All About Credit. Using Credit Credit allows people to purchase goods and services that they can use today and pay for those goods and services in the.

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Presentation transcript:

All About Credit

Using Credit Credit allows people to purchase goods and services that they can use today and pay for those goods and services in the future with interest. People choose among different credit options that have different costs. Lenders approve or deny applications for loans based on an evaluation of the borrower’s past credit history and expected ability to pay in the future. Higher-risk borrowers are charged higher interest rates; lower risk borrowers are charged lower interest rates. STANDARDS

The Benchmarks: 8 th Grade

The Benchmarks: 12 th Grade

Credit Cards: Basics SS.8.FL.4.2 Identify a credit card purchase as a loan from the financial institution that issued the card. Explain that credit card interest rates tend to be higher than rates for other loans. In addition, financial institutions may charge significant fees related to a credit card and its use. SS.8.FL.4.3 Examine the fact that borrowers who use credit cards for purchases and who do not pay the full balance when it is due pay much higher costs for their purchases because interest is charged monthly. Explain how a credit card user can avoid interest charges by paying the entire balance within the grace period specified by the financial institution. SS.912.FL.4.1Discuss ways that consumers can compare the cost of credit by using the annual percentage rate (APR), initial fees charged, and fees charged for late payment or missed payments.

Credit Cards: Basics Financial Fitness for Life: Lesson 15 How do you compare credit cards? How do you calculate interest? How do you read a statement?

How do you compare credit cards?

1. What characteristics would you look for if you carried a balance and wanted to save money on a credit card? (Low APR, no annual fee, favorable method for computing interest.) 2. What features would you look for if you planned to pay off your balance each month? (Long grace period, rewards for use, no annual fee.)

Economic Lesson: Trade-offs Higher fee vs. lower interest rate Lower introductory rate vs. high longer term rate Rule of thumb: Pick lowest APR.

How do you read a statement? FYI.