Credit – Part 2 Vocab, Bankruptcy and Laws

Credit Vocabulary

Acceleration Clause O Entire debt is immediately due if you miss a single payment.

Annual Fees O Membership or participation fees. O Not all credit card companies charge this. O Look for one that doesn’t charge a fee.

Balance Transfer O Moving an unpaid credit card debt from one issuer to another. O Card issuers offer teaser rates to encourage balance transfers.

Balloon Payment O The final payment is much larger than the regular payments.

Capital O Dollar amount O What you own O Should be more than what you owe

Charge Card O Requires payment in full every month O Doesn't have a preset limit O Purchases get approved based on spending and payment history, financial resources and credit record. O There is no interest rate or minimum payment O If the bill is not paid on time, late fees and other penalties may ensue O Categorized as Open 30-day accounts O Example: American Express

Collateral O Personal property given to lender to secure a loan.

Credit Card O Allowed to carry over portions of your balance from month to month. O Interest is charged if balance is not paid off.

Principal O Actual dollar amount of the purchases made O Is also the balance that remains on your loan or credit card account or loan. O Example: O When you charges $50 dollars, that is the principal. O If you still owe $23,900 on your home, that amount is the principal as well.

Prime Rate O The interest rate that commercial banks charge their most credit-worthy customers. O Set by the Federal Reserve. O Important for retail customers, directly affects the lending rates for mortgage, small business and personal loans

Secured Loan O Loan in which borrower pledges collateral to assure repayment. O Item is seized if there is a default on the loan.

Revolving Credit O Option of paying in full each month or making partial payment,. O Categorized as Open Ended Credit O Examples: Credit Cards – Visa, MasterCard, Discover, Best Buy, Victoria Secrets, etc…

Installment Credit O Used to pay for expensive items O Debt is divided into equal amounts for repayment O Item purchased serves as collateral O Categorized as Closed Ended credit

Installment Purchase Agreement O Contract defining repayment of installment credit O Includes: O Principal O Interest rate O Fees involved O Repayment schedule O Binding contract

APR O Annual Percentage Rate O Cost of credit expressed as a YEARLY rate. O Can change at any time by lender, as long as consumer is notified in advance. O Different APR rates charged for different services from cards. O Cash Advances have much higher interest rate than regular purchases

Introductory or Teaser Rate O Low rate for financing O Offered for a limited time O Usually only applies to certain aspects of credit—balance transfers or new purchases.

Co-Signer O Person who pledges to repay the debt if the borrower fails to do so.

Rates… O Fixed APR: Rate doesn’t change for the life of the loan. O Variable APR: changes over time because of the prime lending rate.

Service Credit O Having a service performed and paying for it later. O Example: O Telephone/utility O Doctors O Lawyers O Repair shops

Make No Payments for 3 years interest free…. O Agreement in which no payment has to made for period of time. O No interest is accumulated O Payments can be made, but not required O Balance is due at end of time period O If entire balance is not paid at due date… O Loan is refigured from the beginning with all interest added in.

Bankruptcy

O Legal process whereby you are declared legally insolvent. O Having insufficient funds to repay you debt.

Bankruptcy Procedure O File with bankruptcy court O Notice is given in newspaper – must be public knowledge O Creditors are notified O Creditors files claims O Court may sell property as needed to repay O In most cases, bankruptcy can be claimed every 6 years. O Must go through debt counseling first

Classes of Bankruptcy

Chapter 11 Bankruptcy O Existing management retains control of business O Main purpose is to reorganize the business’ debt structure O Also known as Reorganization Bankruptcy

Chapter 7 Bankruptcy O Past the stage of reorganization and must sell off any un-exempt assets to pay creditors O Also known as liquidation bankruptcy

Chapter 13 Bankruptcy O Allows creditors to get some of their money back O Debtor keeps property and repays debt over time.

Discharged Debts O Debts set aside by the court O Debtor no longer responsible for payment of certain debt O Creditors can no longer seek payment

Is All Debt Discharged?? O NO! Some debts still must be repaid. O Child support O Alimony or maintenance O Income taxes and penalties O Student loans O Court ordered damages

Causes of Bankruptcy O Foolish/emotional spending O Failure to budget and plan O Business failure O Foreclosures O Catastrophic injury or illness O Natural disasters

Credit Laws

Fair Credit Reporting Act O Gives individuals the right to examine their own credit history. O Allows the consumer to find out: O If information in your file has been used against you. O What is in your credit file O What your credit score is O To dispute incomplete or incorrect information.

Truth in Lending Act O Federal law O Requires lenders to fully disclose the terms and conditions of a mortgage. O APR must be told up front

Fair Credit Billing Act O Protects consumers from billing errors or other unfair practices from credit card companies

Fair Debt Collection Practices Act O Eliminate abusive practices in the collection of consumer debt. O Includes: O Contacting third parties O Threats O Calling at unpredictable times O Using false claims O Informing your employer

Equal Credit Opportunity Act O Credit applications be considered on the basis of actual qualification for credit – the Three C’s O Cannot be rejected because of: O Age O Gender O Marital status O Race, color O Religion O National origin O Receive public income O Sexual orientation

Credit CARD Act O C redit A ccountability R esponsibility D isclosure Act O 2009 O Credit Card Reform O Among other changes, it restricts card issuance to students under age 21 must prove they have the means to repay, or must have a co-signer.

Credit Card No-Brainers