PERSONAL FINANCE/BANKING

CREDIT, BUDGET, AND CHECKING ACCOUNTS

Chapters 25, 26, 28, 29

What is Credit? Chapter 25

• Credit -

now

an agreement to get money, goods, or services in exchange for a promise to pay

later

.

• Creditor – Person who lends money or provides credit.

• Debtor – The one borrowing money or using credit.

• Interest – A fee that creditors charge for using their money.

Who uses Credit? Chapter 25

• Consumer Credit A type of credit used by people for personal reasons.

• Commercial Credit – Credit used by businesses.

• Credit Rating – The measure of a person’s ability and willingness to pay debts on time.

Types of Credit Chapter 25

• Charge Account Common type of short-term and medium-term credit often offered by dealers or stores.

• Revolving Account – Allows you to borrow or charge up to a certain amount of money, such as $3,000, and pay back a part of the total or the entire balance for each month.

• Installment Loans – Loans repaid in regular payments over a period of time.

(student loans, personal loans, and home improvement loans)

Short Answer

• What are the factors that determine a person’s credit rating?

• How can using credit cards be very costly to the consumer?

Applying for Credit Chapter 26

• Credit Bureau An agency that collects information about you and other credit consumers.

• Credit Limit – The maximum amount you can spend or charge on a credit account.

• Cosigner – payments.

Is responsible for a loan if you don’t make the

Using Credit Chapter 26

• Down Payment A portion of the total cost that you pay when you purchase a product.

• Principal – The amount of money you still owe and on which the interest is based.

• Secured Loan – The loan is backed by collateral.

• Unsecured Loan – The loan is not backed by collateral.

• Annual Percentage Rate (APR) – your yearly credit.

Determines the cost of

Using Credit (cont.) Chapter 26

• Finance Charge The total amount it costs you to finance the loan stated in dollars and cents. • Variable Rate – The rate will change when interest rates in the banking system change.

• Cash Advance – Borrowing money on a credit card rather than use it to make a purchase.

• Grace Period – Amount of time you get to pay off a debt.

• Garnishment of Wages – your paycheck.

When a creditor takes all or part of • Repossess – To take back collateral.

Short Answer

• What are the five C’s of credit (explain each)?

• Why is having good credit necessary in today’s economy?

Planning a Budget Chapter 28

• Money Management The process of planning how to get the most from your money.

• Budget – A plan for using your money in a way that best meets your wants and needs.

• Income – The actual amount of money you earn during a given time period.

• Deductions – Amounts that are taken out of your pay before you receive your paycheck.

Lifestyle Costs Chapter 28

• Gross Pay specific time.

The total amount of money you earned for a • Net Pay – Your gross pay minus deductions.

• Withholding – Subtracting taxes from a paycheck to be forwarded to the government.

• Expenditures – Food, rent, clothing, ect.

Lifestyle Costs (cont.) Chapter 28

• Fixed Expenses – regularly paid.

Expenses occurring regularly and are • Variable Expenses – inconsistent.

Expenses that fluctuate or are • Budget Variance – The difference between how much you planned to spend and how much you actually spent.

Short Answer

• List the 5 steps in creating a budget.

Checking Account Basics Chapter 29

• Demand Deposits Another term for checking accounts because each check demands a that bank release money on demand.

• Interest-bearing Account – your account’s balance.

Account that earns interest on • Signature Card – A record of your signature used by the bank to verify your identity.

• Overdrawing – Writing checks for more money than you have in your account.

Account Services Chapter 29

• Overdraft Protection – A line of credit for overdrawn checks.

• Stop Payment – check.

An order for a bank not to cash a particular • Debit Card – Similar to a credit card but money is taken directly from your checking account.

• Check Register – transactions.

A checkbook log where you keep track of all • Endorsement – check.

The signature of the payee on the back of the

Bank Reconciliation Chapter 29

• Bank Statement The bank’s record of all your transactions in your checking account.

• Canceled Checks – cashed.

Checks you’ve written that have been • Bank Reconciliation – The process of seeing whether your records agree with the bank’s records.

• Outstanding Checks – not yet cashed.

Checks that have been written but