1. 5 C’s of Credit Credit Reports
Personal Finance
5 C’s of Credit
Credit Reports

2. Objectives
Discuss the 5 C’s of Credit
Describe credit reporting

3. Debt Payments-to-Income Ratio
The percentage of debt you have in relation to your net income
Monthly Debt Payments/Monthly Net Income
Experts suggest that you spend no more than 20% of your net income on debt payments
Ex: $1,000 net income, $200 towards debt

4. Net Income
The income a person receives (from sources such as take-home pay, allowance, gifts, & interest on bank accounts)

5. Finance Charge
Total dollar amount you pay

6. Annual Percentage Rate (APR)
The cost of credit on a yearly basis, expressed as a percentage
Ex: $18 a year for each $100 borrowed?
18%

7. Trade offs Term vs. Interest Cost:
Longer Term= More interest, but less monthly payments
Shorter Term=Less interest, but more cost in monthly payments

8. Types of Rates
Variable Rate: Dependent on the changing rates in the banking system
Secured Loan: Lower interest rate because you put up Collateral
Up-Front Cash: Down payments will give you a better chance to get a loan and lower interest

9. Collateral
A form of security to help guarantee that a creditor will be repaid

10. Simple Interest
Interest computed only on the principal

11. Principal
The amount borrowed

12. Simple Interest Formula
Principal x Rate of Interest x Amount of Time

13. Minimum Monthly Payment
The smallest amount a person can pay on a credit card bill & remain a borrower in good standing

14. 5 C’s of Credit Character: Will you repay the loan?
This is based on your trustworthiness and stability
Have you used credit before?
How long have you lived at the current address?
How long have you held your current job?

15. Capacity Can you actually repay the loan?
What is your job and how much do you make?
Do you have other sources of income?
What are your current debts?

16. Capital What are your assets and net worth? What are your assets?
What are your liabilities?

17. Collateral
What assets do you have to secure the loan (vehicle, home, or furniture)?
Do you have any other valuable assets?

18. Credit History Do you pay your bills on time?
Have you ever filed for bankruptcy?
Credit Rating: Measure of a person’s ability and willingness to make payments on time

19. ECOA Equal Credit Opportunity Act
Race, nationality, sex, age, marital status

20. Your Credit Report Credit Bureaus: Experian, Trans Union, Equifax
Over 200 million credit files
On The Report:
Job, position, income
Previous address
Previous employer
Spouse info.
Rent or own home
Bounced checks
All loans and payments

21. Assignment Page 170 Page 179 Critical Thinking Questions #1-3
Check Your Understanding #1-3
Using Math Skills #5
Solving Money Problems #6