Transcript Credit You're in Charge What is Credit ??? • Credit is an arrangement to Receive cash, goods, or services now and pay for.

Credit
You're in Charge
What is Credit ???
• Credit is an arrangement to Receive cash,
goods, or services now and pay for them in
the future!
Consumer Credit
• Used for personal needs.
• Increases the amount of money you have now
• Decreases the amount of money you have in
the future
• Risk
• Return
• Dangerous
• Major force in the US. Economy!
Advantages
• Enjoy Now with little or no immediate
financial burden
• You can combine several purchases to make
one payment
• Travel with out cash
• What about the debit card?
Why use Credit
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For Convenience
Emergencies
Identification
Travel
Reservations
To protect your personal finances!
To enjoy the good life
Disadvantages
• There will always be the temptation to spend
beyond your means!
• Falling behind in your payments will affect
your credit rating and you in the future.
• You could lose your income or property
Credit
• Using a credit card does not increase your
purchasing power
• It does not mean you have more money.
• Misusing Credit is Dangerous!
Credit misused is Dangerous!
What are your Opportunity Cost?
Think!
Types of Credit
• Closed End Credit
• Open – End Credit
Closed – End Credit
• This is credit the is a one time loan that will be
paid off over a specified period of time in
payments of equal amounts. It involves a
definite amount of Money
– Mortgage
– Car Payment
– Installment Loan
Open End Credit
• Limits the amount of total $ borrowed
– Line of Credit
– Credit Cards
You can use it for just about anything you wish as
long as you do not go over your line of credit
Sources of Consumer Credit
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Commercial Banks
Consumer Finance Companies
Credit Unions
Life Insurance Companies
Savings and Loan Associations
Credit Cards
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Very popular
The average credit card holder has 10 Cards.
Convenience user – pays off card each month.
Borrower – does not carry a balance each
month and carries a balance.
• Grace period – a certain time period offered
by the card company where there are no
finances added to your account balance.
Finance Charge
• The total dollar amount pay to use credit.
• The cost of using the card companies money
– Debit Card
• This is a card that allows you to electronically subtract
money from your own savings or checking account to
conduct a transaction.
• You use your money!
– Smart Card
Carries a computer chip with much more info.
– Travel & Entertainment Card
must be paid in
full the next month. – American Express
Debit VS. Credit
Debit
• Your Money
• No finance charges
• Directly taken from your
account
Credit Card
• Not your money
• Finance Charges
• Allows you more financial
flexibility
• Interest is expensive
What % of net income should I allow
for debt payments?
•20 % Max
Annual Percentage Rate
• What it will cost you to use their money
• The finance charge is calculated using the APR
• How much above and beyond the actual cost
of the product
• http://www.youtube.com/watch?v=g6_YvIhPK
Mk
The cost of paying a minimum balance
• $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
Example one
• You buy $500.00 in new books on your master
card.
• 19.8% Apr
• Min. Monthly payment $21.67
• 30 months
• 21.67 X 30 = 650.10
• 650.10 – 500 = 150.10
Example 2
Month one
• $10,000 Balance
• Min pay $142.
• 17%
• 10000 – 147 = 9858
• Add finance charge
• New balance $ 9999.
Month 2
• $ 9999. Balance
• Min pay $142.
• 17%
• 9999 – 147 = 9857
• Add finance charge
(interest)
• New balance $ 9998.
As time goes by
1 year
• You paid $1846
• Your Credit Card debt went
down from
• 10,000 to 9995
• Five Dollars
At this rate
• 36 years to pay off
• Total $ payments
• $61,060.00
• All for the use of $10,000
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http://www.youtube.com/watch?v=Vz05A6cP6Iw&feature=related
• Simple Interest
• Principal X Interest Rate X The Amount of
Time = Simple Interest.
Why would a lender encourage you to
make a minimum payment each
month?
Applying for a loan
The Five C’s of Credit
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Character
Capacity
Capitol
Collateral
Credit History
Character
• Will you repay your loan
• The creditor wants to know if you are
trustworthy.
Capacity
• Your ability to pay off your new loan
• How much do you earn?
• What is your current debt?
Capitol
• What is your worth
• Assets?
• Liabilities?
Collateral
• How can you secure the loan?
– Savings, home, furniture, car?
Credit History
• Timely Payments
• Bankruptcy?
The Credit Bureau
• An agency that collect data on how promptly
people and businesses pay their bills
• The Big Three
• Experian
• Trans Union
• Equifax
The information they collect on you affects your credit
score.
Credit Score Range
• Between 700 and 850 – Very good or
excellent credit score.
• Between 680 and 699 – Good credit score.
• Between 620 and 679 – Average or OK score.
• Between 580 and 619 – Low credit score.
• Between 500 and 579 – Poor credit score.
• Between 300 and 499 – Bad credit score.
Bad Information?
• 7 to 10 years old - No
• Unless applying for a loan over $75,000 or
• Life Insurance over $150,000
What's on your file
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Employer, wages and position
Previous address
Previous employer
Spouse’s name, soc. Sec. employer, and
income
• Own or rent
• NSF Checks
Dispute a billing error
• Notify your creditor in writing.
• Give them as much data as you can to support your
dispute.
• Pay the portion that is not in question
Warning Signs
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Only paying the minimum
The minimum is tough to pay
Monthly balance of Credit Card goes up monthly
Missed payments, or late
Use of savings for the basics – food, clothes, rent
Past due Notices
Borrow $ to pay old debt
Exceed Credit limits
Denied Credit
Bankruptcy
Chapter 7
Chapter 13