D363 Personal Finance - Set 5 - Part 2

Correct Answer: Borrowers with poor credit histories who pay higher interest rates for loans

Subprime borrowers are individuals with less favorable credit histories, and they are often charged higher interest rates because of the increased risk they pose to lenders.

Correct Answer: A measure of a persons likelihood to repay a loan, ranging from 300 to 850

The FICO score is a widely used credit scoring system that evaluates a persons creditworthiness, with higher scores indicating lower credit risk.

Correct Answer: A person is turned down for credit, and must be provided with a reason why

Denied credit refers to an individuals credit application being rejected, and by law, the issuer must explain the reason for the denial.

Correct Answer: The percentage of available credit a borrower is using compared to their total credit limit

The credit utilization ratio is a key factor in determining a persons credit score, with a high ratio potentially lowering the score and a low ratio indicating responsible credit use.

Correct Answer: A company that provides regular access to your credit report and score

Credit monitoring services allow consumers to keep track of changes in their credit reports and scores, helping to detect potential identity theft or credit issues early.

Correct Answer: A practice where goods or services are provided automatically unless the customer declines in advance

Negative options occur when a business automatically enrolls customers in a service or sends goods, and the customer must actively decline or cancel the service to avoid being charged.

Correct Answer: A law that regulates how credit reports are used and allows consumers to challenge inaccurate information

The FCRA governs the collection, dissemination, and use of consumer credit information, ensuring that credit reports are accurate and that consumers can dispute errors.

Correct Answer: A consumers version of disputed information when a credit bureau refuses to remove incorrect items from their credit report

A consumer statement allows individuals to explain disputed information on their credit report if the credit bureau does not agree to remove or correct the entry.

Correct Answer: Having excessive personal debt that makes repayment difficult and causes financial distress

Being overindebted means that an individual has accumulated too much debt relative to their ability to repay, often leading to financial strain.

Correct Answer: Something of value pledged as security for repayment of a loan

Collateral is an asset, such as a car or property, that is pledged by a borrower to secure a loan, which can be seized by the lender if the borrower defaults.

Correct Answer: A periodic report issued by a credit card company showing recent transactions and the balance due

A credit statement provides credit card holders with a summary of their recent transactions, payments made, and the amount owed to the credit card issuer.

Correct Answer: A loan secured by the borrowers home equity, allowing them to borrow up to a certain amount

A home equity credit line is a revolving line of credit secured by the borrowers home equity, allowing them to borrow money as needed, up to a pre-approved limit.

Correct Answer: The time period between two consecutive billing statements, usually about one month

The billing cycle is the period during which credit card transactions are recorded, and it typically lasts about one month, after which the cardholder receives a billing statement.

Correct Answer: The last day of the month for which transactions are recorded on the statement

The statement date marks the end of the billing cycle, and all transactions that occurred during that cycle are included on the credit card statement for that month.

Correct Answer: Written evidence of a return or refund on a credit card purchase

A credit receipt is provided when a credit card holder returns an item and receives a refund, showing that the transaction amount will be credited back to their account.

Correct Answer: The sum of the outstanding balances owed each day during the billing period, divided by the number of days in the billing period

The average daily balance is used to calculate finance charges on a credit card and is determined by averaging the balances over the billing cycle.

Correct Answer: The highest interest rate charged when a cardholder violates the terms of the card agreement

The penalty rate, or default rate, is a high interest rate imposed when a cardholder fails to meet the terms of the credit card agreement, such as missing a payment.

Correct Answer: A service that notifies credit card companies if a card is lost or stolen

A card registration service helps cardholders by notifying all companies with which they have debit or credit cards if their cards are lost or stolen, helping to prevent fraud.

Correct Answer: A dispute resolution process that allows consumers to challenge unauthorized charges

A chargeback occurs when a consumer disputes a charge on their credit card for reasons such as undelivered goods or unauthorized transactions.

Correct Answer: A stream of regular payments to be received in the future, typically for retirement income

An annuity is a financial product that provides a series of payments to an individual, often used as a retirement income strategy.