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Credit Basics

Credit Basics form note taking guide

TermDefinition
Closed-end Credit Loan which you, the borrower, must repay the amount in a specified number of equal payments
Open-end Credit Extended line of credit (limit on card) established in advance
Recommended amount to borrow The total amount of credit should never exceed over 20% of your annual net income, less than 10% of your monthly income
Benefits of using money saved instead of credit No interest, no contract, not spending future income
disadvantage of using money instead of credit No "rainy day" fund
credit Get good today, pay back another day
Credit availability depends on.... if lenders trust you will pay back the loan as agreed
features of alternative credit may combine elements of closed and open-end credit, usually has higher interest rates, and usually has higher fees
Title and Pawn loan Borrower gives the lender their car title or personal property in exchange for cash (based on value of item)
Payday loan Short term loan that provides immediate cash by securing a borrower's pay check or automatic withdrawal form
Rent-to-own Borrower leases tangible items with the condition that the item will be owned by the renter if the item of rent is completed
Refund anticipation loan lender gives borrower a loan based upon their anticipated tax refund
Credit application a form requesting information about a credit applicant
Why might a lender check a persons credit history? to evaluate your credit report and score
what information does the credit application include? social security number, credit history, ability to pay credit, etc.
What is the trade off to no credit history check? higher interest rates and fees
credit sources private mortgage companies, government (student loans), depository institutions (Bank of America), etc.
Credit limit amount of money the borrower can spend on a credit card
interest pay principal plus pre-determined percentage
minimum payment a minimum amount of money a borrower must pay back by the due date
APR annual percentage rate
late payment fee a fee that is added to the amount that a person must pay because they didn't make the payment by the due date
over-the-limit fee a fee when a person spends over the credit limit
Penalty APR higher interest charged on new transactions when the term are not met on the contract
credit card type of credit, has pre determined amount of money on it that the person holding the card has to pay back to the lender
debit card card that directly takes money from a persons bank account. You pay it back immediately without and interest or fees
bankruptcy When a debtor’s assets are sold to settle unpaid debts and the debtor is no longer responsible for further debt beyond what was recovered.
Certified Mail Mail that gives the sender proof of receipt from the U.S. Postal Service.
Credit History A summary of a person’s borrowing and repayment history.
Credit Report A report on a person’s creditworthiness that includes identifying information, credit cards, late payments, bankruptcies, and savings balances.
Fair Credit Reporting Act (FCRA) Federal law giving consumers the right to view and correct their credit information.
FICO Expansion Score A creditworthiness score that, like the regular FICO score, is based on nontraditional accounts and financial information sources and is designed for young persons, new immigrants, or others without a traditional credit history
FICO Score Credit score from 300–850 that rates how likely a person is to fall 90 days behind in a payment.
Foreclosure When a bank takes back a property and auctions it off to recover the unpaid loan amount.
Installment Loan Loan with equal number of payments of the same amount over a fixed period of time.
Lien A promise to reclaim an item bought with loaned money if the loan is not repaid.
Created by: itskatie_98