Credit in America Chapter #16 & 17

Learning Targets Day #3 1.Students will understand the history of credit. 2.Students will understand key vocabulary in the discussion of credit.

Development of Credit Credit -Money borrowed to buy something now, with the agreement to pay for it later What percentage (%) of all purchases in the United States involve credit? 80 %

Development of Credit IN THE PAST US changed from bartering and trading to a currency exchange society Earliest form of credit – account at the general store Individual purchasing power increased – economy grew, standard of living rose, businesses and customers benefited from credit

Development of Credit IN THE PAST 1920 – 1990, buying on credit 1990’s record numbers of people declared bankruptcy mainly caused by credit debt

Development of Credit CREDIT TODAY Way of Life Convenience in Purchasing Credit Trouble is Very Common

Vocabulary of Credit Borrower or debtor - Person who borrows money Creditor -Person or company who loans the money What are some things the creditor looks for when deciding if they should loan you money?

Vocabulary of Credit Capital -Property you possess that is worth more than your debts. Collateral -Property pledged to assure repayment of a loan. Repossessed -Ownership of the asset reverts back to the lender. Principal -Amount borrowed

Vocabulary of Credit Balance due -Principal plus interest for the time you had the loan. Finance Charge -The total dollar amount of all interest and fees you pay for the use of credit. Minimum Payment -Least amount you may pay under your credit agreement. Due Date -Date the monthly payment must be paid.

Vocabulary of Credit Late Fee -Assessed when you do not pay your bills on time. Installment Agreement - You agree to make regular payments for a set period of time, at the end of that time you have repaid your debt. Secured Loan -Goods purchased with the loan serve as collateral for the money loaned. End Day #3

Learning Targets Day #4 1.Students will understand the advantages and disadvantages of credit. 2.Students will understand the differences between different kinds of credit. 3.Students will understand the terms of a credit card agreement.

Advantages of Credit 1.Increase your standard of living 2.Buy expensive things earlier in life 3.Provide emergency funds –Line of Credit – a pre-established amount that can be borrowed with no collateral 4.Convenient 5.Deferred Billing – purchases are not billed to the customer until a later date. 6.Safer than carrying large amounts of cash

Disadvantages of Credit 1.May cost more than cash purchases – finance charge accruing on the purchase price over time. 2.Tie up future income 3.Can lead to overspending 4.Result in debts you can never pay off, which may lead to bankruptcy

Kinds of Credit Open-ended credit - An agreement to lend the borrower an amount up to a stated limit, and to allow borrowing up to that limit again and again * Credit Cards are a form of open-ended credit

Kinds of Credit Revolving Credit Agreement - Consumer has the option each month of paying in full or making payments at least as high as the stated minimum. *most all purpose credit cards operate this way: Mastercard, Visa, Discover

Kinds of Credit Close-ended credit - A loan for a specific amount that must be repaid, in full, including all finance charges by a stated due date. * Examples: car loan, home loan

Kinds of Credit Service credit - An agreement to have a service performed now and pay for it later. * Examples: electric bill, telephone bill, doctor bill, dentist bill

Credit Card Terms 1. Annual Percentage Rate - The cost of credit expressed as a yearly percentage. * examples: 8%, 10%, 15% 2. Free Period also called a Grace Period - Allows you to avoid an interest charge by paying on your current balance in full before the due date shown on your billing statement.

Credit Card Terms 3. Annual Fees - Can charge between $15 and $35 or more * You must pay it whether or not you use the card 4. Transaction Fees and Late Fees - * Typically $29 or so for over the limit or late

Learning Target Day #5 1.Students will understand the sources of credit.

Sources of Credit 1. Retail Stores * Examples: JCPenny, Sears, GAP, etc. 2. Credit Card Companies * Examples: Discover, American Express 3. Banks and Credit Unions * Examples: Citibank Visa, Chase Mastercard,

Sources of Credit 4. Finance Companies * Examples: GMAC 5. Pawnbrokers * Examples: Mister Money, Used-a-bit Sales and Pawn, Pawn America Usury Laws - State laws that set a maximum interest rate that can be charged on loans.

Learning Target Day #6 1.Students will discuss the importance and purpose of credit records. 2.Students will understand the basic qualifications for receiving credit.

Credit Records Creditor - A person or company that gives you credit. Credit history - The complete record of your borrowing and repayment performance

Credit Records Credit bureau - A company that gathers, stores, and sells credit information to business subscribers. Major U.S. Credit Bureaus 1.TransUnion Experian Equifax Major U.S. Credit Bureaus 1.TransUnion Experian Equifax ---

Credit Records Credit report - A written statement of a consumer’s credit history.

Credit Records

Are You Credit Worthy? Creditworthy - A person who is considered a good risk and will be given credit. 5 Basic Qualifications --- The 5 C’s 1. Character: Will you repay the debt? - Responsible attitude toward living up to agreements, paying bills in the past, and paying bills on time

Are You Credit Worthy? 2. Capacity: Can you repay the debt? - Financial ability to repay the loan with current income. 3. Capital: Is the creditor fully protected if you fail to repay? Capital – the property you possess that is worth more than your debts.

Are You Credit Worthy? 4. Conditions: What general economic conditions can affect your repayment of debt? - What are the chances you could lose your job? 5. Collateral: What assets back up your promise to pay? Collateral – property pledged to assure repayment of a loan

Learning Targets Day #7 1.Students will understand how to build a strong credit score. 2.Students will understand the protections provided by the major credit laws.

How do you Build a Credit Score? - it is a slow process, and takes years to establish 1. Start with a Savings Account - Make small monthly deposits and slowly build an asset base. 2. Open a Checking Account - Once you have a little “cushion” of savings - No “overdrafts” --- be responsible

How do you Build a Credit Score? 3. Open “1” credit card (ONLY 1!!!!) - Buy one tank of gas per month and pay it off each month - otherwise, only use it in case of an emergency

How do you Build a Credit Score? 4. Get a Small Loan - Buy something you really need – car for college? - Make sure you will be able to afford the purchase Cosignor - Someone who agrees to pay if the borrower fails to pay

Credit Laws – Your Rights Truth-in-Lending Law - All creditors must inform borrowers about the costs of a credit purchase before the agreement is signed. Finance charge - The total dollar amount of all costs of credit, including interest, service fees, and any other costs ***Lenders must disclose

Credit Laws – Your Rights Annual Percentage Rate (APR) - - The yearly percentage cost % ***Lenders must disclose - The law makes all lenders compute this % the same way….this allows consumers to comparison shop amongst lenders - Borrowers get 3 days to change their mind about a credit agreement.

Credit Laws – Your Rights - $50 limit on credit card purchases if your card is lost or stolen - NO FEE, if fraudulent purchases are made on your card after you reported it lost or stolen - If credit is denied to you……you have the right to see your credit file for free within 30 days of the denial - You have the right to see who has looked at your credit report in the last 6 months….for credit or employment purposes

Learning Targets Day #8 1.Students will understand the protections provided by the major credit laws. 2.Students will compute interest payments and credit card transactions.

Credit Laws – Your Rights Credit Card Statement - - And itemized bill showing charges, credits, and payments posted to your account during a billing period. Thielges Example

Credit Laws – Your Rights FAIR CREDIT BILLING ACT -States creditors must fix errors on your account in a specified time period -You have 60 days to notify them of the error -They must acknowledge your complaint in the next 30 days -They have 90 days to fix the error or prove why it is right

Credit Laws – Your Rights EQUAL CREDIT OPPORTUNTIY ACT -Designed to prevent discrimination in the judgment of creditworthiness What are some legitimate reasons for denying credit? What are some reasons that would be considered discriminatory?

Credit Laws – Your Rights -If denied credit, the creditor is required to give you a written reason why you were denied credit - A creditor must notify you within 30 days of any action taken on your credit application. What are some reasons that would be considered discriminatory?

Credit Laws – Your Rights FAIR DEBT COLLECTION PRACTICES ACT -Designed to prevent abusive collection practices by debt collectors Debt collector - Person or company that is hired by a creditor to collect an overdue balance on an account. - The law prohibits threats, obscenities, and false and misleading statements to intimidate the consumer into paying.