Credit / Borrowing Money Video “proceed with caution”

Free template from www.brainybetty.com Credit is… Using money now and promising to pay for it later Individual lenders set the interest rate for different types of loans or credit cards The horror of bad credit 4/26/2018 Free template from www.brainybetty.com

Free template from www.brainybetty.com Credit is made up of… The PRINCIPLE – the amount borrowed And the INTEREST – the extra amount paid to the lender as a fee for borrowing it Interest Rates 4/26/2018 Free template from www.brainybetty.com

Free template from www.brainybetty.com Forms of credit… Loans from banks, savings & loans, credit unions or finance companies Cards like visa, mastercard “rent to own” places Viewing credit as spendable income 4/26/2018 Free template from www.brainybetty.com

Free template from www.brainybetty.com Good uses of credit… Buying DURABLE goods (things that last at least 3 years) such as houses, cars, starting a business, large appliances, etc. Things you are paying off in full within 30 days Things that will last longer than the payments Pitfalls and blunders 4/26/2018 Free template from www.brainybetty.com

Free template from www.brainybetty.com Poor uses of credit Short life items – pizza, entertainment, frivolous items Using 1 credit card to pay another Impulse purchases Puchases that will not last as long as the payments How many credit cards 4/26/2018 Free template from www.brainybetty.com

Loans from commercial banks… Usually called INSTALLMENT LOANS – you pay the same amount every month House loans are called MORTGAGES Rates vary from 5% (houses) to 25% (credit cards and personal loans) Fees can hurt 4/26/2018 Free template from www.brainybetty.com

Free template from www.brainybetty.com Other loans Finance companies – can have high interest rates (15% - 45%) aiming at people with poor credit or who might not qualify at a bank Payday loans – VERY high interest rates (20% - and up!) for people in immediate need, may have poor credit 4/26/2018 Free template from www.brainybetty.com

Credit card vs charge card Credit (like visa, mastercard, discover) are used in many places and are issued by banks Charge cards are one store use (GAP, Belks, JCPenney) and are issued by that store 4/26/2018 Free template from www.brainybetty.com

Credit card vs Debit card ADVANTAGES DISADVANTAGES CREDIT CARDS CAN BUY NOW CAN HELP BUILD A GOOD CREDIT SCORE MUST PAY INTEREST FRAUD & ID THEFT RISK DEBIT CARDS NO BORROWED MONEY EASY & CONVENIENT MUST KEEP TRACK OF SPENDING LIMITED BY AMOUNT IN ACCOUNT 4/26/2018 Free template from www.brainybetty.com

Free template from www.brainybetty.com Payment methods: Total amount billed must be paid each month or the card cannot be used – American Express Revolving – must pay a minimum of the balance, may continue to use card up to credit limit Pay more than the minimum 4/26/2018 Free template from www.brainybetty.com

Free template from www.brainybetty.com Things to look out for… Spending up to your credit limit can increase the interest rate even if payments are made on time Certain cards indicate credit problems Secured cards must be paid for before they can be used Using one card to pay another damages your credit rating Bad credit can hurt 4/26/2018 Free template from www.brainybetty.com

Free template from www.brainybetty.com Credit score/rating??? Given a # between 300 and 850 based on credit used and payment history What is mine? www.annualcreditreport.com Entitled to one free credit report each year Agencies: TRW, Equifax 4/26/2018 Free template from www.brainybetty.com

Why should you know your score? Can spot problems such as incorrect info or identity theft Know whether you qualify for loans or not Know if you need to improve your scores Take notices seriously 4/26/2018 Free template from www.brainybetty.com

Free template from www.brainybetty.com What is a credit check? When an agency looks at: Your payment history (including checking account management) Your ability to pay the loan Your character (have you moved a lot, left bills unpaid, changed jobs a lot) What you have as collateral* for the loan *collateral – property used to secure the loan if you don’t pay it back 4/26/2018 Free template from www.brainybetty.com

Free template from www.brainybetty.com Credit check results… A good score = an unsecured loan – no collateral necessary, you’re a good risk! (harder than secured to get) A lower score = a secured loan – you must provide collateral for the loan in case you don’t repay it 4/26/2018 Free template from www.brainybetty.com

Free template from www.brainybetty.com Laws… Truth in lending laws – you must be provided with a credit report if you are turned down for credit Equal Credit Opportunity Act – loans cannot be based on race, religion, etc. Usury Law – states can set a maximum interest rate on loans Bankruptcy – must give up what is owned, payments over many years to pay debt, stays on credit rating for 10 years. Use only as a last resort! 4/26/2018 Free template from www.brainybetty.com

Free template from www.brainybetty.com Beware! Ads for companies who can ‘repair’ your credit Lenders that don’t want to tell you the interest rate “payable on demand” loans Too many consolidation loans Bounced checks Sometimes – owner financing 4/26/2018 Free template from www.brainybetty.com