← Money Smart: Borrowing & Credit (Grades 9-12)
Flashcards
Money Smart: Borrowing & Credit (Grades 9-12)
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Money Smart: Borrowing & Credit (Grades 9-12) - Flashcards
| Front | Back |
|---|---|
| What is credit? | The ability to borrow money and pay it back later (use of someone else's money for a fee). |
| What are the four "C's" of creditworthiness? | Capacity (ability to make payments), Capital (value of things you own), Character (payment history), and Collateral (things of value used to secure a loan). |
| What is creditworthiness? | A creditor's measure of a consumer's past and future ability and willingness to repay debts. |
| What causes bad credit? | Missing or making late payments, letting a credit card balance grow, and using credit to pay off existing credit (e.g., using a credit card to make a loan payment). |
| How is a credit card different from a debit card? | A credit card borrows money you must repay (plus interest if not paid in full by the due date); a debit card uses your own money directly from your checking/savings account, so no interest is charged. |
| What is a Credit Report? | A record of your credit and bill repayment history, including payment timeliness, amount of credit used/available, and any debt collection activity. |
| What is a Credit Score? | A number (roughly 300–800) measuring an individual's creditworthiness, calculated from credit report information; the FICO® score is the most well-known type. |
| What is the Credit Card Accountability Responsibility and Disclosure Act (CARD Act)? | A law prohibiting unfair or abusive credit card practices and requiring transparent disclosure of rates and fees so consumers can compare cards. |
| What special rule does the CARD Act set for people under 21? | Anyone under 21 seeking a credit card must have a qualified co-signer or prove they can independently repay any debt. |
| What is a Debt-to-Income Ratio? | A ratio measuring monthly debt payments against monthly gross income (Debt-to-Income = Monthly Debt ÷ Monthly Gross Income); a high ratio signals possible repayment struggles to lenders. |
| Example: $200 car loan + $1,000 home loan monthly, $4,000 gross monthly income — what's the debt-to-income ratio? | 30% ($1,200 total debt ÷ $4,000 income). |
| What are Financial Ratios? | Useful indicators of financial performance, often used by lenders to assess creditworthiness. |
| What is FAFSA? | The Free Application for Federal Student Aid, used to apply for federal student aid such as grants, loans, and work-study. |
| What are the three main types of student financial aid? | Grants/scholarships (no repayment needed), student loans (repaid with interest), and work-study programs (earn money while attending college). |
| What is a Student Loan? | A sum of money borrowed to help pay for college, to be repaid later with any agreed-upon interest. |
| What responsibility does a co-signer have on a teen's credit card? | The co-signer is obligated to pay the debt if the teen cannot or will not make payments, and failing to pay can damage the co-signer's own credit report. |
| What is a Debit Card? | A plastic card used to deposit or withdraw money from a checking or bank deposit account, such as at ATMs or retail locations. |
| What tool can help compare college costs? | College Scorecard, a resource for comparing costs among different colleges. |
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