You and Your Credit UNIT VII – Personal Financial Literacy

Common Forms of Credit Type of Credit LenderAdvantagesDisadvantages Home Mortgage Car Loans Commercial Bank Savings & Loan Credit Union Consumer Finance Company Commercial Bank Savings & Loan Credit Union Consumer Finance Company Homes can increase in value Interest rates are relatively low Interest paid is tax- deductible Long-term commitment Involves extensive credit checks Cars make it easier to work and earn an income Cars lose value quickly

College Loans Personal Loans Credit Cards Commercial Bank Savings & Loan Credit Union Consumer Finance Company Commercial Bank Savings & Loan Credit Union Department Stores Allow individuals to purchase an item they want immediately Higher interest rates Some borrow more than their income should allow Convenient to use and help in emergencies Provide a record of charges Higher interest rates Some spend more than income allows Commercial Bank Savings & Loan Credit Union A college education is usually a good investment Students sometimes borrow more than is necessary Can be difficult to repay

Maintaining Good Credit Your ability to get a loan depends on your credit report. Credit Report – record of an individual’s personal credit history Used as an indicator to determine if an applicant is reliable to pay the loan back They tell in detail – how much a person has borrowed, from whom, and if bills have been paid on time

Credit Bureaus Compile credit reports Get information about consumers from ▫ Stores ▫ Credit Card Companies ▫ Banks ▫ Mortgage Companies ▫ Medical Providers ▫ Credit Application

3 Cs of Credit Lenders look for certain qualities in loan applicants Capacity Ability to repay Character Reliable person Collateral Back-up Steady job? Salary? Reliable income? Sources of income? Other loans? Current debt? Alimony or child support? Used credit before? Pay bills on time? Good credit report? Character references? Length at present address? Length at current job? Checking account? Savings account? Stocks or bonds? Anything of value? Own home? Own car? Own boat?

Why you should care… Good credit scores allow you to receive loans more easily and at better rates Poor credit scores can make it difficult to receive a loan, find a place to live, and even get a job By law you are entitled to one free credit score report each year to check its accuracy – mistakes can happen

Score Calculation Payment history (35%) Amounts owed (30%) Length of credit history (15%) Types of credit (10%) New credit and inquiries (10%)

How to Keep a Good Credit Score Pay bills on time Don’t borrow more than you can handle Borrow only what you need Know how much you owe at all times Contact lenders with payment problems Develop good spending habits Report lost/stolen cards immediately Never give credit card info over the phone/internet unless you initiate the call Open a checking and savings account Do not apply for too many credit cards

Credit Cards: Friend or Foe 73% of U.S. families have at least one credit card 46% of families have credit debt Average amount owed is $7300 Total credit debt of U.S. households is almost $866 BILLION!

Not All Credit Cards are Created Equally Credit limit, APR (annual percentage rate), annual fees, and grace periods vary from card to card The better your credit score the better your rates will be