Credit: Day 1 Banking & Credit.

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Presentation transcript:

Credit: Day 1 Banking & Credit

What is credit? A promise of payment at a future time for goods or services now a loan

The 5 C’s of Credit Character – Will you repay? Is the borrower responsible and will he repay the money as agreed? Capacity – Can You repay? Does the borrower have enough income to comfortable make the payments on the loan? Capital – What are your assets and net worth? If you lost your source of income, could you repay your loan from your savings or by selling some of your assets? Credit history – What is your credit history? Have you used Credit Responsibly in the past? Collateral Can the borrower guarantee the loan through items of value that can be used to repay the debt in case he defaults on the loan?

Credit Clues Credit History Credit Report The consumer’s loan and payment history activity over a period of time. Credit Report A record of a consumer’s personal credit history, used as an indicator of whether the consumer will repay borrowed money as agreed. Credit reports are issued by credit agencies which collect information on consumers from banks, stores, and other businesses.

Interest Rates The price paid for using someone else’s money, experssed as a percentage of the amount borrowed. Usually fixed Cannot be increased without the consumer’s knowledge

CARD Act Limits lenders from making sudden changes to interest rates and fees Increases restrictions on offering credit to those under 21 Requests more detailed billing statements to better inform consumers of their repaymetn responsibilites.

“Professor Finance and Fed Boy Meet the Catastrophe Clan” Professor Finance (Phil) Fed Boy (Mark) Catastrophe Clan Captain Carl Catastrophe Carrie Credit Catastrophe Paul Payday Lender Catastrophe Barb bankruptcy Catastrophe Fran/Frank

What does it mean to have credit? What is an interest rate? What is a credit history/credit report? What are the 5 “C’s” of credit, explain?