What is Credit? CREDIT: supplying of money, goods, or services at present in exchange for the promise of future payment

Types of Credit COMMERCIAL CREDIT: credit used for business purposes CONSUMER CREDIT: credit extended for personal (not business) purposes

Consumer Credit Problems 1. Consumer credit tends to dry up in times of recession and overstimulate demand in times of inflation 2. Can lead to increased prices 3. Encourages overspending 4. Reduces purchasing power 5. Somewhat easy to be unfair and deceitful in credit practices, or to make criminal use of credit cards

Charge Cards LINE OF CREDIT: largest amount you may owe at any given time CREDIT RATING: record kept by a credit rating agency that tells how good a person is at paying off debts FINANCE CHARGE: total cost of credit, including interest and other charges ANNUAL PERCENTAGE RATE (APR): annual rate of interest charged for credit Charge cards have many advantages and disadvantages!!!!

Types of Charge Accounts 1. Regular Charge Account  Customers expected to pay unpaid balance on accounts within a specified time (finance charge added to balance if not) 2. Revolving Charge Account  Have option of paying only a portion of unpaid balance each billing period and paying a finance charge on balance

Installment Credit Credit that is to be repaid with interest in periodic payments of specific amounts Make a down payment then pay the rest back over time

Loans/Mortgage If you got a mortgage today for $200,000 for 30 years at 5.87% interest you would pay $1182 per month That means that you are paying $225,677 in interest alone over 30 years for your original loan of $200,000 Scary, huh? But, if you make one extra payment each year your interest paid will go down to $180,500 and take 6 years off your mortgage This is true of most types of loans