1. Credit; in America
Consumer Math

2. What is Credit?
Credit is money borrowed to buy something now, with the agreement that it will be paid for later

3. How it started?
Need for credit arose in the U.S. around the time that the country grew from a bartering and trading society to a currency exchange economy
During the 1800’s, items started to be manufactured for sale
Consumer credit developed to help families meet their financial needs
Earliest form of credit was accounts at the general stores
Wage earners or farmers would pick up supplies and put the amount due “on account.” Then borrowers received a paycheck or harvested the crops, they would pay their account in full, the process would then begin again.
The store owners rarely charged interest back then, because it was a convenience that they allowed trusted customers to use

4. Past Growth
As the use of credit expanded, individual purchase power increase.
Credit increase lead to more people able to buy more goods and services
Thus American economy grew at a healthy pace
People were able to buy both necessities and luxuries with the help of credit
Americans standard of living rose
Businesses and consumers benefited from credit
, buying on credit became the American way of life
No longer just saved to use for emergencies
Many different forms of credit developed to meet changes in consumer needs and wants
1990s, record number of people declared bankruptcy due to overuse of credit cards

5. Vocabulary of Credit
Borrower/ Debtor - person that is borrowing money or using credit
Creditor - person or company who loans money or extends credit to an individual
Capital - property you possess (bank accounts, investments, and other assets) that is worth more than your debts.
Having capital tell creditors that you have accumulated assets and are on your way of being a responsible citizen; more likely to get a loan
Collateral - property pledged to assure payment of a loan you took out.
Used for large purchase or sums of money
If you do not make your loan payments, the creditor can/will seize (repossessed) the pledged property
Example: If you do not repay a loan, the car that you put as collateral can be repossessed
line of credit (pre-established amount of money that can be borrowed on demand with no collateral)
Establish through filling out an application with a lender
Lender examine your income and financial position and approve an amount they believe can be repaid
Money is always available should you need it

6. Vocabulary of Credit Cont.
Principal - amount borrowed
Balance due - the principal plus the interest for the time you have the loan
Monthly payments are made until you have repaid the balance due
Finance charge - total dollar amount of all interest and fees you pay for the use of credit
Price you pay for the privilege of using someone else’s money to buy goods and services now
Minimum payment - least amount you may pay that month toward paying off your credit
Due date - specific date that you credit payment is due; both monthly and overall
Typically given 10 to 20 day after due date to make payment
If you do not pay within the time period you will be charged a late fee (charge added to your balance due)
Installment agreement - a signed agreement that state you will make regular payments for a set period of time

7. Advantages of Consumer Credit
Used correctly
expand your purchasing potential
raise your standard of living
Making payments on time helps you to establish good credit
Good credit records help you to get loans in the future
Provide emergency funds
Sudden need for cash can be solved by getting a line of credit
Credit is convenient
Advanced notice on sales and special offers both available and not available to public
Deferred billing - service available to charge customers whereby purchases are not billed to the customer until later
Examples: Layaway, 0 down don’t pay for 3 months
Carrying a credit card is safer than carrying large sums of money

8. Disadvantages of Consumer Credit
Credit purchases may cost more than cash purchases (added service charges)
You tie up future income when you pay/use your credit card
Committed to making payments
Strains your budget, need to find a way to make payment for items you used credit on
Can lead to overspending
Buy more than you can pay back comfortably
End of the month bill, might surprise you and you cannot pay the bill
Using Credit to much can result in debts so high that you can never pay them off, but will be trying you whole life
Even leads to Bankruptcy