About Credit Teachers’ notes: http://www.practicalmoneyskills.com/english/at_school/teachers/lesson.php?id=518&ids=517:518:519:520:521

Introduction What Do You Think? When may someone want to have a loan? Pg 42 Workbook 33%; $230 26% 30% 36% When may someone want to have a loan?

What is Credit? Credit is… Parties involved… ________________________________________________ Parties involved… Lender: __________________________________________________________________________________________________________________________________ Borrower: __________________________________________________________________________________________________________________________________ How do lenders make money? Charge interest—represented as Annual Percentage Rate (APR) Depending on type of credit offered, interest varies Home mortgage vs credit cards collateral vs no collateral

Types Credit ___________________________ Items and services are paid for in a single payment, within a given time period, after the purchase. Interest is usually not charged. Utility companies, medical services Some retail businesses (Countryside Cooperative) Borrower must repay the amount in a specified number of equal payments Commercial banks, consumer finance companies, savings and loans, credit unions Examples: car loans, mortgages, school/education loans Credit extended in advance so the borrower does not have to apply for credit each time credit is desired Cannot exceed _____________—maximum dollar amount loaned Line of credit and interest rate determined by credit worthiness __________________: borrower’s ability and willingness to pay the money back Examples: credit cards or department store cards

Credit Worthiness – 5 C’s of Credit What makes an individual credit worthy? __________________ Person’s honesty and reliability determined by their history of repaying bills on time Evaluation of a person’s net worth Income a person has available to repay a loan Determined by job longevity and having few other loans Property which can be seized if a person doesn’t repay the loan General state of the economy

What are the Advantages/Disadvantages of Credit What are the Advantages/Disadvantages of Credit? (discuss w/ 2-3 people) Advantages: ____________________ Don’t have to carry cash Creates a record of purchases ________________________________________________________ Make sure paid off w/in time period ______________________ Ensure being able to pay off when it comes due ____________________________ Disadvantages: ___________________________ Higher cost of items Late payment, annual fees, transaction fees Increased chance of identity theft Overspend More than 20% of take home pay is serious debt (not including mortgage)

Is there such a thing as good debt? ____________________________ Bad Debt ____________________________

Building a Credit History Establish a ___________________ record. Pay all bills __________________. Open a __________________ and don’t ____________ checks. Open a __________________ and make ____________ deposits. Apply for a local store credit card and make __________ monthly payments. Apply for a small loan using your savings account as __________________. Get a __________________ on a loan and pay back the loan as agreed.

Review What is credit? What are the three types of credit? What determines credit worthiness? What is good/bad debt?

Assignment Advantages and Disadvantages of Credit Scenario www.fefe.arizona.edu