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Introduction to Credit

Use the presentation at this link to complete the assignment. Answer each question using complete sentences.
Save the assignment as introduction to credit.

1. Define credit- an arrangement to receive cash, goods or services now, and pay for them in the future.
2. Define consumer credit-is the use of credit for personal needs, except a home mortgage, by individuals and
3. Identify three ways consumers can finance purchases- Draw on their savings .Use present earnings. Borrow
against expected future income.
4. What does each finance alternative have? A trade off
5. What is a major force in our economy? Consumer credit
6. List five questions you should ask yourself before using credit for a major purchase. Do I have cash for the
payment? Do I want to use my savings? Does it fit my Budget? Could I use it I a better way? Can I postpone this
7. List seven advantages of consumer credit. Current use of goods and services, Permits purchases when funds are
low, Cushion for financial emergencies, Advance notice of sales, Easier to return merchandise, Convenient when
shopping, One monthly payment
8. List five disadvantages of consumer credit. Temptation to overspend, Ties up future income, Can create long term
financial problems, Credit costs money, Potential loss of merchandise
9. What is closed-end credit? One time loans for a specific purpose.
10. What are 3 most common types of closed-end credit? Installment cash credit, installment sales credit, single lump
11. What is open-ended credit? Use as needed until max
12. List 9 sources of consumer credit. Loans, Inexpensive loans, medium-priced loans, expensive loans, home equity
loans, credit and debit cards, Smart cards and T&E cards.
13. What questions should you ask before taking out a loan? Can you afford the loan? What do you plan to give up to
make the payment?
14. Consumer credit payments should not exceed what percentage of your net income? 20%
15. List and describe the 5 Cs of credit. Character, Capacity, Capital, Collateral, Credit history
16. Define credit rating. A measure of how well a person is able to pay on time.
17. What factors affect your credit rating? Income, current debt, info about you.
18. What is the ECOA? Equal credit opportunity act.
19. What does the ECOA cover? Mortgages or home improvement loans.
20. Define credit bureaus. Agency that collects how promptly people pay there bills.
21. What are the three major credit bureaus? Experian, Trans Union, Equifax.
22. Where do the credit bureaus get their information? Banks, finance companies, other lenders
23. Define finance charge. is the total dollar amount you pay to use credit. It includes interest costs and fees, such as
service charges, credit-related insurance premiums, or appraisal fees.
24. Define APR. Annual percentage rate
25. Define simple interest. Compound on principle only.
26. Define simple interest on a declining balance. Interest is paid only on the amount of original principle not yet repaid.
27. Define add on interest. Interest is calculated on the full amount of the original principal, then added to the principal,
and then the total of both is divided by the number of payments to be made.
28. List five things you could do if your identity is stolen. Contact the fraud department, Contact creditors, file a police
report, check the government website
29. List four warning signs of debt problems. Paying minimum’s, total balance increase, paying late, missing payments,
borrowing money to pay old debts
30. What is CCCS? Consumer credit counseling service
31. What does CCCS provide? Counseling and education about credit.
32. What is bankruptcy? Having no money left in checking or savings accounts.
33. Explain the difference between filing for Chapter 7 and filing for bankruptcy. You can still owe for things after filing
for bankruptcy but not chapter 7.