Podcast
Questions and Answers
What defines consumer credit?
What defines consumer credit?
What is the primary purpose of a grace period?
What is the primary purpose of a grace period?
Which of the following is NOT considered a disadvantage of credit?
Which of the following is NOT considered a disadvantage of credit?
What does closed-end credit refer to?
What does closed-end credit refer to?
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How is the Debt to Income ratio calculated?
How is the Debt to Income ratio calculated?
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Which component contributes the most to your credit score?
Which component contributes the most to your credit score?
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What is typically included in your credit report's account information?
What is typically included in your credit report's account information?
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What does a credit bureau primarily do?
What does a credit bureau primarily do?
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What is the grace period in credit terms?
What is the grace period in credit terms?
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Which law ensures that lenders provide transparent information about their rates?
Which law ensures that lenders provide transparent information about their rates?
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Which of the following is a disadvantage of using credit?
Which of the following is a disadvantage of using credit?
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If Jasha has a balance of $4,000 on a credit card with a total credit line of $21,000, what is his credit utilization rate?
If Jasha has a balance of $4,000 on a credit card with a total credit line of $21,000, what is his credit utilization rate?
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What is the percentage contribution of pay history to a credit score?
What is the percentage contribution of pay history to a credit score?
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What is one potential risk of using consumer credit?
What is one potential risk of using consumer credit?
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What happens if a consumer does not pay off their credit card balance each month?
What happens if a consumer does not pay off their credit card balance each month?
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What is a key advantage of consumer credit that relates to purchases?
What is a key advantage of consumer credit that relates to purchases?
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What percentage does the length of credit history contribute to your credit score?
What percentage does the length of credit history contribute to your credit score?
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Which of the following is true about the debt payment to income ratio?
Which of the following is true about the debt payment to income ratio?
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Which is NOT a component that affects your credit score?
Which is NOT a component that affects your credit score?
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What role does the Truth in Lending Act play in credit?
What role does the Truth in Lending Act play in credit?
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If Jasha has a credit utilization of approximately 19%, what could be inferred about his credit card balance?
If Jasha has a credit utilization of approximately 19%, what could be inferred about his credit card balance?
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What benefit does fraud protection provide to consumers using credit?
What benefit does fraud protection provide to consumers using credit?
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Study Notes
Consumer Credit
- Definition: Credit used for personal needs
- Grace Period: The time between the end of a billing cycle and the due date for a payment. Avoids interest if balance paid in full during this period. Generally 20-25 days.
- Credit Advantages: Enables purchasing cars, homes, & vacations. Includes cash back and fraud protection.
- Credit Disadvantages: Potential for overspending and collateral loss.
- Closed-End Credit: Loans paid back in a specified time frame. Examples include loans, mortgages, and car loans.
Credit Card Balances & Interest
- Unpaid Balances: Result in interest charges.
- Truth Lending Act: A law requiring lenders to disclose interest rates.
Credit Capacity Ratios
- Debt Payment to Income Ratio: Total monthly debt payments divided by gross monthly income.
- Debt to Equity Ratio: Liabilities divided by net worth.
Credit Report Components
- Personal Information: Includes employer history.
- Consumer Statements
- Account Information
- Public Records
- Credit Inquiries
- Bankruptcy public records
Credit Score Components
- Pay History (40%): Credit history payment patterns.
- Recent Balances (11%): Current account balances.
- Credit Utilization (20%): Percentage of available credit used; strive for less than 10%.
- Length of History (21%): Time period of credit history.
- Available Credit (3%): Amount of credit available.
- New Credit Accounts (5%): Frequency of new credit applications.
- Credit Bureaus: Collect information on how people pay their bills.
- Excellent Credit Score: 781 or higher.
Credit Utilization
- Example: A balance of $4,000 with a credit limit of $21,000 gives a credit utilization of ($4,000/$21,000 or 19%).
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Description
Explore the essentials of consumer credit, including its definition, advantages, and disadvantages. Understand how credit card balances accrue interest and learn about important laws like the Truth in Lending Act. Additionally, we will cover key ratios, such as debt payment to income and debt to equity ratio, and the components of a credit report.
