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Unit 4 Financial Lit
| Question | Answer |
|---|---|
| Revolving Credit Definition and example | - Definition: Allows repeated borrowing up to a set limit; balances can carry over month to month. - Examples: Credit cards |
| Installment Credit Defintion and example | - Definition: Borrow a fixed amount and repay in regular installments over a specific period. - Examples: Car loans, student loans, mortgages. |
| Open Credit Defintion and example | - Definition: Requires full repayment of the balance at the end of each period. - Examples: Utility bills |
| What is the purpose of a credit score | - Represents creditworthiness and ability to repay debt. |
| How is a credit score determined | - Based on the borrower’s credit history and financial behavior. |
| 5 Factors of credit score and there percentages | - Payment History (35%) - Credit Utilization (30%) - Length of Credit History (15%) - Credit Mix (10%) - New Credit/Inquiries (10%) |
| What does a lender/creditor do? | Provides funds or goods on credit. |
| What does a borrower/debtor do? | Receives funds or goods and is obligated to repay. |
| Regular credit card | Unsecured credit cards for everyday use. |
| Secured credit card | Backed by a deposit, for those building credit. |
| Student credit card | Designed for students with limited credit history. |
| Store credit card | Specific to retailers, often with higher interest rates. |
| 4 different types of APRs and why they are applied | Introductory, Purchase, Cash Advance, Penalty. Applied based on usage and payment behavior. |
| Minimum payment definition | Smallest amount due monthly. |
| Statement balance defintion | Total amount owed during the billing cycle. |
| Interest payments defintion | Accrued when balance isn’t paid in full. |
| Down payment defintion | Initial payment made upfront. |
| Principal def | Borrowed amount to be repaid. |
| Interest rate def | Cost of borrowing, expressed as a percentage. |
| Term Def | Loan duration. |
| Maturity def | Final repayment date. |
| Maturity Value def | Total repayment amount (Principal + Interest). |
| 28/36 rule concept | Housing expenses ≤ 28% of gross income. - Total debt payments ≤ 36% of gross income. |
| 2 types of loans | Auto/vehicle loans and mortgages |
| PMI def | Private Mortgage Insurance for loans < 20% down. |
| Association fees def | Homeowners’ association costs. |
| Homeowners insurance def | Protects property |
| Property taxes def | Annual taxes based on property value. |
| Cost considerations of college | Tuition, Room & Board, Books/Supplies, Miscellaneous Expenses. |
| Payments options of college | Grants, Scholarships, Service Commitments, Work-Study, Out-of-Pocket |
| Federal loan (details./def) | FAFSA: Application process. - Benefits: Income-based repayment, forgiveness potential, deferment period, fixed interest rates. |
| Private loans (details/def) | - Last resort; higher costs and risks. - No income-based repayment or forgiveness potential, often variable interest rates. |
| Subsidized def | Interest covered during school/enrollment. |
| Unsubsidized def | Interest accrues immediately. |
| Bankruptcy def | Legal process to relieve or restructure debt when unable to pay. |
| 2 types of bankruptcy | Chapter 7: Liquidation of assets to repay creditors; eliminates most debts. - Chapter 13: Repayment plan based on income; keeps assets. |
| Impact of bankruptcy | - Severe damage to credit score; remains on credit report for 7-10 yeArs |
Created by:
lilahbehounek
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