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Personal Finance
Personal Finance Midterm Exam - Credit Exam
| Question | Answer |
|---|---|
| when was the practice of charging interest banned? | dark age |
| what's the oldest, largest credit agency of the 3? | equifax |
| when was credit established? | 3500 bc in Sumer |
| which was the first credit card? | diners club |
| what year were women allowed to apply to a credit card independently? | 1974 |
| how many major credit agencies in the US are there (and names)? | 3: Experian, Equifax, Transunion |
| the first credit laws were formed when? | 1800 BC in Babylon |
| What was the first credit card that could be used to buy anything? | BankAmeriCard |
| When and from which company was creditworthiness established? | In 1864 the RG Dun and Company (aka Mercantile Company) established an alphanumeric system for tracking creditworthiness in New York. |
| Which car company was first to allow using credit to buy their cars? | General Motors (GM) through the General Motors Acceptance Corporation (GMAC). Families just needed to have 35% of the cost of the car as a down payment. |
| Credit | the ability to borrow money or access goods or services with the understanding that you’ll pay later. |
| Credit Report | a detailed breakdown of your credit history. |
| Credit History | a measure of your ability to repay debts & demonstrated financial responsibility. |
| Creditors | Lenders, merchants, & service providers. |
| Credit Worthiness | A lender's willingness to trust you to pay your debt. |
| What is not on a credit report? | Your birth certificate |
| Which is not a type of revolving credit? | HEL |
| What personal information is on your credit report? | Your name, SSN, DOB, and address |
| Which things matter most on your credit report? | How many revolving lines of credit (credit cards) you have and if you have any delinquent accounts of installment credit. |
| What are the two types of credit? | Revolving and Installment |
| What is revolving credit? | Debt whose balance can grow and shrink based on the borrower’s payments. Not a lump sum, but a credit limit. |
| What is installment credit? | Debt that is borrowed in a lump sum and repaid in increments. Has a predetermined length and end date. |
| Examples of revolving credit? | HELOCs, Personal/Business lines of credit, Credit Cards |
| Examples of installment credit? | HEL, auto loans, student loans, mortgage, payday loan, personal loan |
| Credit inquiries | When credit issuers pull your credit report to see if you're eligible to get the loan you want. Two types, hard and soft inquiry. |
| Hard Inquiry | It affects your credit score since credit issuers want to see how recently and frequently you apply for credit. (This happens after you apply for a loan) |
| Soft inquiry | Does NOT affect credit score. A soft inquiry will happen before you apply for a credit agency. |
| Which credit inquiry impacts your credit score? | Hard Inquiry |
| Which law mandates disclosure? | CCPA |
| CCPA | Consumer Credit Protection Act |
| ECOA | Equal Consumer Opportunities Act |
| FCRA | Fair Credit Reporting Act |
| FDCPA | Fair Debt Collection Practices Act |
| TILA | Truth in Lending Act |
| FCBA | Fair Credit Billing Act |
| Difference between CCPA and TILA | CCPA protects credit consumers from credit companies by mandating disclosure, while TILA mandates companies to disclose specifically the APR, the bottom-line, the interest, and any fees. |
| Law that prevents discrimination towards credit consumers | ECOA |
| Law that ensures your personal information is accurate and private with credit agencies and your credit history | FCRA |
| Limitations to how third-parties can collect your outstanding debt | FDCPA |
| Law that credit agencies must disclose the apr, interest rate, bottom-line, and any fees | TILA |
| Law that says credit consumers can challenge/dispute their bills and protects consumers from unfair billing practices | FCBA |
| CARD Act of 2009 | The first step to reducing debt in America and strengthens TILA. |
| 5 C's of Credit (AKA 5 factors of credit worthiness) | Character (credit history), Capacity (debt-to-income ratio), Collateral (asset that can be used as security for a loan) , Capital (the amount of money an applicant has), Conditions (what type of loan, term, and interest rate) |
| Character | credit history |
| Capacity | debt-to-income ratio |
| Collateral | asset that can be used as security for a loan |
| Capital (know this) | the amount of money an applicant has |
| Conditions (know this) | what type of loan, term, and interest rate |
| Which is not the 5 C's of credit? | Credit |
| Credit Bureau | an organization that collects and researches individual credit information & sells it to creditors. |
| Credit bureaus and credit reporting agencies are the same thing (T/F) | True |
| Credit Card Issuers | financial institutions that provide cards and credit limits to consumers. |
| Data provides for credit bureaus | Creditors, Debtors, debt collection agencies, vendors, & offices w/ public records. |
| Credit card network | authorizes, processes, and sets the terms of credit card transactions & transfer payments. Ex. Mastercard, Visa, American Express, Discover |
| Credit entrants | A financing method used to make discretionary purchases, especially online. (Buy Now, Pay Later) Ex. Afterpay, Apple Pay Later, PayPal Credit, PayPal Pay in 4, Affirm |
| Credit Card fees | Annual Fee, Late-Payment Fee, Cash-Advance or Balance-Transfer Fee, Foreign Transaction Fee, Over-Limit Fee |
| Loan | A thing that is borrowed, especially a sum of money that is expected to be paid back with interest. |
| Annual Percentage Rate (APR) | The yearly rate charged for a loan or earned by an investment. |
| Delinquent | past due loans |
| Interest | the monetary charge for the privilege of borrowing money. |
| Fixed-Rate | the interest rate never changes through the life of the loan. |
| Variable-Rate | (Adjustable) the interest tends to change throughout the life of loan. |
| Secured vs. Unsecured loan | One has collateral tied to it, while the other one doesn't. |
| Underwater Loan | When the market value of your vehicle is less than the amount you owe. |
| HELs | Home Equity Loan: lump sum, fixed payment, fixed rate, collateral is house. |
| HELOCs | Home Equity Line of Credit: revolving line of credit, variable payments, variable rates, able to withdraw money/draw it out if you pay interest, borrow as little or as much as you need. |
| How long does it take credit to become outstanding debt? | 90 days |
| Bankruptcy | A method to eliminate or at least reduce your debt when bills pile up beyond your ability to repay them. |
| How many chapters of bankruptcy are there? | 6 |
| Chapter 7 Bankruptcy | You sell some or all of your property and receive a discharge from the debt in 3-5 months, giving you a fresh start. Individual filing |
| Chapter 13 Bankruptcy | You can keep your property as long as you follow a court-mandated repayment plan. The government can take collateral. Business filing. |
| Debt Snowball | paying off the smaller loans first and quickly. |
| Debt Avalanche | focuses on paying off the higher interest rate first. |
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