Credit Basics
Define Credit
Credit allows individuals to buy now and pay later.
A secured loan requires collateral to back the loan, which can be repossessed if the loan isn't paid.
What is a credit limit?
The maximum amount you can charge on a credit card.
What are the 3 C's of Credit?
Character, Capacity and Capital
What is a credit report?
A credit report is a detailed record of your credit history
Define creditor
A creditor is the person or business you borrow money from. Examples include banks, credit card companies, and relatives
Define collateral
An asset pledged to a lender to secure a loan, which can be repossessed if payments aren't made.
Allows you to carry a balance month-to-month, as long as you make minimum payments, with interest charged on unpaid balances.
What is Character?
Includes your history of paying bills, length of employment, stability (address history), and other indicators of responsibility.
What is a credit score?
a credit score is a numerical representation of creditworthiness
Name one benefit of using credit
allows for repeated borrowing, up to a limit, and is typically used with credit cards.
The time between the billing date and the due date where no interest is charged if the balance is paid in full.
What is Capacity?
Refers to your ability to repay debt after considering income, expenses, and any existing debts.
What 3 entities check/use your credit score?
Credit card issuers and lenders, landlords and employers
What is closed-end credit?
Closed-end credit is for a specific purpose with a fixed repayment plan
You pay a fee
What is Capital?
Refers to the value of assets that could be used to repay debts if income is unavailable.
Which of the 5 main factors is the most important towards your credit score?
Options are: Types of credit, new credit, outstanding balances, credit history or payment history
Payment history (35%)
Name one bank that has their own credit card
Is a car loan open-end or closed-end credit?
Should you ever go over your credit limit? (Yes or no)
No
Having your car repossessed to pay off outstanding debt falls under which of the 3 C's of credit?
Capacity
What is one consequence of having a poor credit score?
Higher interest rates, difficulty renting an apartment, denial of credit, denied employment opportunities, higher insurance premiums.