Credit

A person lost his job and is unable to pay his credit card bills. What is the first action he should take to prevent his credit score from being lowered?

• Write to the credit reporting agencies for a credit report

• Call the credit card company to work out a payment plan

• Apply for another credit card

• Only pay the credit card with the highest balance

Answer explanation

When a person is unable to pay their credit card bills, they should contact their creditors to request help. Many credit card companies offer programs to help people that are having problems repaying debt.

Credit card issuers are required to disclose terms such as due dates, year to date totals on interests, and fees, so that the credit card holder will know the result of -

• sub prime rates

• pre-payment plans

• having a cosigner on the account

• making only minimum payments

Answer explanation

To keep consumes informed about the cost of credit and the effect of only making minimum payments, the Credit CARD Act states that card issuers must convey information regarding due dates, interest rates, and fees. Paying only the minimum balance means the cardholder will be charged interest on the unpaid balance.

A person's assets include his

• money in a savings account

• credit score

• health insurance benefits

• line of credit

Answer explanation

Something a person owns that has value is considered an asset.

Amy receives a credit card bill of $1,000 with a minimum payment due of $250. Amy sends the company a check for $100 before the due date. As a result, Amy's credit card company will -

• accept the $100 as satisfying the payment requirement

• immediately cancel Amy's credit card

• charge a late fee on Amy's account

• add $150 to Amy's next bill

Answer explanation

Since Amy did no pay the entire amount of the minimum amount due on her credit card, a late fee as well as interest on the remaining balance will be charged.

Someone can know their net worth by determining the dollar vallue of their

• savings and property

• mortgage and credit card expenses

• assets plus liabilities

• assets minus liabilities

Answer explanation

Net worth is determined by taking the value of someone' s assets (things they own of value) and subtracting their liabilities and debts.

Credit card companies often offer promotional or introductory interest rates which are usually -

• given to people with that credit card

• guaranteed if the person makes monthly payments on time

• raised after the promotional period expires

• changed during the promotional period if the minimum payment is made

Answer explanation

Promotional credit card interest rates are offered to attract new customers. For example: "Only .5% interest for the first 6 months!" These promotional offers have to last at least six months and are usually raised after this time period.

Jordan was approved for a loan that combines all his debts into one loan with a lower payment based on a longer repayment period or lower APR.

• balloon payment loan

• predatory loan

• collateralized loan

• consolidated loan

Answer explanation

Consolidation loans combine all debts into one loan so a borrower will only need to make one monthly payment. they often cost more in total finance charges because the borrower is taking more time to pay the debt. This type of loan is often used when people have difficulties making payments on their debts.

Collateral is defined as

• a form of credit

• something of value that secures a loan to protect the lender

• something that explains a person's credit history to their lender

• a requirement for all loans

Answer explanation

Collateral, something of value, is required for a secured loan to protect the lender. If the borrower defaults on a secure or collateralized loan, the lender can take the collateral to pay off the rest of the loan. Vehicle loans and mortgage (home) loans are an example of these.

A mortgage is a loan used to -

• purchase a house

• pay for vacation

• buy a car

• purchase a boat

Before a person borrows money from a bank to make a major purchase, which question is most important for the person to answer?

• How much interest will be paid over the life of the loan, increasing the actual cost of the item?

• Will I ever have to borrow money again from this bank?

• When will this item have to be replaced in the future?

• Can I pay for the item purchased with my credit card each month over a two-year period?

Answer explanation

When making a major purchase that requires a person to borrow money, the individual needs to consider the cost of borrowing money (the interest) in addition to the actual cost of the item.