HOW TO GET AND KEEP CREDIT

PICKING A CREDIT CARD You will have to fill out an application. It will ask about where you live, where you work, what other credit you have, etc. If accepted you will receive a security agreement explaining the interest terms. Your Credit Worthness: The Five C’s Capacity Character Credit History Capital Collateral

CAPACITY Creditors will consider your capacity to pay back the amount you owe. They will check whether you have a job, what your salary (or wage) is and how long you’ve been employed.

CHARACTER Many creditors will want to find out the type of person you are. They may ask for credit references from businesses or people you have borrowed money from before.

CREDIT HISTORY The creditor will check with the Credit Bureau. The Credit Bureau is an agency that collects all information about you and other credit consumers. It can tell creditors whether you pay your bills on time, how much you pay and how much debt you have

CAPITAL What you have beyond what you owe. It includes cash, savings, investments and possessions. Basically creditors want to know that even if you lose your job you could still pay them back by selling something or using your extra cash.

COLLATERAL Capital that consists of property or valuables. If you fail to pay back your loan the creditor can take whatever you have put up for security

These five factors help determine whether or not you will get the credit you have requested It will also help determine what your credit limit will be.

COSIGNERS If you don’t have any credit history, poor credit score or no collateral you can still get a credit card by using a cosigner. The cosigner is responsible for the loan if you don’t or can’t make payments. The credit affects both your credit scores so it’s important to make sure you are reliable with your payments so that you don’t affect your cosigners credit negatively.

LOANS While credit cards are convenient, loans from a bank usually have a lower interest rate. Installment Loans Cash Loans Secured and Unsecured Loans

INSTALLMENT LOANS You may have to make a down payment for large purchases such as a car or large appliance. The down payment is a portion of the total cost of an item you purchase. The principle is the amount of money you still owe AFTER the down payment. This is what interest is based off of.

CASH LOANS Obtained by banks, credit unions, savings and loans, and finance companies. It’s paid back like an installment loan. Billed and paid monthly. The interest rates vary. You can also get cash loans from your credit card (for a high cost)

SECURED AND UNSECURED LOANS If you receive an installment or cash loan you usually sign a written agreement saying you will repay the loan. If you back your loan up with collateral it’s a secured loan. If you don’t back it up with collateral it’s called an unsecured loan. Interest rates are usually higher for unsecured loans.

CAN YOU AFFORD YOUR CREDIT CARD? Check the APR (Annual Percentage Rate). This is the cost of your card on a yearly basis. Example: If you owe $100 dollars and your APR is 18%. This means you owe 18 dollars every year or $1.50 (18/12) a month.

CAN YOU AFFORD YOUR CREDIT CARD? You also may have finance charges on your credit card. This is the total amount it costs you to finance the loan (have the credit card) or amount you pay in interest It may include interest as well as additional charges such as application fees. Example: The car you want is $5,000. You put $1,000 down and pay the other $4,000 in installments. The installments cost you $160 a month for 36 months. The total cost of your car comes to $6,760. That extra $1,760 is the finance charge, or the amount you paid in interest.

CHANGES IN INTEREST Be aware of variable interest rates.. This rate can change depending on the banks situation. It can adjust for things like inflation or recession. With a fixed interest rate, the banks cannot change it and your rate will remain the same throughout the term of the loan. Be aware of introductory rates that creditors offer.

OTHER FEES There are application fees on many cards Annual fees can ranges from $20-$100 Cash Advance Fees You can get cash out of an ATM with your credit card. The interest rate is much higher Missed or Late Payment fees

MINIMUM PAYMENTS Every time you get a credit card bill you will have a minimum payment. This is the smallest amount that you must pay the credit card company without getting an extra interest fee or missed payment fee. Ex: If you owe $2,000 on your credit card, the minimum payment might be $50 each month. Ex: To pay off a credit card debt of $2,500 at 18.9% interest it would take over 30 years if you only made the minimum payments!! That would end up being a total of $7,800 MORE in just interest alone. DO NOT JUST MAKE MINIMUM PAYMENTS.

CREDIT PROBLEMS If you are in credit trouble you may notice you are frequently missing payments or making late payments. You also may have too many credit cards or poor credit. Some credit contracts allow the creditor to take all or part of your paycheck if you miss a payment. This is called garnishment of wages. Other contacts allow companies to reposses something value or that was put up for collateral. They can then sell that item to get the money that is still owed.

DETERMINING FINANCE CHARGES Get your two credit card applications out. Check their monthly finance charges and their APR’s. Determine for each of the cards how long it would take to pay off $700 dollars if you made a $75 dollar payment each month. What would you pay in finance charges for each of the card? Create a table to compare the numbers and write a short paragraph explaining which card you would choose and why.