PERSONAL FINANCE/BANKING CREDIT, BUDGET, AND CHECKING ACCOUNTS Chapters 25, 26, 28, 29

What is Credit? Chapter 25 Credit - an agreement to get money, goods, or services now 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 – Is responsible for a loan if you don’t make the payments.

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)– Determines the cost of your yearly credit.

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 – When a creditor takes all or part of your paycheck. 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 - The total amount of money you earned for a specific time. 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 – Expenses occurring regularly and are regularly paid. Variable Expenses – Expenses that fluctuate or are inconsistent. 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 – Account that earns interest on your account’s balance. 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 – An order for a bank not to cash a particular check. Debit Card – Similar to a credit card but money is taken directly from your checking account. Check Register – A checkbook log where you keep track of all transactions. Endorsement – The signature of the payee on the back of the check.

Bank Reconciliation Chapter 29 Bank Statement - The bank’s record of all your transactions in your checking account. Canceled Checks – Checks you’ve written that have been cashed. Bank Reconciliation – The process of seeing whether your records agree with the bank’s records. Outstanding Checks – Checks that have been written but not yet cashed.