Chapter 4 Review: Credit and Debt
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Questions and Answers

If a loan is not repaid, the ____ of the borrower—used as security for the debt—could be sold by the lender.

collateral

What indicates the likelihood of someone repaying debt?

credit score

What reports on a person's credit history?

credit bureau

The amount of time you have to pay back a loan is called the _____ of the loan.

<p>term</p> Signup and view all the answers

When an item is worth less than what you owe on it, that's called_____?

<p>negative equity</p> Signup and view all the answers

Making fixed payments on a loan over a set period of time is an example of _____?

<p>installment credit</p> Signup and view all the answers

When an asset loses value over time, that's called_____?

<p>depreciation</p> Signup and view all the answers

When you fail to repay a loan on time, you're referred to as being in _____?

<p>default</p> Signup and view all the answers

The first step of the debt snowball method is to list all your debts_____?

<p>smallest to largest</p> Signup and view all the answers

Checking your credit report regularly can help you spot any signs of_____?

<p>identity theft</p> Signup and view all the answers

Which of these is not one of the main credit bureau reporting agencies?

<p>Identifax</p> Signup and view all the answers

With a debit card, you can do everything you can do with a credit card except what?

<p>go into debt</p> Signup and view all the answers

A clothing store credit card is an example of what type of debt?

<p>revolving credit</p> Signup and view all the answers

Which of the following is not factored into the loan payment on a new car?

<p>Equity</p> Signup and view all the answers

Predatory lenders use all of the following to prey on desperate people except...

<p>Truthful logic</p> Signup and view all the answers

Which of these isn't a marketing tactic to get you to use credit?

<p>50% off sale</p> Signup and view all the answers

Why is a high credit score not an indication that you're winning with money?

<p>It is because credit score is the number of things you owe.</p> Signup and view all the answers

Study Notes

Credit and Debt Terminology

  • Collateral: Asset used by the borrower as security for a loan, which can be sold by the lender if the loan is not repaid.
  • Credit Score: Numerical representation indicating the likelihood of an individual repaying their debt.
  • Credit Bureau: Organization that compiles and reports on an individual's credit history.
  • Loan Term: Duration within which a loan must be repaid.
  • Negative Equity: Situation where an item’s value is less than the outstanding debt owed on it.

Types of Credit

  • Installment Credit: Fixed payments scheduled over a set period for a loan.
  • Revolving Credit: Credit that allows borrowing amounts up to a credit limit, exemplified by store credit cards.

Financial Concepts

  • Depreciation: Gradual loss of an asset's value over time.
  • Default: Consequence of failing to repay a loan on time.

Debt Management Strategies

  • Debt Snowball Method: First step involves listing debts from smallest to largest to prioritize payments.

Financial Monitoring

  • Regularly checking your credit report aids in identifying potential signs of identity theft.

Credit Reporting Agencies

  • Main credit bureaus: Equifax, TransUnion, Experian. Identifax is not a recognized reporting agency.

Payment Methods

  • Debit Card: Allows transactions without incurring debt, unlike credit cards.
  • Loan Payment Factors: The loan payment for new cars includes term, interest, and principal but does not factor in equity.

Predatory Lending Awareness

  • Predatory lenders utilize unfair practices and deceptive tactics but do not rely on truthful logic.

Credit Marketing Tactics

  • Common tactics include 0% interest offers, cash back incentives, and introductory offers. A 50% off sale is not a credit marketing tactic.

Misconceptions about Credit Scores

  • A high credit score may indicate a significant amount of debt, not necessarily financial success or winning with money.

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Description

Test your knowledge of key terms and concepts related to credit and debt in this review of Chapter 4. Learn about important vocabulary such as collateral, credit scores, and credit bureaus, and enhance your understanding of financial responsibility.

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