Credit and Debts Credit: Helpful or Hurtful

Objective Given Instructions, the learner will demonstrate an understanding of credit with 85% accuracy.

Advantage and Disadvantage of Credit

Pre – “Qs?” What is the advantage of using credit? What is the disadvantage of using credit? What can you do to avoid fraud and identity theft?

Key Terms Grace period Universal Default Bankruptcy Credit Fraud Identity Theft

Advantages of Credit Improves Standard of Living Conveniences and Safety Help in Emergencies Help in Record Keeping Force Saving

Credit Card Statement

Disadvantages of Credit Interest Charges and Fees Increased Impulse Buying Financial Problems

Interest Charges and Fees The primary disadvantage of using credit is the cost. If you pay your credit card bills in full each month, you will get a break of twenty ot thirty days when the company does not charge interest on your purchases. –Grace Period Free period – the company gives the credit card holder 30 days before charging interest on your credit card purchase

Universal Default It is a provision that allows the credit card company to change the terms of you agreement and charge a higher default rat under certain circumstances such as: –Late payments –Going over the Limits –Carrying too much debt overall –Having too much available credit –Too many credit inquiries –Getting a new car loan

Financial Problems Bankruptcy –Is a legal process in which a debtor declares the inability to repay debts over a reasonable period of time.

Credit fraud and Identity Theft Credit Fraud –Is the theft and illegal use of someone else’s credit information Identity Theft –the act of gathering enough information about a person to assume his or identity, and then using that identity to commit fraud or other crimes.

Safeguarding Your Information Don’t give out your Social Security number to anyone unless it is absolutely necessary. Do not deal with a company or person you don’t know who calls on the phone or sends you an message. Remove mail from you mailbox quickly as possible. Carefully examine all bills that come in the mail.

Continue…… Use a shredder to cut up all of your personal documents, including old billing statements that you no longer wish to keep. Never let anyone look over your shoulder when you are using a credit, debit, or ATM card. Always keep you wallet in a buttoned or inside pocket, or in your purse. Keep all receipts and check them against your credit card statement

Monitoring Your Credit History The best way to monitor you credit is by obtaining a credit report. –Equifax –TransUnion –Experian

Sample Credit Report

Warning Signs! You are receiving credit cards that you have not applied for You have been denied credit or have been offered less favorable credit terms, such as a high rate of interest. You are getting calls or letters from debt collectors or businesses about goods or services that you did not buy.

Reporting Fraud and Identity Theft Notify the Authorities Notify Your Creditors Other Precautions –e.g. If you suspect that someone has changed you address with the U.S. Postal Service, notify the local postal inspector.

Post – “Qs?” Name several advantages and disadvantages of using credit. What is bankruptcy? What can you do to safeguard you credit? How can you obtain a credit report?

Types of Credit

Objective Given Instructions, the learner will demonstrate an understanding of credit with 85% accuracy.

Pre – “Qs?” What type of credit are available? How does a revolving credit account work? What are some good sources of loans?

Key Terms Installment credit Credit Card Annual Percentage Rate (APR) Revolving Account Secured Loans Line of Credit Loan Consolidations Loan Sharks

Short-Term Consumer Credit It refers to debts that are paid within a year, although the terms maybe longer. It can take the form of: –Service Credit –Installment Credit –Credit Cards

Service Credit The most widely used service credits is for utilities such as: –Electricity –Gas –Telephone, etc. The service is provide before you pay each month.

Installment Credit A loan repaid with interest in equal amounts over a set period of time. E.g. Buying a Television and paying it off each month.

Credit Cards Plastic cards issued by banks, retail stores, and other businesses that allow the user to buy products or services on credit, with an interest charge if the balance is not paid in full by the due date.

Credit Card Rates Annual Percentage Rate (APR) –The amount of interest expressed as a yearly rate. Revolving Account –A charge account that has a credit limit but does not have to be paid in full before the borrower can make further purchases.

Safeguarding Your Cards Sign your cards as soon as you get them. Carry only one or two cards Photocopy both sides of you cards, and keep the copies in a safe place. Keep your eye on your card during transactions and get it back as soon as possible. Do not let anyone borrow your card. Cut up expired or canceled cards.

Cards that are Not Credit Card Debit Cards Prepaid Cards Gift Cards

Types of Loans Secured Loans Personal Loans Auto Loans Student Loans Home Loans Home Equity Loans Consolidation Loans

Secured and Personal Loans Secured Loans Loans that are backed up by collateral. Collateral is a valuable asset that a borrower must give up if he or she does not repay a loan. Personal Loan Usually are unsecured loans and are used for personal use such as: –Vacation –A New Computer –Debt Consolidation

Auto, Student, and Home Loans Auto LoansAuto Loans –Auto Loans are available from banks, credit unions, finance companies, and sometimes from a dealership. Student LoansStudent Loans –A loan that helps pay for education beyond high school Home LoansHome Loans –Also called a mortgage (a secured loan with the home as collateral)

Home Equity Loans Homeowners can obtain cash by getting a home equity loan or a home equity line of credit. (A Second Mortgage) Line of Credit –Is a preapproved loan amount that you can use anytime you want, for any purpose.

Consolidation Loans Combining all existing loans into a single new loan, usually to reduce monthly payments or obtain a lower interest rate.

Sources of Banks Banks Credit Unions S&Ls Consumer Finance Companies

Loans of Avoid Credit Card Cash Advances Payday Loans Pawnshop Refund Anticipation Loans Loan Sharks

Post – “Qs?” Name one type of short-term consumer credit What does the acronym APR stands for? Name a way to safeguard your card. Name one type of loan. Name one type of bank.

Reference Personal Finances A Lifetime Responsibility