The Wonderful World of Credit

What is CREDIT? All credit is a loan. You charge something on a card or an account with a promise to pay for it later. All credit is a loan. You charge something on a card or an account with a promise to pay for it later. BUY NOW, PAY LATER! BUY NOW, PAY LATER!

The “Pluses and Minuses” of Credit Advantages Able to buy needed items nowAble to buy needed items now Don't have to carry cashDon't have to carry cash Creates a record of purchasesCreates a record of purchases More convenient than writing checksMore convenient than writing checks Consolidates bills into one paymentConsolidates bills into one paymentDisadvantages Interest (higher cost of items)Interest (higher cost of items) May require additional feesMay require additional fees Financial difficulties may arise if one loses track of how much has been spent each monthFinancial difficulties may arise if one loses track of how much has been spent each month Increased impulse buying may occurIncreased impulse buying may occur

Places to Obtain Loans Banks Banks Savings and loan institutions (mostly real estate) Savings and loan institutions (mostly real estate) Credit unions Credit unions Finance companies Finance companies Higher interest, higher risk clientsHigher interest, higher risk clients Life insurance companies Life insurance companies Borrow against policy collateralBorrow against policy collateral Low ratesLow rates Balance deducted from death benefitsBalance deducted from death benefits

Places to Obtain Loans Credit card cash advance Credit card cash advance High interest! 17-24%High interest! 17-24% Pawnbrokers Pawnbrokers Turn over property to get loanTurn over property to get loan High interestHigh interest

Credit Cards Regular charge accounts Regular charge accounts Pay balance in full each monthPay balance in full each month American Express, Diner’s Club, dept. storesAmerican Express, Diner’s Club, dept. stores Revolving charge accounts Revolving charge accounts Interest is chargedInterest is charged May take years to pay offMay take years to pay off

Credit Cards Incentives Incentives MilesMiles Free hotel staysFree hotel stays PointsPoints DiscountsDiscounts Costs Costs Annual feesAnnual fees InterestInterest Introductory rates usually only temporary Introductory rates usually only temporary

Credit Cards Grace period Grace period days15-25 days Time between billing and due dates where no interest is chargedTime between billing and due dates where no interest is charged Penalties Penalties Watch for surprise charges on your statement! Watch for surprise charges on your statement!

Credit Rights & Responsibilities Truth in Lending Act of 1968 Truth in Lending Act of 1968 Must report information the same wayMust report information the same way Finance chargesFinance charges Annual percentage rate (APR)Annual percentage rate (APR) Equal Credit Opportunity Act (1975, 1977) Equal Credit Opportunity Act (1975, 1977) Equal opportunities for creditEqual opportunities for credit Illegal to refuse credit based on race, color, religion, national origin, sex, marital status, or ageIllegal to refuse credit based on race, color, religion, national origin, sex, marital status, or age

Credit Rights & Responsibilities Fair Credit Reporting Act of 1971 Fair Credit Reporting Act of 1971 Organizations must identify the credit bureau that supplied the information used to make their decisionOrganizations must identify the credit bureau that supplied the information used to make their decision If denied, you have 30 days to request a free copy of your fileIf denied, you have 30 days to request a free copy of your file Request a copy for a small feeRequest a copy for a small fee

If you were refused credit unfairly Contact the bureau the lender used Contact the bureau the lender used Write to the bureau and request a copy of report Write to the bureau and request a copy of report Study for inaccuracies Study for inaccuracies Report errors in writing Report errors in writing If no errors, but unusual circumstances, can attach a 100- word explanation to your report If no errors, but unusual circumstances, can attach a 100- word explanation to your report

Credit Rights & Responsibilities Fair Credit Billing Act (part of Truth in Lending Act) Fair Credit Billing Act (part of Truth in Lending Act) Helps consumers correct credit card billing mistakesHelps consumers correct credit card billing mistakes You have the right to refuse paying for something you didn’t chargeYou have the right to refuse paying for something you didn’t charge You have 60 days to contact credit cardYou have 60 days to contact credit card They have 30 days to replyThey have 30 days to reply They have 90 days to resolveThey have 90 days to resolve You are not charged interest during this timeYou are not charged interest during this time Inferior products may also be disputedInferior products may also be disputed

Credit Rights & Responsibilities Fair Debt Collections Practices Act (1977) Fair Debt Collections Practices Act (1977) Stops debt collection agencies from using abusive practicesStops debt collection agencies from using abusive practices Stops abusive or threatening phone calls Stops abusive or threatening phone calls Stops deceptive means to get information Stops deceptive means to get information Applies to agencies that are in business of collecting debtApplies to agencies that are in business of collecting debt

Some Credit Tips Credit is a privilege not a right Credit is a privilege not a right Lenders are in business to make money—will give you lots of credit to make more money! Lenders are in business to make money—will give you lots of credit to make more money! Pay more than the minimum Pay more than the minimum Avoid too many cards (flyers in mail) Avoid too many cards (flyers in mail) Pay cash when possible Pay cash when possible Save receipts for charges/verify accuracy Save receipts for charges/verify accuracy

Maintain a Good Credit Rating Acceleration clause Acceleration clause Payment in full is due if you miss one paymentPayment in full is due if you miss one payment Balloon payment Balloon payment Final payment is larger than the regular paymentsFinal payment is larger than the regular payments Bankruptcy Bankruptcy Legal process in which people cannot pay their debt and must surrender most of their propertyLegal process in which people cannot pay their debt and must surrender most of their property Lost propertyLost property Credit reporting for 10 yearsCredit reporting for 10 years

Lets See What You Know Lets See What You Know Imagine you are a counselor for an organization that helps people get out of debt. Imagine you are a counselor for an organization that helps people get out of debt. 1) Prepare a list of questions to find out the person’s spending patterns and how he or she got into debt. 2) Prepare a list of steps designed to help the individual get out of debt 3) Prepare a list of suggestions to help them stay out of debt.