Chapter 6 - Assessing, Managing, and Securing your credit Flashcards
Credit
funds provided by a creditor to a borrower that the borrower will repay with interest or fees in the future
Instalment Loan
a loan provided for specific purchases, with interest charged on the amount borrowed and repaid on a regular basis
Revolving Open-End credit
Credit provided up to a specified maximum amount based on income, debt level, and credit history; interest is charged each month on the outstanding balance.
What are the advantages of using credit?
*Allows you to achieve your goals sooner
*Helps you establish a good credit history and credit score
*Eliminates the need for carrying cash
*Allows you to make purchases when cash it not an option (online)
*Provides additional benefits, such as air miles and travel insurance
*Provides short-term loans for emergencies
*Statements help you record and keep track of past transactions
What are the disadvantages of using credit
*You may have difficulty making payments
*You make make impulse purchases that you cannot afford
*You can damage your credit rating
*There is an interest cost to using credit
*Large credit payments take away from your ability to save
*You may need to access savings to cover net cash flow deficiencies.
How to improve your credit score?
*Catch on up late payments
*Make at least the minimum payments on time
*Reduce your debt
What are some consumer credit products?
*Credit cards
*Home Equity line of credit (HELOC)
*Personal loans
*Car Loans
*Student Loans
Previous Balance Method
Interest is charged on the balance at the beginning of the new billing period.
Average Daily Balance Method
Interest is charged on the average daily balance for the billing period.
Your finance charges will be lower under this method if you pay part of the outstanding balance during the billing period. (Most frequently used)
Adjusted Balance Method (most favourable)
Interest is charged based on the balance at the end of the billing period.
