Personal Finance chapter 6

Credit An arrangement to receive cash, goods, or services now and pay for them in the future
Consumer credit The use of credit for personal needs
Creditor An entity that lends money
Close-end credit Credit as a one-time loan that you will pay back over a specified period of time in payments of equal amounts
Open-ended credit Credit as a loan with a certain limit on the amount of money you can borrow for a variety of goods and services
Line of credit The maximum amount of money a creditor will allow a credit user to borrow
Grace period A time period during which no finance charges will be added to your account
Finance charge The total dollar amount you pay to use credit
Net income The income you receive
Annual percentage rate (APR) The cost of credit on a yearly basis, expressed as a percentage
Collateral A form of security to help guarantee that the creditor will be repaid
Simple interest The interest computed only on the principal, the amount that you borrow
Minimum monthly payment The smallest amount you can pay and remain a borrow in good standing
Credit rating A measure of a person’s ability and willingness to make credit payment on time
Cosigning Cosigning a loan means that you agree to be responsible for the loan payment if the other person fails to make them,
Bankruptcy A legal process in which some or all the assets of a debtor are distributed among the creditors because the debtor is unable to pay his or her debts
Explain the concept of consumer credit Consumer credit is the use of credit for personal needs. Credit is an arrangement to receive cash, goods, or services now and pay for them later
Differentiate between open-ended and close-end credit Closed-end credit is credit as a one-time loan that you pat back over a specified period of time in payments of equal amounts. Open-end credit is credit as a loan with a limit on the amount of money that you borrow for goods and services
Identify the 5 C’s of credit The five C’s of credit are character, capacity, capital, collateral, and credit history. Creditors use the five C’s to determine who will receive credit.
Discuss the factors to consider when choosing a loan or credit card When choosing a loan or credit card, consider factors such as length of the loan, amount of monthly payments, and interest rate
Discuss the steps you should take if your identity is stolen If your credit or identity has been stolen, contact all your credit card companies; close and open new bank accounts; and change all PINs. Notify law enforcement agencies and credit bureaus. If purchasing online, never share your PINs, Social Security numbers, or passwords.
Explain the role of consumer counseling services Manage debt problems by contacting creditors and/or debt counseling services. Bankruptcy is a last resort.

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