1. Do Now 12/8/16 1. List the 3 major credit bureaus
2. What's the highest credit score you can have?
3. What is the name of the standard credit score?
Hint – 4 letter word starting with F
4. What is the consumer law that requires the costs of a loan to be provided in writing to consumers?
5. What consumer law prohibits the use of race, color, religion, national origin, marital status, age, etc to determine creditworthiness?

2. GOALS Lesson 4 COST OF CREDIT
Identify key factors in the cost of credit
Explain the impact of negative credit ratings on consumers

3. CREDIT-APPROVAL PROCESS
Application
Documentation
Processing
Underwriting
Underwriters are evaluating your 3 C’s of Credit
They check your Collateral
Look at your W2’s and paychecks to check your Capacity
Use one of the 3 credit bureaus to see your credit report to check your Character
Closing
Funding

4. Creditworthiness Activity

5. WHAT CREDIT COSTS Annual percentage rate Annual fees Interest
The amount of interest charged on the loan principal expressed as a yearly figure. Includes interest rate plus other fees associated with the loan
SHOW LENDING TREE WEBSITE ON APR
Annual fees
Interest
Late fees
Over Credit Limit Fees
Balance Transfer Fees
Minimum payments
Term

6. REVIEWING APR AND FINANCE CHARGE
The APR is a key aspect of comparing credit costs.
Average daily balance method
The finance charge is the total dollar amount to be paid for the loan.

7. MINIMUM PAYMENTS
Most credit cards require a minimum payment every month.
Minimum payments are usually 1 percent of the unpaid balance.
Paying the minimum payment keeps the account in good standing, but it does not reduce the principal much.

8. TREND TOWARD LOWER MINIMUM PAYMENTS
Increases bank profits
Contributes to greater consumer debt

9. Revolvers- always pay more the minimum payment
If you had a credit card balance of $2000, and an 18% APR and you:
Stopped using your card
Made only the minimum monthly payment
(1% of outstanding balance or $20, whichever is greater)
It would take 12.8 years to pay off your debt and your total payout would be $4231

10. When choosing between Credit Cards
Look For:
A Low Annual Percentage Rate (APR)
No Annual Fee
A Long Grace Period
Average Daily Balance Method
Low Penalty Rates

11. TERM
For installment loans, length of term also affects the total finance charge.
Repaying the loan over a longer period
reduces the monthly payment
increases the total payment for the loan

12. COMPARING LOANS Loan amount: $6,000 Creditor A Creditor B Creditor C
APR 14% 14% 15%
Length of Loan 3 years 4 years 4 years
Monthly Payment $ $ $166.98
Total Finance Charge $1, $1, $2,015.04
Total Payments $7, $7, $8,015.04

13. THE IMPACT OF CREDIT
Overextension
The role of banks
Credit counseling

14. Consequences of a Bad Credit Score and Irresponsible Credit Card Use
Denial of Credit
High Interest Rates
Difficulty Renting an Apartment
Denied Employment
Graduate School Rejection
Higher Insurance Premiums
Big Bucks for Cell Phones

15. Exit Slip List 3 reasons why you MUST be responsible with Credit Cards
What do underwriters do in the loan approval process? What are they evaluating?
What is more important to consider when shopping for a loan? APR or the interest rate
List 3 things that you have learned this past week while studying credit, credit scores, loans, etc. that you will benefit from as a consumer in your financial future