Economics - Credit

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Installment or Closed-end credit

One time loan that the borrower must repay in a specified number of equal payments within a specific time frame.

Auto loans, mortgage, school loans

Examples of installment credit

Revolving or open-end credit

Type of credit limit that is established and the borrower can continue to borrow on the credit as long as the limit isn't exceeded.

Convenience, emergencies, rewards

Advantages of using credit

Retail credit card

An account which allows for customers to make credit card purchases at a particular retail store such as Nordstrom or REI

Bank credit card

Flexible credit card issued through a financial institution and can be used to make purchases anywhere it is accepted around the world

VISA, Mastercard, Discover

Examples of bank credit cards

Affinity Card

A credit card made available by a financial institution with the logo of a sponsoring organization that is often non-profit

Prestige Card

A high status credit card which requires higher credit qualifications and offers special benefits and higher credit limits

Charge card

This type of card requires that the balance be paid in full at the end of the billing cycle

American Express

Example of a charge card

Federal Truth in Lending Ac

Act/law which requires lenders to disclose the terms associated with a credit card account.

The Schumer's Box

Summary of the costs of a credit card. Enacted in 1988.

Grace Period

Amount of time in days that is allowed before finance charges are applied to a purchase made on a credit card.

APR

Annual Percentage Rate which is the interest rate charged on the amount borrowed in terms of dollars per year

Annual Fee

Fee charged once per year for the use of a credit card

Balance Calculation Method

Method used to determine the balance for which finance charges are accumulated

Personal, tradelines/credit history, public information and inquiries

Four categories of information found on a credit report

Equifax, TransUnion, Experian

3 credit reporting agencies

Credit limit

The maximum amount of charges allowed to a credit card account

Due Date

The specified day by which the company requires payment to be made

Late payment fee

A fee charged when the cardholder does not make the minimum monthly payment by the due date

Cash advance fee

A fee charged for a cash withdrawal from a credit card

Balance Transfer

The process of moving an unpaid credit card debt from one credit card to another

Over limit fee

Fee charged for exceeding the credit limit on the card

Period rate

Interest rate described in relation to a specific amount of time

Secured card

A credit card that a cardholder secures with a savings deposit to ensure payment of the outstanding balance if the cardholder defaults on payments.

Introductory rate

A below-market interest rate offered to entice customers to switch credit cards or lenders, usually offered for a specific period of time such as 3 months or one year

Principal

The amount of money borrowed or the amount of money owed, excluding interest

Fair Isaacs Company/FICO score

Who calculates the credit score

Unsecured debt/loan

Debt or loans not backed up by collateral

Billing Cycle

The number of days between the last statement date and the current statement date

Co-branded Card

A type card issued through a partnership between a bank and another retail company

Foreign Currency surcharge

A new charge imposed by some credit card issuers that imposes a fee on purchases made in a foreign country.

Interchange fee

The fee paid by retailers to banks and card issuers for every transaction they process. A PIN-based transaction costs less than a signature-based transaction

Interest

Money paid by a borrow for use of credit or money or money earned from loaning money

21 years, 18 with co-signer or proof of income

Age to open a credit card in own name

Inactivity fee

A fee assessed when a credit card or a gift card is not used for an extended period of time

720+

Strong credit score

Paying on time, length of credit, amount of credit used

3 factors that impact a person's credit score

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