1. Credit Lesson 1
Credit Basics

2. Why Credit?
Play 1:18 to 1:55

3. Open- vs Closed-Ended Credit
Open-ended credit is ongoing … you borrow, you repay, you borrow again as long as you do not exceed your credit limit. Also called “revolving”
Ex: credit card, home equity line of credit, student loan line of credit
Line of credit up to $10,000
Closed-ended … there is an end date to the term of the loan.
Ex: personal loan (mortgage, personal loan)
Borrow $5,000, repay $100 each month for 50 months.
Types of Credit at Investopedia

4. Secured vs. Unsecured
Secured: The borrower (debtor) offers some property to guarantee the loan. If the loan is unpaid, the creditor (lender) takes the property.
Ex: A house is collateral for a mortgage; if unpaid the lender can foreclose, or take ownership of the property.
Unsecured: there is no collateral
Ex: personal loan
See dummies.com

5. Advantages of Using Credit Cards
You don’t have to wait
Buy now, pay later
You don’t need to carry cash or wait for change
Can help in an emergency
Purchase protection
Build credit history
Perks (air miles, cash back)
See mtscil.org and 360financialliteracy.org

6. Disadvantages of Using Credit Cards
Interest and fees if you don’t pay by the due date
Credit card fraud
Spending money you don’t have
See mtscil.org and 360financialliteracy.org

7. Credit Basics
Summary of Terms

8. Basic Terms
Credit – buying with someone else’s money. You pay them back later.
Debt – the amount you owe and need to pay back
Creditor – a person lending money
Debtor – a person borrowing money

9. Open vs Closed-Ended Open-ended – borrow and repay and borrow again.
Also called “revolving.”
Ex: Credit card, line of credit
Closed-ended – borrow a certain dollar amount for a specified period of time. If you want to borrow more, you need a new loan.
Ex: Car loan, mortgage, student loan.

10. Secured loans
The creditor (lender) puts a lien (legal hold) on whatever you financed. If the debtor does not repay the loan, the creditor can take the collateral.
Ex: car for a car loan, house for a mortgage
Note: When you pay cash for a car or a house, there is no collateral because there is no loan.

11. Other terms Installment – a payment.
Loans that have a regular month payment where you pay the same amount every month are called installment loans.
Ex: car loan, mortgage, line of credit
Cosigner – someone who shares the financial responsibility with the primary lender.
Ex: You may need a cosigner on your student loans as well as electric and other utility bills because you do not yet have an established credit history.

12. Credit Lesson 1
Credit Basics