Why do we use credit? Convenience Safety Establish credit rating Emergencies Debt consolidation Meet today’s needs Permits buying when the price is right Use goods/services while paying for them

Disadvantages of Credit Ties up future income Tempts overspending Costs money Reduces ultimate buying power Creates a false sense of security Goods may be lost

Credit Capacity Amount you can afford to pay each month on credit purchases. Evaluate your assets (what you own) and debts (what you owe)

Limited purpose credit cards (higher interest): Retail stores, ex. JC Penney, Sears National credit cards Bank credit cards, ex. Visa/Mastercard Travel & entertainment charge cards, ex. American Express Types of credit cards

Considerations: Annual fees Interest rate Additional perks –insurance, discounts, cash back bucks Cash advance Hidden fees –transaction fees –cash advance fees –over credit limit fee –late fee

CAUTION: Words to watch for! “No payment for 6 months” “Low introductory offer - 4.9%” “No fees” “Balance transfers”

Tips to lower costs Switch to a lower rate card Switch to a card with no annual fee Take advantage of your grace period Ask for lower interest rate Pay more than the minimum balance If paying interest, mail check as soon as you receive your statement Use savings to pay credit card bills to eliminate paying interest

Credit Problem Signs Not knowing how much you owe Making minimum payments Making cash advances to pay bills Working 2nd job to keep up with spending Being consistently late with bill payments Being denied credit

Consumer Credit Legislation Truth in Lending –establishes a maximum limit of $50 on liability for the unauthorized use of each of such cards; that is, the owner of a lost or stolen card that has been used illegally by another person cannot be made liable for more than $50 of illegal purchases –right of rescission (cooling-off period): gives the consumer 3 business days to rescind a credit transaction

Consumer Credit Legislation Equal Credit Opportunity –Unable to discriminate Can deny you credit based on your credit history

Consumer Credit Legislation Fair Credit Billing Act –Able to withhold payment until the dispute over a faulty product that you purchased with your credit card is resolved. (purchase must be more than $50 and must have taken place within your state or 100 miles from your home).

Consumer Credit Legislation Fair Credit Reporting Act –If you are denied credit, the company that turned you down must give you the name and address of the credit -investigating agency that was used.

Consumer Credit Legislation Fair Debt Collection Practices –Regulates debt collection practice procedures