Credit and Financial Services Chapter 25- Each payment method has certain pros and cons that are important to know

The Basics About Bank Accounts Checking and saving accounts are the primary types of bank accounts. To withdraw money from a checking account, a person may write a check, withdraw cash from an (ATM), or use a debit card Consumers may also place money that they do not want to use on a daily basis into a savings account where it can collect interest. – Banking Fees?

Lost & Stolen checkbooks and cards If you lose a checkbook, call the creditor and place a stop payment on the checks. Lost or stolen credit card. Your liability is limited to $50 Lost or stolen ATM/Debit card. – Liability is limited to $50 if you report it within 2 business days. – Liability is limited to $500 if you report it within 60 days. – Your liability is unlimited if you report it after 60 days.

An Introduction to Credit Using credit means buying goods or services now and paying for them later. When you use credit, you are borrowing money in exchange for a promise to pay in the future. – People who lend the money are called creditors, – and those who borrow it are called debtors. Debtors usually pay additional money, in the form of interest, for the privilege of borrowing the money. – The finance charge includes the interest and other fees

Types of Credit Unsecured credit- credit is exchanged with only the promise to repay in the future. – Credit cards and store credit are typical examples Secured credit- credit in which the consumer must put up some property of value called collateral (protection in case the debt isn’t paid). – Automobiles and homes are examples

When to use credit As a general rule, consumers shouldn’t spend more than 20% of their take home pay to pay on credit (not including home loans/mortgages)

Paying for College Student loans allow college and graduate students to borrow money at reasonable rates in order to afford the cost of tuition and related expenses. – These loans are often a person's first exposure to managing credit and debt. In 2010, the average debt for students who took out student loans and graduated from a 4 year college was $25,250.

The Cost of Credit The cost of credit includes interest and finance charges, as well as other charges that may be added. Consumers should be careful to avoid costly credit arrangements that unfairly benefit the creditor at the debtor's expense. Variable interest rates- the rate you pay changes over time based on the economy (usually is tied to the Prime Rate)

Costly Credit Arrangements Loan Sharking Balloon Payments Acceleration Clause Bill Consolidation

Truth in Lending Act Requires Creditors to give you certain basic information about the cost of credit in writing before you sign the contract: – The finance charge – The annual percentage rate (APR) – Special information about variable rate loans if you are being offered this type of loan – Rules and charges for late payments – Must be given a copy of the contract

What Lenders Want to Know Before Extending Credit Lenders require certain information from consumers before they will extend credit to them. They should do this to ensure that their debtors will be able to repay their loans in the future.

What to Do If You Are Denied Credit Your credit file is used by lenders to decide if you are a good candidate for a loan. If you are denied credit, you have a right to access your credit report to understand the reason for the denial. There may be steps you can take to establish credit or improve your credit rating. Equal Credit Opportunity Act- Consumers must be told why they are denied Fair Credit Reporting Act- Creditors who deny credit to a consumer based on a credit report must tell the consumer the name & address of the credit bureau.

Default and Collection Practices A consumer defaults on loans when he or she fails to make a scheduled repayment to the creditor. – the most drastic option is declaring bankruptcy. Chapter 13- arrangement is made through the federal court to pay off some or all of the debt over an extended period of time Chapter 7- Federal Court takes possession of the property, sells it, and then pays off as much of the credit as is possible. Public Record of bankruptcy remains in credit reports for 10 years

Creditor Collection Practices Creditors have the right to collect by using tactics such as phone calls and letters, repossessing certain property, and court action. Lenders may not resort to intimidation or harassment to collect payments. Court Action – Default judgment- if the debtor fails to appear in court, a judgment will be entered in favor of the creditor by default for not showing up – Garnishment of wages – Attachment to bank account