Questions and Answers
What is the total cost of borrowing indicated on your monthly credit card statement, including interest and fees, expressed in a dollar amount?
Finance Charge
What is the major difference between a credit card and a debit card?
When someone uses a debit card, they are using funds directly from their own bank account.
Credit cards usually charge a higher interest rate than other types of loans.
True
What is the three-digit number that summarizes one's creditworthiness?
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What document outlines the rules that apply to a specific credit card?
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What is the interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan?
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What is the amount of money that can be charged to a credit card account?
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What type of fee do some credit card issuers charge for the use of a credit card that offers benefits?
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What is the lowest amount of money required to satisfy a credit card bill each month?
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How long is bankruptcy reflected in your credit history?
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What is the interest rate charged if you carry balances on a credit card?
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A major reason why relying on credit cards to purchase goods can become dangerous is because:
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Purchasing a newer model iPhone on a credit card is an example of good debt.
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What is the ratio that compares the amount of credit being used to the total credit available to the borrower?
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Study Notes
Credit Card Concepts
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Finance Charge: Total cost of borrowing on a credit card, includes interest and fees, shown in dollar amount on monthly statements.
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Debit Card vs. Credit Card: Debit cards use funds directly from a user’s bank account, unlike credit cards which allow borrowing.
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Interest Rates: Credit cards typically charge higher interest rates compared to other loans.
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Credit Score: A three-digit number that indicates a person's creditworthiness; higher scores reflect better debt management.
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Terms and Conditions: Document detailing the rules for a specific credit card; users agree to these upon using the card.
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Compound Interest: Interest computed on the principal and accumulated interest from previous periods; often referred to as "interest on interest".
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Credit Line: The total amount available to be charged on a credit card; negatively impacted by lower credit scores.
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Annual Fee: Charge imposed by some credit card issuers for card use, often associated with cards providing benefits like rewards.
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Minimum Payment: The smallest amount owed on a credit card bill each month; making only this payment can lead to higher overall costs due to compound interest.
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Billing History Impact: The most significant factor for credit scores (approximately 35%) is the history of timely bill payments.
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Credit Utilization Ratio: Represents roughly 30% of a FICO score; it compares credit used to total credit available. A lower ratio is favorable for boosting scores.
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Poor Debt Examples: Using credit cards to purchase luxury items, like a new iPhone, is generally not considered good debt.
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Bankruptcy Record: Remains on your credit score/history for seven years after declaring bankruptcy.
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Annual Percentage Rate (APR): The interest rate applied if carrying a balance on credit cards, charged monthly unless the balance is paid in full.
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Risks of Credit Usage: Relying on credit cards can be dangerous due to potential inability to pay off balances, difficulties due to compounding interest, and reliance on minimum payments.
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Description
Test your knowledge on credit cards with these flashcards! Learn essential terms, definitions, and concepts related to finance charges, credit vs. debit cards, and more. Perfect for finance students or anyone looking to improve their financial literacy.
