1. Credit and loans Chapter Goals: Explain how to establish credit.
10/6/2000
Credit and loans
Chapter Goals:
Explain how to establish credit.
Discuss the different kinds of credit cards and how legislation might influence credit decisions.
Describe the factors that determine credit rating and the role of credit agencies.
Describe sound credit and collection policies and ways you can analyze their credit.

2. Establishing a credit system
Dealing with bank & credit card company
Pay fees between 2.5% and 5.5% to both
Extra fees for carelessness/mistakes
Creating a store credit card system
Establish own credit department
Advantage: mail advertising/special offers
Disadvantages: costly and inconvenient, customers prefer 1 card to use in multiple places
Consumer credit plans
Installment credit plan- # of pmts for period of rate
Revolving credit plan- credit purchases on the acct at any time up to specified amt

3. Types of credit cards Bank and non-bank credit cards- short term loan
Ex: Visa, MasterCard, etc.
Debit cards- more like cash or check. It transfers funds from checking acct to store’s acct to pay for purchase
Smart cards- contains memory microchip
Can be used as credit, debit or ATM
Up to the minute account balances
Reduces fraud because it has personal ID #

4. CREDIT PRINCIPLES AND PRACTICES
Creditworthiness: a measure of a person’s ability and willingness to repay a loan
Two main ways to determine creditworthiness
Evaluate four C’s of credit
Character: measures financial responsibility or sense of moral obligation to pay debts.
Capacity: measures earning power and ability to pay based on current income
Capital: measures applicants financial worth. Assets - liabilities
Conditions: measures external factors that may affect ability to repay. Ex: assess economic environment
Point system: answer questions on application. Points assignment to certain answers

5. CREDIT PRINCIPLES AND PRACTICES
Sources of Credit Information
Applicant- info. from credit application (ex: name, address, SS #, DOB, income, etc.)
Credit agencies- collect and provide credit information to business subscribers. Two types:
Provides info. on individuals (Ex: Experian, Equifax and TransUnion)
Provides info. about businesses (Ex: Dun & Bradstreet)

6. FEDERAL LAWS AND THE CREDIT CARD INDUSTRY
Equal Credit Opportunity Act: illegal to deny credit based on age, sex, marital status, race, nat’l origin, religion, or public assistance. Must notify applicants of status within 30 days and give a reason for rejection, if requested.
Truth-in-Lending Law: reveal on forms and statements the $ cost of credit using APR (easier comparison). If credit card is lost/stolen, owner’s loss is limited to $50.
Fair Credit Reporting Act: gives cardholders right to see their credit agency reports and to correct errors.
Fair Debt Collection Practice Act: forbids debt collectors to use abusive, deceptive, or unfair collection methods. In most states, if debt has not been paid within a specific period of time, collection efforts can be taken.