Financial Institutions and Markets 10-1 Consumer Buying and Credit 10-2 Consumer Loans and Credit Scores 10-3 Consumer Debt and Bankruptcy

Consumer Buying and Credit 10-1 Consumer Buying and Credit LO1-1 Describe the steps of preparing a good buying plan. LO1-2 Discuss the advantages and disadvantages of using credit. LO1-3 Discuss the responsibilities of using credit and the obligations of borrowing money.

Consumer Buying and Credit 10-1 Consumer Buying and Credit Buying Plan impulse buying buying plan spending limit criteria Credit: Friend and Foe financing option comparison shopping Responsibilities of Credit late fee over-the-limit fee

A buying plan is an organized method for making good buying decisions. Impulse buying occurs when you buy something on the spot, without thinking about it. A buying plan is an organized method for making good buying decisions. It will help you stretch your resources. It will also prevent buyer’s remorse, which is regret over a buying decision. 10-1 Consumer Buying and Credit

A spending limit is a pre-set amount that you will pay for an item. Buying Plan A spending limit is a pre-set amount that you will pay for an item. Criteria are standards or rules by which something is judged. For an item you want to buy, the criteria might be features, functions, and quality of the item. You should make a list of the options and criteria that are important to you. 10-1 Consumer Buying and Credit

What is the advantage of using a buying plan? impulse buying buying plan spending limit criteria What is the advantage of using a buying plan? Using a buying plan helps consumers make informed decisions and avoid falling into debt. 10-1 Consumer Buying and Credit

A financing option is a way to pay for purchases. Credit: Friend and Foe A financing option is a way to pay for purchases. If you can use a credit card, open an account, or borrow from a credit union, you can finance your purchase without using cash. Comparison shopping is the process of looking for the best value for the money spent. 10-1 Consumer Buying and Credit

How can credit be dangerous to your financial future? Credit: Friend and Foe financing option comparison shopping How can credit be dangerous to your financial future? Possible answer: Credit can be dangerous to my financial future if I do not use it responsibly. If I use it to buy things I don’t really need or can’t afford it could be impossible for me to borrow funds in the future to make purchases I really need. 10-1 Consumer Buying and Credit

Responsibilities of Credit A late fee can be a set amount, such as $35, or a percentage of the late amount. An over-the-limit fee is a fee you incur when you spend over your authorized credit limit. 10-1 Consumer Buying and Credit

What are three obligations you have as a user of credit? Responsibilities of Credit late fee over-the-limit fee What are three obligations you have as a user of credit? Possible answer: Users of credit should make payments on time, stay within credit limits, and monitor accounts to find mistakes. 10-1 Consumer Buying and Credit

Consumer Loans and Credit Scores 10-2 Consumer Loans and Credit Scores LO2-1 List and describe the types of loans and sources of credit available to consumers. LO2-2 Explain the contents of a credit report and how to improve your credit score.

Consumer Loans and Credit Scores 10-2 Consumer Loans and Credit Scores Loans and Sources of Credit installment loan promissory note co-signer line of credit revolving credit Credit Records, Reports, and Scores credit bureaus credit report credit score

Loans and Sources of Credit An installment loan is a loan that requires the consumer to make regular monthly payments for a set period of time. A promissory note is a legal contract that requires the borrower to make principal payments plus interest. 10-2 Consumer Loans and Credit Scores

Loans and Sources of Credit A co-signer is a person who also signs the loan agreement and agrees to pay the loan if the borrower is unable to do so. A personal line of credit is a preapproved loan amount that a borrower can access as needed. 10-2 Consumer Loans and Credit Scores

Loans and Sources of Credit Revolving credit is an account you can keep using until you reach your maximum limit while you make regular payments to pay down the balance. Your account may have an ongoing balance. A minimum monthly payment is required to remain in good standing. If you make only the minimum payment, you will pay considerable interest on the outstanding balance. 10-2 Consumer Loans and Credit Scores

How is installment credit different from revolving credit? Loans and Sources of Credit installment loan promissory note co-signer line of credit revolving credit How is installment credit different from revolving credit? Installment credit requires the regular payment of a preset amount of money that will pay down the debt until it is satisfied. Revolving credit also requires regular payments but not a preset amount and the debt can be carried at various levels indefinitely. 10-2 Consumer Loans and Credit Scores

Credit Records, Reports, and Scores Credit bureaus are businesses that gather, score, and sell credit information about consumers to their business members. There are three national credit bureaus that maintain files and supply credit information, ratings, and scores. Credit bureaus enter data into your credit record based on your social security number. Local and regional credit bureaus access these computer networks and make the information widely accessible. 10-2 Consumer Loans and Credit Scores

Credit Records, Reports, and Scores A credit report is a statement of your credit history issued by a credit bureau. It is a complete record of your borrowing and repayment performance. It states how many accounts you have open, current balances or those accounts, and current payments being made. It states how much unused credit you have. Unused credit is the difference between your credit limit and your credit balance on each account. 10-2 Consumer Loans and Credit Scores

Credit Records, Reports, and Scores Your credit score is a numeric rating that is compiled on a point system by the credit bureaus. Most credit scores are based on a system of ratings called FICO for Fair Isaac Corporation, the company that originally designed the rating system. FICO scores, which range from 350 to 850, are calculated on five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit from recently opened accounts (10%), and types of credit used (10%). 10-2 Consumer Loans and Credit Scores

Why is it important to be a low-risk borrower? Credit Records, Reports, and Scores credit bureaus credit report credit score Why is it important to be a low-risk borrower? Possible answer: By being a low risk borrower, I will be able to borrow at lower interest rates and easily when I need to. 10-2 Consumer Loans and Credit Scores

Consumer Debt and Bankruptcy 10-3 Consumer Debt and Bankruptcy LO3-1 List and explain ways to reduce debt and avoid the high costs of credit. LO3-2 Evaluate the costs and benefits of declaring personal bankruptcy.

Consumer Debt and Bankruptcy 10-3 Consumer Debt and Bankruptcy Managing Credit and Debt billing cycle grace period debt load equity stripping Bankruptcy as the Choice of Last Resort discharge automatic stay bankruptcy exemption

Managing Credit and Debt The billing cycle is the time period when the account is closed to prepare your monthly statement. The grace period is the amount of time you have to pay your credit card bill without being charged interest on new purchases. 10-3 Consumer Debt and Bankruptcy

Managing Credit and Debt A debt load is a person’s outstanding debt obligations at any point in time. Equity stripping is the unethical practice of extending a loan to a distressed homeowner who cannot afford the loan payments. As a result the lender soon repossesses the home. Homeowners should build equity, not cash it out as soon as it grows. 10-3 Consumer Debt and Bankruptcy

Why is it important to assess your debt load? Managing Credit and Debt billing cycle grace period debt load equity stripping Why is it important to assess your debt load? Possible answer: People should assess their debt loads to avoid going further into debt than they are able to sustain and repay. 10-3 Consumer Debt and Bankruptcy

Bankruptcy as the Choice of Last Resort A discharge is a court order that pardons the debtor from having to pay previous debt obligations. An automatic stay means no further action may be taken by creditors, including collection of debts. A bankruptcy exemption is property that the debtor does not have to forfeit to pay creditors. 10-3 Consumer Debt and Bankruptcy

When is bankruptcy a debtor’s best choice of action? Bankruptcy as the Choice of Last Resort discharge automatic stay bankruptcy exemption When is bankruptcy a debtor’s best choice of action? Possible answer: when debts have become overwhelming and there is no possibility of repayment bankruptcy is the best alternative. 10-3 Consumer Debt and Bankruptcy