Personal Finance Management: Managing Credit Unit 2

Objectives What are at least 3 different types of credit? Why do people use credit in order to purchase items? What are the cost/benefits to credit cards? Describe and create an example for each factor that affects your FICO score.

Objectives How are consumers protected when it concerns their credit? Describe one federal law that helps consumers. What are some ways consumers can get on the road to correct their credit problems? What does bankruptcy really mean? What are the repercussions of filing for bankruptcy? What are some scams that can affect your credit? How can a consumer protect themselves?

Most Americans…… Live beyond their means and assume one day they can pay it off. Do not plan ahead for unfortunate circumstances. Believe social security benefits will be around when they retire. Assume they will at least live to see their children are out of the house. Unfortunately, you will never be able to be prepared 100% of the time. You can at least make wise financial choices ahead of time that can prevent the worst case scenario from happening.

Managing Credit

Impact of Credit There are different types of credit in the United States. Home loans, Car loans, student loans, and personal loans Credit cards are also a type of credit. Almost 77% of Americans have at least one credit card. The average amount owed on credit cards per household is over $15,000. Not many people can pay for a house or car out right. They will apply for a loan with a bank or finance company to make monthly payments for an allotted amount of time.

Compare and Contrast Credit- Home Loans Car Loans Must be at least 18 to sign the loan documents by yourself. Depending on the loan amount, most banks or finance companies will finance up to 30 years. Most home loans require at least a 10 to 20% down of what will be financed. You must have insurance on your house as long as it is financed. Interest will be added on top of the principle amount. The house is held as collateral. A credit check will be run on the applicants. Must be at least 18 to sign the financing agreement by yourself. Most car finance companies will finance up to 5 years on a new vehicle. You can put money down but most do not require it if your credit score is good. You must have full coverage insurance as long as it is financed. Interest will be added on top of the principle amount. (unless there is a dealership deal for 0% interest) The car is held as collateral. A credit check will be run on the applicants.

Compare and Contrast Credit- Student Loans Personal Loans Are strictly meant to pay for the cost of post secondary education. A good credit score is not required due to the fact most applicants are only 18 years old. Most loans must be paid back after graduation or dropping out. Most student loans will not go above 10% interest if guaranteed by the government. You must maintain so many hours in school and at least a 2.00 GPA. Nothing is held as collateral. Secured loans will take something as collateral for you to borrow against. Unsecured loans will not take anything for collateral. Most of the time banks will not go above $1000.00 to borrow. Cash Advance Loans (illegal in Arkansas) will let you borrow a small amount of cash with your next week’s pay check as collateral. The interest rates can go above 25%. All 3 of these types of personal loans are usually short term and installment payments are made. A credit check will be run on the applicants.

Compare and Contrast Credit- (Credit Cards) Credit Cards use nothing as collateral. It is a promise between you and the card company that the balance, interest, and fees will be paid off. The balance does not have to be paid off by a certain time. The credit card companies want you to owe as long as you can so that they can make money off the interest rates. Depending on your credit score, interest rates vary. The lower the credit score, the higher the interest rates. You must be at least 18 years old to apply for a credit card.

Cost/Benefit Analysis of Credit Cards- Costs Benefits Annual Fees Interest Rates Late Fees Fees for going over the balance allowed Balance Transfer Fees Quick Cash for Emergencies Reward Points or Cash Back Dollars for good paying customers Many hotels, cable/satellite, internet companies require credit cards for payment.

How long will it take to pay off a credit card balance? http://www.bankrate.com /calculators/credit- cards/credit-card-payoff- calculator.aspx We will take a look at several examples to compare which one is better. Round trip tickets to NYC- $249.00 Brand New iPhone - No upgrade $700.00 Brand New Entertainment System- $3000.00 Medical Bill- $6000.00

What Affects Your Credit Score?- FICO Score Every time you borrow money from a bank or finance company, you are developing a credit score based on this information: Payment History (35%) Amount Borrowed compared to Available Credit (30%) Length of Credit History (15%) Inquiries and New Debt (10%) Type of Debt (10%) *Installment Debt is better than credit card debt

Before you get married, check their credit score Before you get married, check their credit score!!!!!!!!!!!!! You might be saying “I do” to a lot more than you know.

Credit Protection Laws- https://www.thebalance.com/consumer-credit-laws-you-should- be-familiar-with-4068374 There are many laws in the United States that protect consumers from being taken advantage of by credit card companies. Credit card companies must tell you their terms ahead of time before giving you the card. If your card is stolen, the consumer is only responsible for a certain amount that might be charged if certain reporting terms are met and a police report is filed. Credit bureaus must tell you what is on your credit reporting. They are required to give you one free credit report per year.

Debt Management- So You Are Up a Creek… Debt Management There are ways to get your credit back in order but it may take years before there will be improvements. Credit Counseling- negotiate with creditors to lower or settle payments or lower interest rates. Debt Consolidation- some companies will pay off your outstanding balance and then set you up on a monthly plan to pay off. Bankruptcy- legally declaring that you are unable to pay off your debts.

Bankruptcy- In order to file bankruptcy, you must go before a judge and the creditors that you are claiming you cannot pay off and present your case. This will be in the newspapers because it is public information. You will still have to pay off debts but it will be structured by the court. It is a possibility that your land, house, or other valuables could be sold off by the permission of the court by creditors. If the Internal Revenue Service gets involved, they will have you sell off personal items. (Willie Nelson) It will appear on your credit report.

Identity Protection- There are people that can steal your identity. It is important that you keep all personal accounts, social security numbers, and receipts kept secret in a safe place. Phishing scams can happen with emails where they claim to be a business that you have used. They may get you to verify your identity and account information. Phone and mail scams can claim that if you send them a credit card number that they will send you something in return. You can purchase identity protection from reputable companies, credit card companies, or with your insurance company. In case identity theft happens, they will correct it for you. No matter what, request your free credit report once a year to make sure that there are no discrepancies.