Credit Unit Test Review
Terms in this set (69)
If you have budgeted for an item is it OK to use credit to purchase it?
Yes, if the item's cost has been accounted for. Whether you pay for it in cash or credit makes no difference.
Required by federal law, what information is required to be included within a cardholder agreement?
Among other things, the cardholder agreement must contain the APR, annual fee and monthly minimum payments formula.
Who establishes the process for applying for credit?
Individual lenders select their own policies for consumers to follow when applying for credit.
Are references needed when applying for credit?
Personal and professional references may be needed when applying for certain forms of credit. However, they are NOT required for all applications.
True/False: If you are denied credit you have a right to know why.
True. This right is provided by the ECOA.
How long does information stay on your credit report?
It varies. 7 years for most consumers, 10 years for those who have declared bankruptcy. However information may be reported beyond these time tables if the applicant is seeking a loan for more than $75,000 or looking to take an insurance policy out for more than $150K
What is the most important factor in determining your FICO score?
Does your credit score impact the terms and conditions of your agreement? If so, how?
Yes. the higher your credit score the more favorable your terms and conditions (i.e. lower interest rates)
True/False: Your credit score has little impact on the quality of your life.
False: Credit scores play a significant role in the quality of life you will be able to lead.
How many different types of bankruptcies are there?
Two: Chapter 7 and Chapter 13.
True/False: All financial counseling companies seek to educate consumers on important financial issues and operate as a non-profit.
False: Not all financial counseling companies are non-profit. Many operate purely for profit, making money off of the fees they charge you and from payments received from creditors.
Are creditors allowed to report you as delinquent when you are disputing a bill?
No, creditors are not allowed to report you as delinquent while a bill is in dispute. HOWEVER, they are allowed to report that you are challenging the bill.
What are some common sources for credit?
Commercial banks, financial companies, credit unions, life insurance companies & retail stores.
What types of items are purchased using closed-end credit?
Houses, cars, furniture, major appliances.
What are the ways you can apply for credit?
Online, through the mail, phone, in-person
What is basic information you MAY need when applying for credit?
References (Personal and Professional)
Complete Job History
Basically Anything the Lender Wants To Know
What are some tips you should follow when applying for credit with no/bad history?
Establish a checking or savings account
Borrow against your savings account
Open a department store credit card
Apply for a Gas Card!
Get a Cosigner
If you are denied credit you should....
1. Find out why
2. Fix any errors
3. Fix whatever the reason the creditor sighted
4. Give it a little bit of time before applying again
5. Find a better paying job!
Credit Bureaus get their information from a variety of sources, such as....
Banks, court records, finance companies, stores, credit card companies
Credit Scores/Ratings are determined by...
Credit Scores/Ratings are determined by individual credit bureaus and individual lenders.
Why do people have multiple credit scores?
There are multiple credit bureaus & lenders who all have their own model to determine a credit score/rating. Additionally each may be supplied with slightly different information.
Thanks to the Fair Credit Billing Act your financial responsibility is limited to ____ if someone has used your credit account to make purchases without your permission.
When disputing a bill....
Get everything in writing
When disputing a bill...
You are allowed to withhold the disputed amount from payment. You are still responsible for the remaining balance.
When disputing a bill....
The creditor must resolve the matter within two billing cycles (90 days at most).
Double billing and payments not being credited to your account are just two examples of...
What is bankruptcy?
The legal process in which some or all of the assets of a debtor are distributed among the creditors because the debtor is unable to pay their debt.
What are some signs of financial trouble?
Making only the minimum monthly payments
Struggling to make the monthly payments on credit accounts
Missing payments or being late
Using savings to pay for necessities (food, utilities, etc)
Receiving 2nd or 3rd payment due notices from creditors
Borrowing money to pay off old debts
Exceeding your credit limits
Being denied credit because of a bad credit report
Phishing is an example of...
Creditors must send your bill at least 21 days before the due date thanks to the
Fair Credit Billing Act
Lenders must credit _________ on the day they are received because of the Fair Credit Billing Act.
How many components go into calculating a FICO score?
What are the five components that go into calculating a FICO score?
Payment history, length of credit history, pursuit of new credit, types of credit in use and current amount of debt.
What is the most important component in calculating a FICO score?
Payment history. It accounts for approximately 35% of the score makeup.
A ________________ is a measure of a person's ability and willingness to make credit payments on time.
What is a credit bureau?
An agency that collects information on how promptly people and businesses pay their bills.
What is a credit report?
The record of your complete credit history.
What is some BASIC information you will need when applying for credit? (Know three!)
Your Name and Birth Date
Social Security Number
State I.D. Number
Home Address (2 year minimum)
Current Bank Information
Current Employment Information
What is basic information you will find on a credit report? (Know three!)
Social Security Number
Employment Info (Where, Position & $$)
Previous Employment Info
Homeowner or Renter Status
Checks returned for insufficient funds
Your spouse's information
What is a cardholder agreement?
The written statement provided to the cardholder outlining the terms and conditions
A one time loan that will be paid back over a specified period of time, in payments of equal amounts is...
What is open-end credit?
Credit as a loan with a certain limit on the amount of money you can borrow for a variety of goods and services
What is credit?
An arrangement to receive cash, goods, or services now and pay for them in the future
What are some results of misusing credit?
Default, Bankruptcy or Loss of Creditworthiness
Why is it important to have experience with different types of credit?
It shows creditors you have experience with different forms of payments. It also helps increase your FICO score.
Why is it important to know what is in your terms and conditions?
It contains all the specifics of the agreement between you and your creditor.
Credit Reports contain detailed sections on every loan/line of credit you have opened. What information is contained within these sections? (Hint: 4 things)
Current Balance of Account
What are the five "C"s? (Hint: There's five of them...and they all start with C!"
What does your Character tell a possible lender?
Are you stable? Trustworthy? Will you pay the money back?
What does your Capital tell a possible lender?
What is your net worth? What do you have/own?
What does your Capacity tell a possible lender?
Can you repay the debt? How much debt do you have now, how much more can you take on?
What does Collateral tell a possible lender?
Collateral, which is not included in all credit arrangements, tells the lender what you own that you would be willing to give up in case you cannot make a payment.
What do Conditions tell a possible lender?
Conditions tell a lender about the world outside of the applicant. How is the economy (both on a small and large scale)?
What are some signs of Identity Theft? (Know three!)
You see withdrawals from your bank account that you can't explain.
You don't get your bills or other mail.
Debt collectors call you about debts that aren't yours.
You find unfamiliar accounts or charges on your credit report.
Medical providers bill you for services you didn't use.
You get notice that your information was compromised by a data breach at a company where you do business or have an account.
What are preventive measures you can take to avoid becoming the victim of Identity Theft?
Keep financial documents locked away
Limit what you carry
Ask "Why" when probed for personal information
Shred personal documents when no longer needed
Watch your mail!
Be clever with passwords
Get good encryption and antivirus software
As always: REVIEW YOUR CREDIT INFORMATION REGULARLY!
If you are a victim of Identity Theft what are three steps you should take immediately?
1. Contact the fraud department at the three major credit bureaus
2. Contact the creditor in question
3. File a police report
What are the four major rights provided by the Fair Credit Reporting Act?
Grants you one free report a year
Limits who has access to your report
Deletes out of date information
The right for consumers to correct errors
What is the first step in an account going to collections?
An unpaid bill (either not paid at all or not paid in its entirety)
How long before an account is sent to collections?
Depends on the creditor's policies. After a select period of time they will sell the debt to a debt collection agency for a reduced rate (i.e. $100 of debt purchased for $50)
Debt collectors are not allowed to call you
Before 8AM, After 9PM, or at work (if your employer does not allow it)
True/False: Debt collectors are allowed to tell you whatever you want as long as they can get you to pay your debt.
False. The Fair Debt Collection Practices Act states that debt collectors are not allowed to lie to you.
Rights provided by the Fair Debt Collection Practices Act include...
Call before 8AM or after 9PM
Curse or insult you
Demand that you pay more than you owe
Claim papers they send you are legal forms if they are not
Make up consequences for not paying your debt
Call you at work if your employer does not allow it
You also have the right to have them quit calling you altogether
When calculating cash advance and balance transfer charges what does 4%/$50 refer to?
4%/$50 refers to a 4% charge of the amount in question, with a minimum charge of $50.
What is the formula for calculating the daily periodic rate?
Daily Periodic Rate = (APR/365) X Days in Billing Cycle (30)
What is the formula for calculating the monthly periodic rate?
Monthly Periodic Rate = APR/12
What is the formula for calculating interest charges?
Interest = Average Daily Balance X Periodic Rate
Why is credit important?
It is necessary as a functioning adult. Without credit you are limiting the lifestyle you can live.
What are advantages of using credit?
Advantages of using credit include purchasing items you cannot save enough cash for, it is safer than cash, easy to track spending and many rewards programs/perks exist.
How can you maintain a healthy credit history?
Minimizing your debt, paying bills on time, using various types of credit and checking your credit report frequently (once a year or more) are all ways to maintain a healthy credit history.