1. Credit

2. What is credit?
The reputation one has built in his or her dependability in regard to paying back borrowed money

3. Four C’s of Credit Health
1. Credit History:
How faithful have you been at paying back borrowed money?

4. 2. Character Criminal past? Anything in the person’s history?
3. Capacity to pay
What is the person’s monthly income and can he or she handle a monthly payment schedule?

5. 4. Capital
How much does the person have in the bank?

6. Credit Rating Entitled to one free credit report a year
Three main credit bureaus:
Trans Union
Equifax
Experian

7. FICO (Fair Isaac Corporation)
Range from
660 borderline sub-prime (high risk)

8. FICO Factors 35% punctuality of payments in the past
30% capacity used (maxed out?)
15% length of credit history
10% type of credit used (installment, revolving)
10% recent applications for credit/recent credit obtained

9. Credit Cards Convenient Easy to get, Easy to use Risks are high
Theft and fraud

10. Are you ready for a credit card?

11. How should a consumer select the best credit card for his or her financial situation?

12. Checklist for comparing credit cards:

13. Issues you may face after you have obtained a credit card
Late fees
Interest rates
Other card offers start to come
Statements have due dates close so it is difficult to pay on time

14. Avoid ID Theft (Deter. Detect.Defend)

15. Don’t Jump at that Credit-Card Offer

16. Credit Card Bill of Rights

17. Federal Reserve’s Credit Card Repayment Calculator

18. Red Flag Rules to Stem I.D. Theft

19. Homework for Friday
Read “Deter, Detect, Defend, Avoid ID Theft” and “Red Flag Rules”
Answer questions: 1-4 from Deter, 5-9 from Red Flag
1. What are the ways in which credit card account information is fraudulently obtained?
2. What risks do creditors take when issuing unsecured credit cards?

20. 3. What incentive exists to compensate creditors for taking the risk of extending credit?
4. What would happen if government imposed limits to the amount of interest these providers could charge?
5. What are the Red Flag Rules?

21. 6. Whom do the Red Flag Rules apply to?
7. Who opposes the Red Flag Rules? Why?
8. What are the benefits of the Red Flag Rules?
9. What are the costs of the Red Flag Rules?