Chapter 4 Debt Key terms policies Key Terms

Chapter 4 -Debt Key terms, policies

Key Terms Annual fee-a yearly fee that’s charged by the credit card company for the convenience of the credit card. Annual Percentage Rate(APR)-Cost of borrowing money on an annual basis; takes into account the interest rate and other related fees on a loan. Credit-The ability to obtain goods and services, based on an agreement to pay later. Credit Card-type of plastic coded card issued by a bank/organization that allows users to finance a purchase on credit.

Key Terms Credit Report-A detailed report of an individual’s credit history. Credit Score-A measure of an individual’s credit risk; calculated from a credit report using a standardized formula.

Key Terms Debt-An amount of money borrowed by one party (the borrower or debtor), to a second party, (the lender or creditor). Debt Snowball-Preferred method of debt repayment; includes a list of all debts organized from smallest to largest balance; minimum payments are made to all debts except for the smallest, which is attacked with the largest possible payments.

Key Terms Depreciation-A decrease or loss in value. Loan term-Time frame that a loan agreement is in force, and before or at the end of which the loan should either be repaid or renegotiated for another term.

Key Terms Revolving credit-Credit that is automatically renewed as debts are paid off or paid down. Credit Limit- Maximum amount of money the lender is willing to loan an applicant. Finance Charge-The total cost of using credit, including interest and fees.

Key Terms Grace period- The length of time that the lender charges no interest on money borrowed when paying off your balance in full each month. Introductory rate- Lower interest rate offered by credit card companies for a short period of time to entice you to sign up for credit with them. Eventually, the rate expires and a new “increased” rate takes effect.

Key Terms Origination fee-The charge for setting up a loan(often associated with home loans).

Key terms Bankruptcy: a legal procedure for dealing with debt when an individual or business cannot repay what they owe. Garnishment-A court-ordered attachment that allows a lender to take monies directly from a borrower’s paycheck; only allowed as part of a court judgment.

Key terms Foreclosure-Process by which the holder of a mortgage sells the property of a homeowner who has not made interest and/or principal payments on time as stipulated in the mortgage contract. Repossession: Process of a lender taking something back (like a car) for failure to make payments.

Key terms Surrender of collateral: In a bankruptcy proceeding, a debtor can give up property(collateral) to the creditor in exchange for a clean slate. Delinquency: refers to a borrower not being current on his or her payments.

Forms of credit repayment Installment-Credit that you use to borrow money and promise to repay in equal amounts over a specific period of time. Layaway-An agreement in which the seller reserves an item for a buyer until the buyer pays for the item in full.

FICO score FICO-stands for Fair Isaac Corporation measures your debt history and credit worthiness. Three major credit bureaus: Equifax Trans. Union Experian You may obtain a free credit report from each credit bureau once a year.

Five components of FICO score 1. Debt history-35 % 2. Debt levels-30% 3. Duration of debt-15% 4. Type of debt-10% 5. New debt-10%

Identity theft Fastest growing white-collar crime in America. 15 million people were victims of identity theft in 2014. Victims spend close to 600 hours trying to fix the issues associated with the fraudulent transactions.

Identity theft Contact Fraud department at all three credit bureaus to file a Fraud complaint and stop any further opening of credit accounts. Obtain a police report to put alert on your credit report for 1 year. Contact all creditors to put a fraud alert on your accounts.

Fair Credit Reporting Act 1970(FCRA) This act was intended to address concerns over consumer credit report accuracy, privacy and fairness. Accuracy: Gives consumers the right to review the contents of their credit report file an dispute inaccurate information. Privacy: A person or organization must have a legitimate need for checking a person’s credit information. Fairness: A consumer has the right to know if a decision to deny them credit was based on information in their credit file. Also gives consumers access to a free credit report.

Equal Credit Opportunity Act(1975) This act was enacted by Congress in 1974 to prohibit discrimination in lending. It applies to all types of consumer lending, including credit cards.

Fair Credit Billing Act (1975) A federal law enacted to protect consumers from unfair billing practices, such as unauthorized charges, charges for unaccepted or undelivered goods and services and other disputed charges. Among its most important consumer protections: Your maximum liability under federal law for unauthorized use of your credit card is $50. If you report the loss before your credit cards are used, the act says the card issuer cannot hold you responsible for any unauthorized charges.

Fair Debt Collection Practices Act 1978(FDCPA) This law protects you from harassment by creditors. *A creditor can hire a collection agency to help them get you to repay a debt. The following guidelines should be followed by the collection agency: 1. No calls to your phone before 8 a. m. and after 9 p. m. 2. Threaten to notify your employer/friends about the debt. 3. Attempt to collect more than you owe. 4. Send misleading letters that appear to be from a government agency or a court of law.

Federal Trade Commission (FTC) Federal agency that regulates the consumer credit system and enforces the laws related to it. (a) prevent unfair methods of competition, and unfair or deceptive acts or practices in or affecting commerce; (b) seek monetary redress and other relief for conduct injurious to consumers; (c) prescribe trade regulation rules defining with specificity acts or practices that are unfair or deceptive, and establishing requirements designed to prevent such acts or practices; (d) conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce; and (e) make reports and legislative recommendations to Congress.

Truth in Lending Act (1968) The primary federal law governing the extension of consumer credit by lenders in the United States. Congress instituted the Truth in Lending Act in 1968 to ensure more accurate disclosure of credit terms so that consumers could compare the various credit terms available in the credit marketplace, to avoid the uninformed use of credit, and to protect themselves against inaccurate and unfair credit billing and credit card practices.

Steps to get out of debt Quit borrowing money Save money Sell something Get a part-time job or work overtime Use debt snowball method *Largest wealth building tool is your income.

Consequences of not repaying a debt. Bankruptcy Delinquency Foreclosure Garnishment Repossession Surrender of collateral