1. Using Credit Wisely
Chapter 31

2. What is Credit?
An arrangement in which someone receives money or merchandise now and promises to pay for it later.

3. Who extends credit?
Creditor – person to whom money is owed.

4. What do you have to pay to the person you borrow money from?
Finance Charge – an addition to the purchase price that is the cost of using the creditor’s money.

5. Types of Credit Leasing Layaway Credit Cards
Issued by banks and stores to be used for many different purchases. Issuing company gives the cardholder a credit limit- maximum that can be charged.
Loans
Consumers take out loans, or borrow money, for large purchases such as cars and homes.
Layaway
Agreement with a department store where pay a portion at the time of purchase and they hold it while you make payments (usually for only a few months)
Leasing
Consumers might put some money down when the product is received and the remainder of the cost is paid in regular monthly payments. Those payment only include the cost of use of the product and a finance charge. If you wish to purchase the item at the end of the lease you will pay the remainder of the cost then.

6. Shopping for Credit Comparing Finance Charges
Just like shopping for anything else – you should comparison shop to find the best rates and terms.
Creditors are required to specify:
The amount borrowed
The monthly payment amount
The number of monthly payments
The date payments are due
Extra charges for late payments
The exact annual percentage rate (APR) – shows how much finance charge is being added to the principal.

7. Shopping for Credit Analyzing Added Charges Annual fees
grace period – period of time in which money can be repaid without incurring a finance charge.
Added fees for cash advance, etc.

8. Getting and Using Credit
Credit Application
Creditor examines the information and does a credit check
Creditor may contact employers to verify job information given
Law requires creditor tell the consumer why they have been turned down for credit

9. Getting and Using Credit
Getting Credit
First step is to open a savings account and regularly deposit money into it
When you get a job, open a checking account to establish your credit history
Open a store credit card and use it wisely
Ask a parent or guardian to co-sign- when someone else agrees to be responsible for loan payments if the other party fails to make them.

10. Getting and Using Credit
Tips for Using Credit
Reserve credit for meeting emergencies
Avoid using credit for goods and services that you want rather than need
Use credit for expensive purchases that have a long lifetime
Pay charges within the grace period to avoid finance charges
Make payments on time to avoid late fees