have chosen.
Liquidity The ease with which an asset can be converted to cash without serious loss.
Loan sharks Unlicensed lenders who charge illegally high interest rates.
Money Anything that is generally accepted as payment for goods and services; a medium of exchange; legal tender.
Mortgage Loan to buy real estate, such as land or a home.
Net worth The difference between a person’s assets and liabilities.
Open-end Credit Credit extended in advance.
Over-the-limit Fee A fee charged if the credit account balance goes of the credit limit.
Penalty APR Interest rate charged on new transaction if the penalty terms in the contract are triggered.
Points mortgage A one-time service charge by mortgage lenders at closing to increase the return on the loan; each point is one percent of the amount of the principal.
Predatory lending Lending practices which promise loans that are “too good to be true” and pressure bor¬rowers to take loans on the spot. Lending practices include a variety of financial abuses such as excessive fees, penalties for early pay-off of the loan, balloon paymen
Reverse mortgage An arrangement in which a homeowner borrows against the equity in his/her home and receives regular monthly tax-free payments from the lender. Also called reverse-annuity mortgage or home equity conversion mortgage.
Schumer Box A box required to list the terms and fees of credit cards in an easy to read format.
Transaction Fee Any fee associated with transferring a balance or using a cash advance feature on a credit card.
Truth in Lending Act Protects consumers from unauthorized credit card charges.
Variable-rate APR An interest rate that will change depending on other factors (such as economic conditions).