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Questions and Answers
An ______ is a fee paid on an annual basis for borrowing or for maintaining a financial service.
annual fee
The ______ is a numerical representation of a borrower's creditworthiness.
credit score
A ______ is a charge applied when repayments are not made on time.
late payment fees
The ______ is the principal amount on which interest is calculated.
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The ______ period is the time during which no interest is charged on an outstanding balance.
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Study Notes
Credit Basics
- Amortization Table: A schedule that outlines each payment of a loan, showing principal and interest portions, total balance over time.
- Annual Fee: A yearly charge by a credit card issuer for maintaining the account, can vary significantly between cards.
Credit Terms
- Annual Percentage Rate (APR): The yearly interest rate charged on borrowed money, expressed as a percentage. It includes any fees or additional costs associated with the loan.
- Check: A written order directing a bank to pay a specified sum from the account of the writer to the person named on the check.
Credit Instruments
- Credit: The ability to borrow money or access goods or services with the understanding that payment will be deferred.
- Credit Card: A plastic card issued by financial institutions allowing the holder to borrow funds for purchases or cash advances, usually requiring repayment with interest.
Credit Scores and Ratings
- Credit Rating: An evaluation of creditworthiness based on analysis of credit history, impacting the ability to obtain loans or credit.
- Credit Score: A numerical representation of a borrower's creditworthiness, typically ranging from 300 to 850, used by lenders to assess risk.
Payment Methods
- Debit Card: A payment card that deducts money directly from a bank account for transactions, unlike credit cards which allow for borrowing.
- Financial Charges: Costs incurred for borrowing money on credit accounts, which may include interest rates and fees.
Payment Processes
- Grace Period: A time frame during which a borrower can pay their dues without incurring late fees or interest charges, often occurring after a due date.
- Interest: The cost of borrowing money, usually expressed as a percentage of the principal amount lent, calculated over time.
Promotional Offers
- Introductory Rate: A temporary low-interest rate offered to new customers to incentivize credit card usage, which eventually increases to a standard rate.
Fees and Charges
- Late Payment Fees: Penalties assessed for failing to make payments by the due date, typically a fixed amount or a percentage of the missed payment.
Payment Structure
- Method of Calculating Balance: Various methods (average daily balance, adjusted balance, etc.) used to determine the outstanding balance on a credit account.
- Minimum Payment: The smallest amount a debtor can pay to keep the account in good standing, often a percentage of the total balance plus interest.
- Principal: The original sum of money borrowed in a loan or the amount of debt that remains unpaid, excluding interest.
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Description
Test your knowledge of essential credit concepts, including amortization tables, annual fees, and credit ratings. This quiz covers various credit instruments and their impacts on personal finance. Enhance your understanding of how credit works and its importance in financial management.
