+ Credit in America Chapter 16 Credit Management Unit 4

+ FUN FACTS $159 Billion in % - Credit Cards 20% - Ask Parents Owes about $230 1 in 4 youths (16-18) - $1,000 Average Family: $9,000

+ Advantages of Credit Able to buy needed items now Don’t have to carry cash Creates a record of purchases More convenient than writing checks Consolidates bills into one payment

+ Disadvantages of Credit Interest (higher cost of items) May require additional fees Financial difficulties may arise if one loses track of how much has been spent each month Increased impulse buying may occur

Credit, its availability, and its costs Borrow money or use credit Borrower The person or company who loans money Creditor

+ Kinds of Credit Open-Ended Credit Can be used over and over again pending customer agreement Open 30-Day accounts Travel-entertainment cards (American Express and Diner’s Club) Widely Accepted nationwide and overseas Have high or no credit limits Provides instant purchasing power

+ Kinds of Credit Revolving Credit Accounts All purpose credit card: Visa, MasterCard, and Discover Widely accepted nationwide and overseas Provide instant purchasing power Retail store cards: department stores and gas companies Only accepted at participating stores Provide instant purchasing power

+ Applying for a Credit Card Costs: Annual Percentage Rate (APR) Grace period (free period) Annual Fees Transaction Fees Balancing computation method for the finance charge Features: Credit limit How widely the card is accepted What services and features are available

+ Kinds of Credit Open-Ended Closed-Ended Credit A loan for a specific amount of time that must be repaid, in full, including all finance charges, by a stated due date. Very expensive items: cars, furniture, and major appliances. Statement includes: Amount loaned, finance charges, payment amount. Collateral Service Credit Have a service performed now and pay for it later Examples: Phone, utilities, doctors, and lawyers Terms are set by individual businesses Usually paid in full with no finance charges or a budget plan

+ Sources of Credit Retail Store Credit Card Companies Banks and Credit Unions Finance Companies Pawnbrokers Private Lenders Other Sources of Consumer Credit

+ Credit Cards Do’s and Don’ts Shop around Look at various sources. Read and understand the contract Read the contract carefully Don’t rush into signing anything Once a contract is signed, get a copy of it. Know the penalties for missed payments Know your cost Figure out the total price when paying with credit. Make the largest payments possible Know the penalties for missed payments Buy on installment credit only after you have evaluated all other possibilities. Don’t be misled into thinking small payments will be easy.

+ Qualifying for Credit 5 C’s of Credit Character – Will you repay the debt? Capacity – Can you repay the debt? Capital – Is the creditor fully protected if you fail to repay? Conditions – What general economic conditions can affect your repayment or debt? Collateral – What assets back up your promise to pay?

Major U.S. Credit Bureaus

Credit Rating and Report Credit Score Rating 720 – 850 Excellent 680 – 720 Good 640 – 680 Fair 350 – 640 Poor 000 – 349 No Credit

+ How a Credit Score is Calculated

This central site allows you to request a FREE credit report, once every 12 months from each of the nationwide consumer credit reporting companies. Equifax, Experian, and TransUnion.

+ How is My Credit Score Affected?

+ Credit Rating and Report Summary of Information Public Record Information Credit Information Account Detail Requests for Credit History Personal Information

+ Consumer Protection Truth in Lending Act (1968) Ensures consumers are fully informed about cost and conditions of borrowing. Fair Credit Reporting Act (1970) Protects the privacy and accuracy of information in a credit check. Equal Opportunity Act (1974) Prohibits discrimination in giving credit on the basis of sex, race, color, religion, national origin, marital status, age, or receipt of public assistance. Fair Credit Billing Act (1974) Sets up a procedure for the quick correction of mistakes that appear on consumer credit accounts. Fair Debt Collection Practices Act (1977) Prevents abuse by professional debt collectors, and applies to anyone employed to collect debts owed to others; does not apply to banks or other businesses collecting their own accounts.

+ CARD ACT On Feb. 22, 2010, the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) took effect. It is a comprehensive credit card reform legislation that aims to establish fair practices relating to the extension of credit under an open end consumer credit plan. New rules credit card companies must follow to ensure CONSUMER PROTECTION. Provisions include: Interest rates, due dates, misleading terms, set limits, minimum payment explanation

+ CREDIT DEBATE Why is credit necessary? AdvantagesDisadvantages Do we need credit?

CARD ONECARD TWO Card name Locations accepted Annual Fee APR Grace period Minimum payment Late payment fee Other features