Credit Basics and Terms Quiz

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.