Credit Basics
Which of the following BEST defines credit?
An agreement allowing payment at a later date
Closed-end credit means what?
Specific repayment schedule
What does the Fair Credit Reporting Act guarantee?
Free annual credit report access & accuracy
Which financial principle says monthly debt payments should not exceed 10% of income?
The 20/10 Rule
What does credit fraud involve?
Fraudulent use of someone’s credit info
What does “creditworthy” mean?
Possessing assets and willingness to repay debt
Revolving credit typically allows what?
Flexible payment options
Which law prohibits discrimination in credit?
Equal Credit Opportunity Act
Which type of bankruptcy lets people repay under court supervision?
Chapter 13 Bankruptcy
What is garnishment?
Employer sets aside part of a debtor’s pay
What are the three Cs of credit?
Character, Capacity, Capital
What distinguishes secured vs. unsecured credit?
Secured credit requires collateral
Which act requires lenders to disclose credit costs?
Truth in Lending Act
What is a lien?
A legal claim on a borrower’s property
What does a credit counseling service do?
Provides debt and financial management advice
What does APR stand for?
Annual Percentage Rate — total annual cost of credit
A line of credit represents what?
A preapproved maximum borrowing limit
What does the Dodd-Frank Act regulate?
Banking and financial services
What is repossession?
Taking collateral when a loan isn’t repaid
What is a Debt Management Plan (DMP)?
Counselor uses deposits to pay unsecured debts
What is the main purpose of a credit report?
To show a person’s borrowing and repayment history.
What makes payday loans dangerous?
High interest rates that create debt cycles
What is the maximum liability for unauthorized credit card charges?
$50 per card
Why are title loans risky?
Borrowers might lose their vehicle
Which type of debt cannot be discharged through bankruptcy?
Student loans