1. What is credit? What does it mean to be “creditworthy”??
Unit 2C - Finance
What is credit?
What does it mean to be “creditworthy”??

2. Vocabulary
Promissory Note – an agreement that you sign that states the conditions of the loan
Principal – the amount you borrow
Annual Percentage Rate (APR) – the interest rate per year
Truth in Lending Act – information the creditor must tell the borrower…principal, monthly payments, APR, number of payments, interest to be paid, due dates for payment, and late fees

3. Vocabulary Cont.
Lending institutions – organizations that give loans (or lend money); these businesses make money by charging interest on the loans
a. Banks – usually need good credit
b. Credit Unions – usually have to be a member and need good credit
c. Pawnshops – usually bad/no credit. Small, quick loans. The borrower leaves a personal belonging, called collateral, with the pawn shop in exchange for a loan. Loans are usually for 30 days and are at a high interest rate. When the borrower returns, they pay the loan + interest and the collateral is returned to them. Late charges are usually extremely high. If the borrower does not return within a certain amount of time, then the collateral can be sold (or pawned) by the pawn shop

4. Creditworthy – five key factors
Payment history
Amount owed to current creditors
Length of credit history
Types of credit used
Number of open accounts
These factors are compiled on a person’s credit report, with an overall credit score.