1. Warm-up: What are the 6 Cs of Credit?
Mr. Tower’s The Lee-Davis Way
Character (integrity)
Commons
Capacity (ability to pay)
School Store
Collateral—what the bank can take if you don’t pay back
Library
Capital (net worth)
Guidance
Condition of you and economy
New Gym
Credit history and Credit scores

2. Types of Loans
Secured loans—you promise that if you don’t pay the loan, the bank can take the collateral
Examples of collateral: house, cash, jewelry, stocks, car, etc.

3. Types of Loans
Unsecured loans—no collateral; riskier for creditors, so they charge higher interest rate

4. Types of Loans
Cosigned Loans—promise to pay if the first signer of the loan does not pay

5. Costs of Credit
Interest
Measured with APR

6. Costs of Credit Variable interest rate—the rate changes
Fixed interest rate—the rate stays the same
Which one is better?

7. Costs of Credit The Truth in Lending Act Protects you!
Requires credit company to tell you cost of loan (APR)

8. Costs of Credit
The shorter the loan, the cheaper the price (because less interest has to be paid)
Longer loan = more expensive

9. Costs of Credit Prepayment—when you pay larger payments than required
Can reduce the length and cost of the loan

10. Risks of Credit Default—when you do not pay back your loan
Can lead to foreclosure
E.g. bank takes your home
Can lead to repossession
E.g. bank takes your car or collateral

11. Risk of Credit
Credit card debt/bankruptcy
Higher among young people

12. Risk of Credit
If you only pay the minimum amount due each month, you will end up paying a lot more!

13. Credit Cards
Regulated by Treasury Department (Comptroller of the Currency)

14. Credit Cards
Payments are due at least 21 days after they are mailed and delivered

15. Credit Cards
There is a legal limit on the interest rate hikes and fees banks can charge for a credit card
If they want to change terms, they need to give you 45 days advance notice

16. Credit Cards CARD and Disclosure Act of 2009
Credit companies are banned from issuing credit cards to anyone under 21 unless…
They have adult cosigner
They prove they have enough income

17. Credit Cards CARD and Disclosure Act of 2009
Credit cards must stay 1,000 feet away from college campuses

18. Credit Cards CARD and Disclosure Act of 2009
Card companies cannot raise APR automatically when cardholder fails to make a payment on another card

19. Credit Cards CARD and Disclosure Act of 2009
Issuers need to tell you due dates, times, and implication of only paying minimum payments

20. Credit Cards CARD and Disclosure Act of 2009
If you have variable APR (most do), they can increase interest rates

21. Installment Loans A loan paid back with a set number of payments
E.g. mortgage (house), student loan, auto loan
If you prepay, you can reduce the length/cost of loan