Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 15 Consumer Credit What steps can you take now to start building and maintaining a strong credit rating?

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. There are advantages to using consumer credit if you use it correctly. You must protect your credit and watch for the warning signs of debt problems. Chapter 15 Consumer Credit

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. credit consumer credit creditor closed-end credit open-end credit line of credit grace period finance charge net income annual percentage rate (APR) collateral simple interest minimum monthly payment credit rating cosigning bankruptcy Chapter 15 Consumer Credit

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 15 Consumer Credit

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Section 1What Is Consumer Credit? Explain the meaning of consumer credit. Differentiate between closed-end and open-end credit. Chapter 15 Consumer Credit

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Using Consumer Credit Wisely Section 1What Is Consumer Credit? Chapter 15 Consumer Credit Using credit increases the amount of money you can spend now, but the cost of credit decreases the amount of money you will have in the future.

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Credit Credit allows you to buy goods and services now and pay for them at a future date. Creditor Debtor

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Factors to Consider Before Using Credit Section 1What Is Consumer Credit? Chapter 15 Consumer Credit What should you know before using credit? Do you have the cash you need for the down payment? Do you want to use your savings instead of credit? Can you afford the item? Could you use the credit in some better way? Could you put off buying the item for a while? What are the opportunity costs of postponing the purchase? What are the costs of using credit?

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Finance Charges Depend on: Amount Borrowed Interest Rate Repayment period (Time) Grace Period

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Factors to Consider Before Using Credit Section 1What Is Consumer Credit? Chapter 15 Consumer Credit Advantages of Credit You enjoy goods and services now instead of later Combining several purchases while making one monthly payment A credit card is needed for transactions such as renting a car Traveling with a credit card is safer than cash Good credit results in other lenders viewing you as a responsible person Disadvantages of Credit Credit costs money Failure to pay your bills can ruin a good credit reputation Failure to pay your bills can can lead to a loss of income and property Using credit does not increase your total purchasing power

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Basic Types of Credit Closed-Ended Credit Open-Ended Credit –Line of Credit is the maximum

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Sources of Consumer Credit Section 1What Is Consumer Credit? Chapter 15 Consumer Credit LoansCredit Cards Inexpensive Loans Medium-Priced Loans Expensive- Loans Home Equity Loans Debit Cards Cobranding Smart Cards Store-Value Cards Travel and Entertainment (T&E) Cards

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Look at the suggestions in Figure 3 on page 460. Which of the factors do you think might be most important in your choice of a credit card? Sample answer: tip number 2 is most important as it stresses the need to compare credit cards and their terms from several different banks before making an informed decision. Section 1What Is Consumer Credit? Chapter 15 Consumer Credit

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Name the five Cs of credit. Identify factors to consider when choosing a loan or credit card. Explain how to build and protect your credit rating. Section 2The Costs and Methods of Obtaining Credit Chapter 15 Consumer Credit

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Can You Afford a Loan? Section 2The Costs and Methods of Obtaining Credit Chapter 15 Consumer Credit Add up all your basic monthly expenses and then subtract the total from your take-home pay. Consider what you might give up to make a monthly loan payment.

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Cost of Credit Section 2The Costs and Methods of Obtaining Credit Chapter 15 Consumer Credit Annual Percentage Rate Table for Monthly Payments Experts suggest that you spend no more than 20% of your net income on debt payments.

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Tackling the Trade-Off Term Versus Interest Cost Lender Risk Verses Interest Rate –Variable Interest Rate –Secured Loan Collateral –Up-Front Cash –Shorter term loan

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Applying for Credit Section 2The Costs and Methods of Obtaining Credit Chapter 15 Consumer Credit The Five Cs of Credit CharacterCapacityCapitalCollateralConditions

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Applying for Credit Section 2The Costs and Methods of Obtaining Credit Chapter 15 Consumer Credit Two Types of Credit Reports FICOVantagescore

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Applying for Credit Section 2The Costs and Methods of Obtaining Credit Chapter 15 Consumer Credit Personal Credit Score

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Applying for Credit Section 2The Costs and Methods of Obtaining Credit Chapter 15 Consumer Credit Because of the Equal Credit Opportunity Act (ECOA), a Creditor May Not: Turn you down or decrease your credit because of your age Ignore your retirement income in rating your application Close your credit account because you have reached a certain age Close your credit account because you have retired Deny you credit because you receive public assistance You have a right to know why you are refused credit.

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Your Credit Report Section 2The Costs and Methods of Obtaining Credit Chapter 15 Consumer Credit The Three Major Credit Bureaus Experian Trans Union Equifax Where Do Credit Bureaus Get Information? Banks Finance Companies Stores Credit Card Companies Other Lenders

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Your Credit Report Section 2The Costs and Methods of Obtaining Credit Chapter 15 Consumer Credit Contents of Your Credit File Employer, Position, Income Previous Address Previous Employer Spouse’s Information Homeowner or Renter Status Checks Returned or Insufficient Funds

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Your Credit Report Section 2The Costs and Methods of Obtaining Credit Chapter 15 Consumer Credit You and Your Credit File There are time limits on unfavorable data. Credit bureaus must ensure information in your credit file is correct. You can sue a credit bureau or creditor that has caused you harm by not following rules established by the Fair Credit Reporting Act.

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Your Credit Report Section 2The Costs and Methods of Obtaining Credit Chapter 15 Consumer Credit

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Suppose you applied for a car loan of $40,000 and were denied for valid reasons. What would your next steps be toward getting a car loan? According to Figure 6 on page 471, you can ask the creditor if you can provide additional information, apply to a different creditor, or work toward improving your creditworthiness and reapply. Students may also indicate that they might apply for a smaller loan and settle for a less expensive automobile. Section 2The Costs and Methods of Obtaining Credit Chapter 15 Consumer Credit

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Protect yourself from fraud and identity theft. Identify consumer protection laws. Section 3Protecting Your Credit Chapter 15 Consumer Credit

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Billing Errors and Disputes Section 3Protecting Your Credit Chapter 15 Consumer Credit If you write a letter to a creditor to dispute a charge: The creditor must acknowledge your letter within 30 days. If the creditor made a mistake, you do not have to pay any finance charges on the disputed amount. If no mistake is found, the creditor must promptly send you a letter of explanation.

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Billing Errors and Disputes Section 3Protecting Your Credit Chapter 15 Consumer Credit For your protection: A creditor may not threaten your credit rating. A creditor cannot take any action against you until a complaint is settled. You may instruct a credit card company to hold payment if you purchase a defective item.

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Credit and Stolen Identity Section 3Protecting Your Credit Chapter 15 Consumer Credit If you think you are a victim of identity theft: Contact the Credit Bureaus Contact the Creditors File a Police Report

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Protecting Your Credit From Theft or Loss Section 3Protecting Your Credit Chapter 15 Consumer Credit Avoid Having Your Credit Card Being Stolen or Lost Always retrieve your card after a purchase. Keep a record of your credit card numbers. Notify the credit card company immediately if your card is lost or stolen.

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Protecting Your Credit from Theft or Loss Section 3Protecting Your Credit Chapter 15 Consumer Credit Protecting Your Credit on the Internet Use a secure browser. Keep records of online transactions. Review monthly bank and credit card statements. Read privacy and security policies of Web sites. Keep your personal information private. Never give your password to anyone online. Do not download files sent to you by strangers.

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Cosigning a Loan Credit agreement is a legally binding contract between a borrower and a creditor. Cosigning a loan: Someone else is responsible upon failure to pay.

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Complaining About Consumer Credit Section 3Protecting Your Credit Chapter 15 Consumer Credit Consumer Protection Laws Credit Card Act Truth in Lending Act Consumer Leasing Act Equal Opportunity Act (ECOA) Fair Credit Opportunity Act Fair Credit Reporting Act Consumer Credit Reporting Reform Act

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Complaining About Consumer Credit Section 3Protecting Your Credit Chapter 15 Consumer Credit In Cases of Discrimination: Complain to the creditor. File a complaint with the government. If all else fails, sue the creditor.

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Consumer Credit Reporting Reform Act states that the burden of proof for accurate information is on the credit bureau rather than on you. How can this benefit you if you find information you feel is wrong on your credit report? Students should understand that if you dispute information on your credit report and the credit bureau cannot prove it is accurate, then they must remove the information from your report. Prior to the law, the information would have remained on the report until you could prove it was inaccurate. Section 3Protecting Your Credit Chapter 15 Consumer Credit

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Describe options for managing debt problems. Identify signs of debt problems. Section 4Managing Your Debts Chapter 15 Consumer Credit

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Signs of Debt Problems Section 4Managing Your Debts Chapter 15 Consumer Credit Are You Experiencing Two or More of These Warning Signs? You make only the minimum monthly payment You struggle to make the monthly payment The total balance increases every month You miss payments or you are often late You use savings to pay for necessities You receive second or third late payment due notices You borrow money to pay off old debts You exceed credit limits You have been denied credit because of bad credit

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Debt Collection Practices Section 4Managing Your Debts Chapter 15 Consumer Credit Creditors often turn over bad debts to debt collection companies. The Federal Trade Commission enforces the Fair Debt Collection Practices Act (FDCPA).

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Financial Counseling Services Section 4Managing Your Debts Chapter 15 Consumer Credit Trouble Paying Your Bills? Contact your creditors Consumer Credit Counseling Service (CCCS) Universities, credit unions, military bases State and federal housing authorities Banks Reputable financial counseling services

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Bankruptcy Chapter 7 –Straight liquidation Chapter 13 –Reorganizes your debt & puts you on a payment plan It stays on your credit report for 10 years.

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Interest Rates Chapter 15 Consumer Credit

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 15 Consumer Credit

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 15 Consumer Credit

Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. End of