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Chapter 26 How to Get and Keep Credit

  1. What kinds of things can be used as collateral for a loan?

Examples: Home, car, and boat (something that can be sold for the price of the loan)

  1. What is a credit limit?

Maximum amount you can spend or charge on a credit account.

  1. What is the responsibility of a cosigner?

To pay the loan if the borrower can’t pay.

  1. List the five C’s of credit.

Capacity, character, credit history, capital, collateral.

  1. If you make a $500 down payment on furniture that costs $2,000, what is the $1,500 that you still owe called?

principal

  1. What is the difference between a secured loan and an unsecured loan?

A secured loan is backed by collateral

  1. Why should you beware of low introductory interest rates?

They will probably jump to a high rate in a few months.

  1. What are some types of fees credit cards charge?

Late fees, annual fee, cash advance fee, and missed payment fee. (and interest)

  1. What is the highest percentage of your income that personal finance experts say you should spend on credit payments?

20 percent (but be sure to pay the credit card bill in full at the end of each month). This 20% includes car loans and student loans, too.

  1. What is garnishment of wages?

The right for the creditor to take all or part of your paycheck

Vocabulary

Match each word to its definition.

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·  credit bureau

·  credit limit

·  cosigner

·  down payment

·  finance charge

·  principal

·  annual percentage rate (APR)

·  secured loan

·  grace period

·  unsecured loan

·  repossess

·  garnishment of wages

·  variable rate

·  cash advance

Name key Period

Name key Period

Term / Definition
secured loan / A loan that is backed by collateral.
unsecured loan / A loan that is not backed by collateral.
credit bureau / An agency that collects information about you and other credit customers.
annual percentage rate (APR) / This determines the cost of your credit on a yearly basis.
principal / The amount of money owed and upon which the interest is calculated.
grace period / The number of days available to pay a credit card balance without having any interest charged.
down payment / An initial portion of the total cost paid with cash or with a check.
cosigner / Someone who agrees to make payments on a loan if you fail to do so.
finance charge / The cost of credit stated in dollars and cents.
variable rate / A type of loan where the rate changes as interest rates in the banking system change.
credit limit / The maximum amount you can spend or charge on a credit account.
repossess / The legal right to take back collateral.
cash advance / Something you get when you borrow money on a credit card rather than use it to make a purchase.
garnishment of wages / When a creditor takes all or part of your paycheck if you miss credit card payments.