Personal Finance Credit and Debt Management Syllabus

How often can you obtain a free copy of your credit report from each major bureau?

Under U.S. law you are entitled to at least one free report annually from each of the three bureaus via AnnualCreditReport.com (weekly free access has also been offered).

What key sections appear on a typical credit report?

Personal identifying information, credit accounts (tradelines), credit inquiries, public records/collections, and sometimes a dispute section.

How long do most negative items, such as late payments, stay on a credit report?

Most negative items remain for about 7 years; Chapter 7 bankruptcy can stay for up to 10 years.

Name three effective ways to build or improve a credit score.

Pay all bills on time, keep credit utilization low (below $30\%$), and maintain older accounts to lengthen credit history. Other options include a secured card or becoming an authorized user.

What is a secured credit card and how does it help build credit?

A secured card requires a cash security deposit that typically sets the credit limit; responsible use is reported to bureaus, helping establish or rebuild credit.

Why can closing an old credit card hurt your credit score?

It can shorten your average length of credit history and reduce total available credit, which raises your credit utilization ratio.

What is the process for disputing an error on your credit report?

Contact the credit bureau (and the furnisher) in writing or online, identify the incorrect item and provide supporting evidence; the bureau must investigate, typically within 30 days, and correct or remove verified errors.

What is a credit freeze (security freeze)?

A credit freeze restricts access to your credit report, preventing new creditors from viewing it, which blocks most new-account fraud. It is free to place and lift with each bureau.

How does a credit freeze differ from a fraud alert?

A credit freeze locks your report so new credit generally cannot be opened; a fraud alert simply requires lenders to take extra steps to verify identity but does not block access.

How does a credit card grace period work?

The grace period is the time between the statement closing date and the payment due date during which no interest accrues on new purchases if the previous balance was paid in full.

How is credit card interest typically calculated on a carried balance?

Interest is usually charged on the average daily balance using a daily periodic rate: $$\text{Daily rate} = \frac{\text{APR}}{365},$$ multiplied by the balance each day and summed over the billing cycle.

What is the difference between a credit card's minimum payment and paying the statement balance in full?

Paying the full statement balance avoids interest entirely (with a grace period); paying only the minimum keeps you out of default but leaves a balance that accrues interest, greatly increasing total cost.

What factors should you compare when choosing a credit card?

APR, annual fee, rewards structure, sign-up bonus, foreign transaction fees, introductory (teaser) rates, and cardholder benefits/protections.

When is a rewards credit card most beneficial, and when can it backfire?

It benefits you when you pay the balance in full each month, earning cash back or points essentially free; it backfires if you carry a balance, since interest charges usually exceed the rewards value.

What is a cash advance on a credit card and why is it costly?

A cash advance is borrowing cash against your card's limit; it typically has a higher APR, a cash-advance fee, and no grace period, so interest accrues immediately.

What is a balance transfer and what should you watch for?

A balance transfer moves debt from one card to another, often to a lower introductory APR; watch for the balance-transfer fee (commonly $3$–$5\%$) and the rate after the promotional period ends.

Describe the debt snowball method.

You make minimum payments on all debts and put extra money toward the smallest balance first; once it is paid off, you roll that payment into the next-smallest debt, building momentum through quick wins.

Describe the debt avalanche method.

You make minimum payments on all debts and direct extra money toward the debt with the highest interest rate first, then move to the next-highest, minimizing total interest paid.

How do the debt snowball and debt avalanche methods compare in cost and motivation?

The avalanche saves the most money and time by targeting the highest interest rate first; the snowball is often more motivating psychologically because paying off small balances gives quick wins.

What is a mortgage?

A mortgage is a secured installment loan used to purchase real estate, in which the property serves as collateral and the lender can foreclose if payments are not made.

What is the difference between a fixed-rate and an adjustable-rate mortgage (ARM)?

A fixed-rate mortgage keeps the same interest rate for the entire term; an ARM has a rate that changes periodically based on a benchmark index after an initial fixed period.

What does the fixed monthly payment formula for an amortizing loan look like?

$$M = P \cdot \frac{i(1+i)^{n}}{(1+i)^{n}-1}$$ where $M$ is the monthly payment, $P$ the principal, $i$ the monthly interest rate, and $n$ the total number of payments.

What is PMI (Private Mortgage Insurance) and when is it typically required?

PMI protects the lender if the borrower defaults and is usually required when a homebuyer makes a down payment of less than $20\%$ of the purchase price.

What is loan amortization?

Amortization is the process of paying off a loan through regular equal payments, where early payments go mostly toward interest and later payments increasingly toward principal.

What does 'underwater' or 'upside-down' mean on an auto loan?

It means you owe more on the loan than the vehicle is currently worth, because the car depreciates faster than the loan balance declines (negative equity).

What is the key difference between federal and private student loans?

Federal student loans offer fixed rates, income-driven repayment, deferment/forbearance, and forgiveness options; private loans depend on credit, may have variable rates, and generally lack federal borrower protections.

What is the difference between subsidized and unsubsidized federal student loans?

With subsidized loans the government pays the interest while you are in school and during deferment; with unsubsidized loans interest accrues from disbursement and is the borrower's responsibility.

How does a personal line of credit differ from a personal loan?

A personal loan is a lump sum repaid in fixed installments; a line of credit is a revolving limit you can draw from as needed, repay, and reuse, paying interest only on the amount drawn.

What is debt consolidation?

Debt consolidation combines multiple debts into a single new loan or payment, ideally at a lower interest rate, to simplify repayment and potentially reduce total interest.

How does refinancing debt work and what is the main goal?

Refinancing replaces an existing loan with a new one that has better terms, such as a lower interest rate or different repayment period; the main goal is to reduce the interest cost or monthly payment. Watch for closing costs and a longer term that could raise total interest.