Study Guide EPF 3 Credit & Debit -2 PDF

Name: Pangeran Date: 12/3/24 Period: 6 Word bank (some words may be used more than once) Study Guide for Credit Unit Key words about loans ===================== +-----------------------------------+-----------------------------------+ | Term | Visual and Definition...

Name: Pangeran Date: 12/3/24 Period: 6 Word bank (some words may be used more than once) Study Guide for Credit Unit Key words about loans ===================== +-----------------------------------+-----------------------------------+ | Term | Visual and Definition | +===================================+===================================+ | \_\_\_\_\_B\_\_\_\_ 1.Principal | a\. The loan will be repaid in | | | (this many) months. √\ | +-----------------------------------+-----------------------------------+ | \_\_\_\_\_A\_\_\_\_2. Term | B. the original amount of money | | | that was borrowed √ | | | | | |  | +-----------------------------------+-----------------------------------+ | \_\_C\_\_\_\_\_\_\_3. Interest | C. the cost of borrowing money √ | +-----------------------------------+-----------------------------------+ 4\. Many people use credit to buy a home, a car or to go to school. Why do people use credit? - II.Down payment and principal ============================= +-----------------------------------+-----------------------------------+ | Down payment | Principal | +===================================+===================================+ | 5.(A borrower pays some money on | 6\. (A borrower pays some money | | a large purchase in the beginning | on a large purchase in the | | of the loan; the amount of the | beginning of the loan; the | | loan that is financed) | amount of the loan that is | | | financed) | |  | | +-----------------------------------+-----------------------------------+ Ms. Hernandez wants to buy a home - a large purchase. The house is \$100,000. She needs a loan from her bank. So, Ms. Hernandez wants to show that she is a good lender and will pay back the bank. She plans on putting down a fraction of the home's cost.\ \ Keep the correct response under "What is she showing to the bank?" +-----------------+-----------------+-----------------+-----------------+ | Home price | Down payment | Loan principal | What is she | | | | needed | showing to the | | | | | bank? She has | | | | |... | +=================+=================+=================+=================+ | 7\. \$100,000 | 0%, or \$0 | \$100,000 | **[No history | | | | | of | | | | | saving]{.underl | | | | | ine}**\ | | | | | Little history | | | | | of saving | | | | | | | | | | Strong history | | | | | of saving | +-----------------+-----------------+-----------------+-----------------+ | 8\. \$100,000 | 3.5%, or | \$96,500 | No history of | | | \$3,500 | | saving\ | | | | | **[Little | | | | | history of | | | | | saving]{.underl | | | | | ine}** | | | | | | | | | | Strong history | | | | | of saving | +-----------------+-----------------+-----------------+-----------------+ | 9\. \$100,000 | 5%, or \$5,000 | \$95,000 | No history of | | | | | saving\ | | | | | **[Little | | | | | history of | | | | | saving]{.underl | | | | | ine}** | | | | | | | | | | Strong history | | | | | of saving | +-----------------+-----------------+-----------------+-----------------+ | 10\. \$100,000 | 10%, or | \$90,000 | No history of | | | \$10,000 | | saving\ | | | | | Little history | | | | | of saving | | | | | | | | | | [Strong history | | | | | of | | | | | saving]{.underl | | | | | ine} | +-----------------+-----------------+-----------------+-----------------+ | 11\. \$100,000 | 20%, or | \$80,000 | No history of | | | \$20,000 | | saving\ | | | | | Little history | | | | | of saving | | | | | | | | | | [Strong history | | | | | of | | | | | saving]{.underl | | | | | ine} | +-----------------+-----------------+-----------------+-----------------+ 12\. The higher the down payment, the (higher/lower) the principal.\ 13. With a higher down payment, (more/less) money will be loaned.\ 14. The total interest owed will be (higher/lower).\ \ 15. The lower the down payment, the (higher/lower) the principal.\ 16. With a lower down payment, (more/less) money will be loaned.\ 17. The total interest owed will be (higher/lower).\ \ 18. If Ms. Hernandez wants to pay the lowest amount in interest, she will take out a loan for a (lower/higher) amount. +-----------------------------------+-----------------------------------+ | Visuals | | +===================================+===================================+ | Cosigner |  | | | | | Person \#1 takes out a loan.\ | | | Person \#2 co-signs.\ | | | If Person \#1 stops paying the | | | loan for any reason, Person \#2 | | | must pay the loan payments.\ | | | \ | | | Co-signing (is/is not) an | | | important financial decision. | | +-----------------------------------+-----------------------------------+ 19\. Ms. Hernandez asks her brother to co-sign on the loan. If Ms. Hernandez stops paying on the loan, her brother (is/is not) responsible for the payments. What are different categories of loans? Installment vs. Revolving loans; collateral; interest rates =================================================================================================== +-----------------------+-----------------------+-----------------------+ | Loan | Installment Loan | (used twice) | | | (used twice)\ | | | |  | | +-----------------------+-----------------------+-----------------------+ | Collateral | Lacks collateral | Finance charge\ | | | |  | | ) | | | +-----------------------+-----------------------+-----------------------+ Vocabulary definition term --------------------------------------------------------------------------- -------------------- 20\. Money is borrowed from a bank or credit union Loan 21\. The loan repayment stays the same every month Installment Loan 22\. The loan can be drawn, repaid and redrawn Revolving Loan 23\. A credit card is an example of a \_\_\_\_ Loan; a person makes a Revolving Loan purchase; pays it back; and makes another payment. The payments change. 24\. A mortgage (loan for a home) is the same amount every month for a Installment Loan certain number of years 25\. An asset (valuable item) that the bank/credit union can take if the Collateral person does not pay the loan back 26\. No asset (valuable item) can be taken back if the loan is not repaid Lack of Collateral 27\. Extra fees (such as late payment fee, cash advance fee, transaction Finance Charge fees) that a credit charge may charge in addition to the interest rate What are different kinds of loans? Mortgage, auto, student, credit card ======================================================================= +-----------------------+-----------------------+-----------------------+ | Term | Visual | Definition | +=======================+=======================+=======================+ | 28.mortgage | | A loan for a House.. | | | | | | | | Usually (5, 7, 10, | | | | 30, 100) years\ | | | | \ | | | | Usually the | | | | same/different | | | | amounts every month\ | | | | \ | | | | Installment | | | | loan/revolving loan | | | | | | | | This loan (has/does | | | | not have) collateral | +-----------------------+-----------------------+-----------------------+ | 29.Auto loan |  | Car/Vehicle.. | | | | | | | | Usually (5, 7, 10, | | | | 30, 100) years\ | | | | \ | | | | Usually the | | | | same/different | | | | amounts every month\ | | | | \ | | | | Installment | | | | loan/revolving loan | | | | | | | | This loan (has/does | | | | not have) collateral | +-----------------------+-----------------------+-----------------------+ | 30.Student loan | | A loan for | | | | Degree/Education. | | | | | | | | Usually the | | | | same/different | | | | amounts every month\ | | | | \ | | | | Installment | | | | loan/revolving loan | | | | | | | | This loan (has/does | | | | not have) collateral | +-----------------------+-----------------------+-----------------------+ | 31\. Credit card |  | use and a smaller | | | | amount for daily use. | | | | | | | | Usually the | | | | (same/different | | | | amount) every month\ | | | | \ | | | | Installment | | | | loan/revolving loan | | | | | | | | This loan (has/does | | | | not have) collateral | +-----------------------+-----------------------+-----------------------+ What are some key ideas about student loans? ============================================ +-----------------------------------+-----------------------------------+ | Student loan vocabulary term | Student loan definitions | +===================================+===================================+ | 32\. FAFSA | -This does not need to be repaid | | | | | | -This does need to be repaid | | | | | | -Students must fill out this form | | | to receive scholarships, grants | | | and loans | | | | | | -Scholarships, grants and loans | | | that help students pay for trade | | | schools and colleges | +-----------------------------------+-----------------------------------+ | 33\. Financial aid | -This does not need to be repaid | |  | | | | -This does need to be repaid | | | | | | -Students must fill out this form | | | to receive scholarships, grants | | | and loans | | | | | | -Scholarships, grants and loans | | | that help students pay for trade | | | schools and colleges | +-----------------------------------+-----------------------------------+ | 34\. Scholarships\ | -This does not need to be repaid | | | | | | -This does need to be repaid | | | | | | -Students must fill out this form | | | to receive scholarships, grants | | | and loans | | | | | | -Scholarships, grants and loans | | | that help students pay for trade | | | schools and colleges | +-----------------------------------+-----------------------------------+ | 35\. Grants | A grant (does/does not) need to | | | be repaid. | |  | | | | -Students fill out (a grant | | | application/the FAFSA) to receive | | | grants. | | | | | | Grants may come from\ | | | A school\ | | | The state of Virginia or | | | Maryland, or so on\ | | | The federal government\ | | | A community group, such as the | | | Arlington Community Foundation\ | | | A school group, such as Wakefield | +-----------------------------------+-----------------------------------+ | 36\. Loans | Student loans\ | | | -(This does/does not) need to be | | | repaid | | | | | | -Students must fill out this form | | | to receive scholarships, grants | | | and loans | | | | | | -Scholarships, grants and loans | | | that help students pay for trade | | | schools and colleges | +-----------------------------------+-----------------------------------+ | 37\. Government subsidized loans | Students may qualify for a | | | government subsidized loan. These | | | loans are lower interest loans | | | since the US government is | | | guaranteeing a lower interest | | | rate.\ | | | \ | | | **The grace period for a | | | government subsidized loan is 6 | | | months. So students who graduate | | | in May start their payments in | | | November.** | +-----------------------------------+-----------------------------------+ | 38\. A 529 plan\ | This is a savings plan that the | |  | student's family -such as the | | | student's guardians, parents, | | | grandparents, aunts/uncles- may | | | open when for the child. The | | | child's educational expenses may | | | be paid for by the 529 plan.\ | | | \ | | | The 529 plan is a (savings | | | plan/loan).\ | | | It (does/does not) need to be | | | rapid. | +-----------------------------------+-----------------------------------+ | 39\. Work- study | A work-study program is a | | | part-time job on a college | | | campus. A student then earns some | | | money. | +-----------------------------------+-----------------------------------+ Interest: What's the difference between simple and compound interest? What's an interest rate and APR? ====================================================================================================== +-----------------------------------+-----------------------------------+ | Vocabulary term | Response needed | +===================================+===================================+ | 41\. Interest rate | The fee that a person pays for | | | (borrowing money; spending money) | |  | | +-----------------------------------+-----------------------------------+ | 42\. Simple interest\ | Simple interest is\ | | | -interest on the principal | | | | | | -interest on the interest\ | | | -interest on the principal + | | | interest on the principal | +-----------------------------------+-----------------------------------+ | 43\. Compound interest | Compound interest | |  | | | | -interest on the principal | | | | | | -interest on the interest\ | | | -interest on the principal + | | | interest on the principal | +-----------------------------------+-----------------------------------+ | 44\. Annual Percentage Rate | The APR is the interest rate + | | | all other fees a credit card | | | charges. It is a (fixed, | | | unchanging rate/a percent per | | | year) for using a credit card. | +-----------------------------------+-----------------------------------+ | 45\. Annual | (every year; every month) | | | | |  | | +-----------------------------------+-----------------------------------+ V. What are key words to understanding how a credit card/charge card works? ============================================================================ +-----------------------------------+-----------------------------------+ | Vocabulary term | definition/term | +===================================+===================================+ | 46\. Interest rate | The fee that a person pays for | | | (borrowing money; spending money) | +-----------------------------------+-----------------------------------+ | 47\. Minimum | The percentage of a credit card | | payment | bill that individuals must pay; | | | the minimum payment is usually | | | (5%; 25%; 50%) | +-----------------------------------+-----------------------------------+ | 48\. Charge card | Individuals may pay for their | | | purchases with a charge card. | | | They (may/must) pay the entire | | | balance each month. | +-----------------------------------+-----------------------------------+ | 49\. Credit Card | Individuals may pay for their | | | purchases with a credit card. | |  | They (may/must) pay the entire | | | balance each month. | +-----------------------------------+-----------------------------------+ | 50\. Outstanding balance | The (smallest amount that a | | | person must pay; the entire bill | | | a person must pay) | +-----------------------------------+-----------------------------------+ | 51\. Grace period | The bill is due on the first of | | | the month. The grace period is 2 | |  | weeks. The bill must be paid by | | | (due date of the bill; the end of | | | the grace period)\ | | | \ | | | If the bill is late, the borrower | | | is charged an extra fee. | +-----------------------------------+-----------------------------------+ | 52\. Credit limit | A person is allowed to have an | | | outstanding balance of only a | | | certain amount on the card.\ | | | For example, the credit card | | | limit is \$1,000.\ | | | John's balance is \$990 and he | | | tries to make a purchase of \$20. | | | His card will be declined. He | | | cannot make the purchase. | +-----------------------------------+-----------------------------------+ VI. Types of credit cards - secured vs. unsecured cards ======================================================= +-----------------------+-----------------------+-----------------------+ | 53. | 54. | Reminder of | | (secured/unsecured) | (secured)(Unsecured) | vocabulary terms | +=======================+=======================+=======================+ |  | | mind! | +-----------------------+-----------------------+-----------------------+ | -there is no | -there is collateral | Collateral | | collateral on this | - the credit card |  | | | deposit on this | | | | credit card | | +-----------------------+-----------------------+-----------------------+ | -individuals make | -individuals make | | | purchases and must | purchases and must | | | pay the minimum | pay the minimum | | | payment/balance to | payment/balance to | | | the credit card | the credit card | | | company | company | | +-----------------------+-----------------------+-----------------------+ | -if individuals do | -if individuals do | Credit report\ | | not pay their bill, | not pay their bill, | \ | | the credit card | the credit card |  | | report against their | their deposit | | | credit report at an | | | | agency and eventually | | | | take the individual | | | | to a collection | | | | agency | | | +-----------------------+-----------------------+-----------------------+ | There is a limit on | There is a limit on | | | the credit card; the | the card; the limit | | | limit is determined | is often the size of | | | by the person's | the cash deposit; so | | | credit card company, | the person's | | | so the person's | outstanding balance | | | outstanding balance | may only be \$500 or | | | may only be \$1,000, | \$1,000 on the card | | | \$5,000 or \$10,000 | | | +-----------------------+-----------------------+-----------------------+ | -a person who has an | -a person who has | Established credit | | established credit | been declined from a | history | | history usually | traditional, or | | | qualifies for this | unsecured, credit |  | | | this card | | | | | Declined | +-----------------------+-----------------------+-----------------------+ | -has special | -has no special |  | advantages ('perks') | ) | | such as earn | | | | discounts at\ | | | | -a gas station | | | | | | | | -free checked bag on | | | | an airline | | | | | | | | -discount on a hotel | | | | when you are | | | | traveling | | | +-----------------------+-----------------------+-----------------------+ 55\. Which credit card is being described?\ John is 23 years old and has had a job for 1 year. He makes \$40,000 and has been paying back his student loans regularly. He has established He wants to earn some airline points for a free trip on his favorite airline. A/an (secured/unsecured) credit card is better for him. 56\. Jack is 20 years old and is a full-time student. The credit card company declined him for a regular credit card. Jack took \$500 of his savings and put this \$500 as a deposit on his credit card. He pays his monthly bill to establish credit. However, if Jack stops paying his bill, the credit card company can and will take Jack's deposit to pay for Jack's bill. Jack is using a/an (secured/unsecured) card. VII. How do credit cards make a profit? ======================================= What percentage the borrower pays How long is the term? How much interest is paid? ----------------------------------- ----------------------- ---------------------------- 57\. 2% 30 Years \$10,000 58\. 4% 10 Years \$2,600 59\. 6% 6.8 Years \$1,500 60\. Explain why a person who pays only the minimum balance will likely be in debt. Because if you dont't pay in full. The credit card company will make you pay interest and fees. 61\. In the best-case scenario, a person pays off the entire credit card balance each month. Why? *Individuals pay off the entire credit card balance each month because..... The Individuals will get a bonus and credit score he can use without losing any money.* -- -- VIII. How do credit cards work? =============================== 62\. Mr. Smith goes to a grocery store and uses his credit card. Then, he goes to the gas station and uses his credit card too. He (is/is not) taking out a loan every time he swipes his card. He (has/has not) promised to pay the money back at the end of the month.\ \ 63. At the end of the month, the credit card company sends him a bill. The bill has a minimum payment and an outstanding balance. 64\. The minimum payment is usually about (1%, 5%, 25%; 50%, 100%) of the outstanding balance.\ The minimum payment is (the lowest amount he must pay; the total of all his purchases). 65\. The outstanding balance is (1%, 5%, 25%; 50%, 100%).\ The minimum payment is (the lowest amount he must pay; the total of all his purchases). 66\. If Mr. Smith pays only the minimum balance each month, he will be paying ( a little bit of interest; some interest; a lot of interest). 67\. Mr. Smith has an outstanding balance of \$10,000. Mr. Smith will pay (simple interest - interest only on the principal OR (compound interest, interest on the principal + interest on the interest). 68\. If Mr. Smith has a limit of \$5,000, he (can/can not) have an outstanding balance over \$5,000. 69\. If Mr. Smith put down a cash deposit to get his credit card, he is using a/an (secured/unsecured) card. 70\. If Mr. Smith did not put down a cash deposit to get his card, he is using a/an (secured/unsecured) card.\ \ 71. If Mr. Smith is using an unsecured card and does not pay his card, his credit card company will: (charge him a fee; report him to a credit bureau; refer him to a collection agency). IX. Vocabulary terms for credit reporting ========================================= +-----------------------+-----------------------+-----------------------+ | Vocabulary Term | Picture | Definition | +=======================+=======================+=======================+ | 72\. Credit bureau | Private company that | | | | collects information | | | | about borrowers. | | | | These companies | | | | collect information | | | | about borrowers. They | | | | turn the information | | | | into reports and sell | | | | them to banks, credit | | | | unions and other | | | | companies who are | | | | thinking of making | | | | loans to individuals. | | | | | | | |  | | +-----------------------+-----------------------+-----------------------+ | 73\. Credit report | What does a credit | | | | report include\ | | | | -personal details; | | | | addresses, account | | | | balances | | | | | | | | -hard inquiries -you | | | | applied for a loan-; | | | | soft inquiries, or | | | | you gave a person | | | | permission to look at | | | | your credit report; | | | | public records - | | | | houses and taxes you | | | | paid for that is on | | | | the internet | | | | | | | | -individuals get one | | | | free credit report | | | | every year | | | | | | | |  | | +-----------------------+-----------------------+-----------------------+ | 74\. FICO score | A credit score | | | | created by the Fair | | | | Isaac Company. This | | | | number - between | | | | 350-800 evaluates how | | | | likely it is you will | | | | pay back a loan. | | +-----------------------+-----------------------+-----------------------+ | 75\. Collection |  | | | agency | | | +-----------------------+-----------------------+-----------------------+ | 76\. Collection | | A collection | | report | | bureau/collection | | | | agency (will/will | | | | not) notify you and | | | | seek to speak to you. | +-----------------------+-----------------------+-----------------------+ +-----------------------------------------------------------------------+ | What is a collection agency? What does a collection agency do? | +=======================================================================+ | 77\. What is a collection agency? | | | | A lender such as \_\_\_\_\_Bank\_\_\_\_\_\_ has lent some money to | | Mr. Smith. Mr. Smith did not pay back the lender. So the lender hires | | a (collection agency/credit bureau). This group calls the | | (borrower/lender) and tries to get back the money that is still owed. | | Mr. Smith may not pay the bill and his credit score will go down.\ | | \ | | 77. Mr. Smith may : (bold all correct answers) | | | | -pay the bill in full | | | | -set up a payment plan to pay back the account over time | | | | -not pay the account and the credit reports will show that the | | account was not paid; fines may be added onto the original amount | +-----------------------------------------------------------------------+ X. What is a credit history? ============================ 78\. A credit history is a record of a person's repayment of their (debts/assets). 79\. Three companies - (credit counseling agencies/credit reporting bureaus) keep track of a person's history of paying back their loans. 80\. The names of the 3 credit bureaus are \[See infographic.\] --------- ---------- ------------ Equifax Experian Transunion --------- ---------- ------------ 81\. Credit bureaus collect and maintain \_\_\_\_\_\_\_information about borrowers\_\_\_\_\_\_ and then resell it to other businesses in the form of a \_\_\_\_\_\_\_credit reports\_\_\_\_\_\_\_. \ 82. A bank/credit union looks at a person's credit report from the credit reporting bureaus, because a bank/credit union (does want/does not want) to be repaid. So, if a person Individuals can build their credit histories by: {bold all - read all responses!} -using a debit card -opening up a checking account -getting a credit card, making large purchases on it, and paying the minimum payment amount of a credit card -getting a credit card, making small purchases on it, and paying the minimum payment amount of a credit card -getting a credit card, making small purchases on it, and paying the total balance of the credit card -getting a job and starting direct deposit Category Score ------------------ --------- 83\. Exceptional 800+ 84\. Very Good 740-799 85\. Good 670-739 86\. Fair 580-669 87\. Poor \