1. Personal Finance Ms. Goodwin
Credit
Personal Finance
Ms. Goodwin

2. What is credit?
Agreement to get money, goods, or services NOW in exchange for a promise to pay LATER
Creditor
Debtor
What is it based on?
Is there a fee?

3. Interest Based on 3 things: Does everyone charge the same rate? Rate
Length of loan
Amount of loan
Does everyone charge the same rate?

4. Who uses credit
Consumer
Commercial
How do they pay for it?
Government

5. Advantages Disadvantages
Convenience
Immediacy
Emergencies
Ability
Establish credit
Keep track of spending
Helps economy
Easy to misuse
More expensive
Difficulty paying
Chance of hurting credit
**50% of all people with credit problems are between 18-32

6. What is the most important factor in determining the cost of credit?
Types of credit
Short-term
Medium-term
Long-term
Open Ended
Closed Ended
What is the most important factor in determining the cost of credit?

7. Types of credit Types of Charge Accounts: Charge Accounts - Regular
Store cards
One of the most common
Pay when bill arrives
Types of Charge Accounts:
- Regular
- Revolving
- Budget

8. Types of credit Credit Cards Types of Credit Cards:
Used in different places
Annual fees
Benefits
Types of Credit Cards:
Single-purpose
Multi-purpose
Travel and Entertainment

9. Types of credit Banks and Other Financial Institutions Types of Loans:
Low rates
Restrictive
Types of Loans:
Single payment
Installment
Mortgage

10. Types of credit Consumer Finance Companies Payroll Advance Service
Specialize
Higher cost
Payroll Advance Service
Pawnshop
Payday loans

11. Getting credit Consider: Cost Where can it be used? Limit
Cash available?
Benefits

12. Paying for credit Annual Percentage Rate (APR) Finance Charges
Interest
Grace period
Determines the cost of your credit on a yearly basis
Stated in a percentage
Finance Charges
Total amount it costs you to have that loan
Included interest and other fees
Stated in a dollar amount

13. Paying for credit Changes in interest rate Fees
Variable: changes as market rates change
Fixed: stays the same for the life of the loan
Introductory: only for a specified period of time in the beginning of the loan
Fees
Annual
Cash advances
Late or missed payments
Over limit

14. Credit worthiness: 5 C’s of credit
CAPACITY
Ability to pay
“Can you repay?”
Job
Income
Length of employment
CHARACTER
Type of person you are
“Will you repay?”
References
Previous credit
Credit History/Credit Bureaus
Pay on time?
Fail to pay?
Current debt

15. Credit worthiness: 5 C’s of credit
CONDITIONS
Interest rate
Reason for loan
Economic conditions
Unemployment
Recession
CAPITAL
What do you own vs owe?
Cash, savings, investments, possessions
Other debt
If you lose your job, can you still repay?

16. Credit worthiness: 5 C’s of credit
COLLATERAL
Property or valuables used as security for a loan
If you fail to pay, creditor can take your collateral
Car
House
Boat
Co-signer needed?
Secured vs unsecured

17. Information About Character
Credit rating
The 5 C’s determine your credit rating
Factors that Determine Credit Rating
credit rating
a measure of a person’s ability and willingness to make credit payments on time
Income
Current Debt
Information About Character
Debt Payment History

18. The Three Major Credit Bureaus
Credit rating
FICO score
The Three Major Credit Bureaus
Experian
Trans Union
Equifax

19. Credit rating
Building Credit