Credit You're in Charge

What is Credit ??? Credit is an arrangement to Receive cash, goods, or services now and pay for them in the future!

Consumer Credit Used for personal needs. Increases the amount of money you have now Decreases the amount of money you have in the future Risk Return Dangerous Major force in the US. Economy!

Advantages Enjoy Now with little or no immediate financial burden You can combine several purchases to make one payment Travel with out cash What about the debit card?

Why use Credit For Convenience Emergencies Identification Travel Reservations To protect your personal finances! To enjoy the good life

Disadvantages There will always be the temptation to spend beyond your means! Falling behind in your payments will affect your credit rating and you in the future. You could lose your income or property

Credit Using a credit card does not increase your purchasing power It does not mean you have more money. Misusing Credit is Dangerous!

Credit misused is Dangerous! What are your Opportunity Cost? Think!

Types of Credit Closed End Credit Open – End Credit

Closed – End Credit This is credit the is a one time loan that will be paid off over a specified period of time in payments of equal amounts. It involves a definite amount of Money – Mortgage – Car Payment – Installment Loan

Open End Credit Limits the amount of total $ borrowed – Line of Credit – Credit Cards You can use it for just about anything you wish as long as you do not go over your line of credit

Sources of Consumer Credit Commercial Banks Consumer Finance Companies Credit Unions Life Insurance Companies Savings and Loan Associations

Credit Cards Very popular The average credit card holder has 10 Cards. Convenience user – pays off card each month. Borrower – does not carry a balance each month and carries a balance. Grace period – a certain time period offered by the card company where there are no finances added to your account balance.

Finance Charge The total dollar amount pay to use credit. The cost of using the card companies money

– Debit Card This is a card that allows you to electronically subtract money from your own savings or checking account to conduct a transaction. You use your money! – Smart Card Carries a computer chip with much more info. – Travel & Entertainment Card must be paid in full the next month. – American Express

Debit VS. Credit Debit Your Money No finance charges Directly taken from your account Credit Card Not your money Finance Charges Allows you more financial flexibility Interest is expensive

What % of net income should I allow for debt payments? 20 % Max

Annual Percentage Rate What it will cost you to use their money The finance charge is calculated using the APR How much above and beyond the actual cost of the product Mk Mk

The cost of paying a minimum balance $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

Example one You buy $ in new books on your master card. 19.8% Apr Min. Monthly payment $ months X 30 = – 500 =

Example 2 Month one $10,000 Balance Min pay $ % – 147 = 9858 Add finance charge New balance $ Month 2 $ Balance Min pay $ % 9999 – 147 = 9857 Add finance charge (interest) New balance $ 9998.

As time goes by You paid $1846 Your Credit Card debt went down from 10,000 to 9995 Five Dollars At this rate 36 years to pay off Total $ payments $61, All for the use of $10, year

Simple Interest Principal X Interest Rate X The Amount of Time = Simple Interest.

Why would a lender encourage you to make a minimum payment each month?

Applying for a loan The Five C’s of Credit Character Capacity Capitol Collateral Credit History

Character Will you repay your loan The creditor wants to know if you are trustworthy.

Capacity Your ability to pay off your new loan How much do you earn? What is your current debt?

Capitol What is your worth Assets? Liabilities?

Collateral How can you secure the loan? – Savings, home, furniture, car?

Credit History Timely Payments Bankruptcy?

The Credit Bureau An agency that collect data on how promptly people and businesses pay their bills The Big Three Experian Trans Union Equifax The information they collect on you affects your credit score.

Credit Score Range Between 700 and 850 – Very good or excellent credit score. Between 680 and 699 – Good credit score. Between 620 and 679 – Average or OK score. Between 580 and 619 – Low credit score. Between 500 and 579 – Poor credit score. Between 300 and 499 – Bad credit score.

Bad Information? 7 to 10 years old - No Unless applying for a loan over $75,000 or Life Insurance over $150,000

What's on your file Employer, wages and position Previous address Previous employer Spouse’s name, soc. Sec. employer, and income Own or rent NSF Checks

Dispute a billing error Notify your creditor in writing. Give them as much data as you can to support your dispute. Pay the portion that is not in question

Warning Signs Only paying the minimum The minimum is tough to pay Monthly balance of Credit Card goes up monthly Missed payments, or late Use of savings for the basics – food, clothes, rent Past due Notices Borrow $ to pay old debt Exceed Credit limits Denied Credit

Bankruptcy Chapter 7Chapter 13