1. Don’t be stupid about credit! A brief guide to using credit cards and loans wisely

2. The American love affair with credit The first credit card was introduced in 1958 – American Express The first credit card was introduced in 1958 – American Express

3. The American love affair with credit The first credit card was introduced in 1958 – American Express The first credit card was introduced in 1958 – American Express By 2007, American consumer debt totaled $904 billion – that doesn’t include home and car loans! By 2007, American consumer debt totaled $904 billion – that doesn’t include home and car loans!

4. The American love affair with credit The first credit card was introduced in 1958 – American Express The first credit card was introduced in 1958 – American Express By 2007, American consumer debt totaled $904 billion – that doesn’t include home and car loans! By 2007, American consumer debt totaled $904 billion – that doesn’t include home and car loans! Americans paid $90 billion in interest in 2006 alone Americans paid $90 billion in interest in 2006 alone

5. The American love affair with credit The first credit card was introduced in 1958 – American Express The first credit card was introduced in 1958 – American Express By 2007, American consumer debt totaled $904 billion – that doesn’t include home and car loans! By 2007, American consumer debt totaled $904 billion – that doesn’t include home and car loans! Americans paid $90 billion in interest in 2006 alone Americans paid $90 billion in interest in 2006 alone The average American owns 13 credit cards The average American owns 13 credit cards

6. On the other hand… ¼ of American households get by without a single credit card ¼ of American households get by without a single credit card

7. On the other hand… ¼ of American households get by without a single credit card ¼ of American households get by without a single credit card 40% of households who do use credit cards pay their monthly balance in full 40% of households who do use credit cards pay their monthly balance in full

8. On the other hand… ¼ of American households get by without a single credit card ¼ of American households get by without a single credit card 40% of households who do use credit cards pay their monthly balance in full 40% of households who do use credit cards pay their monthly balance in full So, 45% of American households have all of the consumer debt. So, 45% of American households have all of the consumer debt.

9. On the other hand… ¼ of American households get by without a single credit card ¼ of American households get by without a single credit card 40% of households who do use credit cards pay their monthly balance in full 40% of households who do use credit cards pay their monthly balance in full So, 45% of American households have all of the consumer debt. So, 45% of American households have all of the consumer debt. The biggest problem is that consumers tie up future income and can end up in bankruptcy if they can’t pay it back. The biggest problem is that consumers tie up future income and can end up in bankruptcy if they can’t pay it back.

10. So why use credit cards? Earlier consumption – use goods while you pay for them! Earlier consumption – use goods while you pay for them!

11. So why use credit cards? Earlier consumption – use goods while you pay for them! Earlier consumption – use goods while you pay for them! Convenience Convenience

12. So why use credit cards? Earlier consumption – use goods while you pay for them! Earlier consumption – use goods while you pay for them! Convenience Convenience Emergencies Emergencies

13. So why use credit cards? Earlier consumption – use goods while you pay for them! Earlier consumption – use goods while you pay for them! Convenience Convenience Emergencies Emergencies Identification Identification

14. So why use credit cards? Earlier consumption – use goods while you pay for them! Earlier consumption – use goods while you pay for them! Convenience Convenience Emergencies Emergencies Identification Identification Consolidation of debts Consolidation of debts

15. So why use credit cards? Earlier consumption – use goods while you pay for them! Earlier consumption – use goods while you pay for them! Convenience Convenience Emergencies Emergencies Identification Identification Consolidation of debts Consolidation of debts Establishing a good credit history Establishing a good credit history

16. So why use credit cards? Earlier consumption – use goods while you pay for them! Earlier consumption – use goods while you pay for them! Convenience Convenience Emergencies Emergencies Identification Identification Consolidation of debts Consolidation of debts Establishing a good credit history Establishing a good credit history Incentives, like points! Incentives, like points!

17. Credit Basics Credit Limit Credit Limit Minimum Payment Minimum Payment Principal Principal Interest Rate/interest Interest Rate/interest Fees Fees Points Points Credit rating/credit report Credit rating/credit report Loan Loan Mortgage Mortgage

18. Credit Basics Credit Limit This is the maximum amount a credit card company will let you borrow at a time. A starting limit might be $5,000 or $8,000. Once you’ve established a good reputation for paying your bills, the limit is raised.

19. Credit Basics Minimum payment This is the amount the company requires you to pay each month. It is usually ridiculously small, just a fraction of your debt. You may own $1500 but be required to pay only $15. It’s best to IGNORE the minimum payment and pay the balance in full. If you do this, you can avoid paying any interest.

20. Credit Basics Principal or Account Balance This is the total amount you owe. It is listed on each statement, or you can check it online or by phone at any time. Pay off the balance in full each month. Don’t charge more than you have in the bank.

21. Credit Basics Interest rate This is what they are charging you for the privilege of spending their money. While home loans are about 5-6% and college loans a little higher, credit card interest rates are usually 15-30%. Scary.

22. Credit Basics Fees Some credit card companies also charge you an annual fee, like $50, for the privilege of using their card. Look for one that doesn’t.

23. Credit Basics Points Unlike interest rates and fees, points are a GOOD thing. You can earn a point for each dollar you spend with your credit card, and you can redeem those points for cash, airline tickets, or other gift items. Cards with points usually charge higher interest, however, so be careful.

24. Credit Basics Credit rating Every time you use a credit card or get a loan, it gets reported to a credit agency. The agency tracks your behavior – whether you repay on time or not. Your accumulated payment history becomes your credit rating – a score of 300 to 850 that shows future lenders how reliable you are.

25. Credit Basics Loan Credit is basically a loan. You can also get a loan from a bank, an auto dealer, a credit union, a family member, a college or another source. A loan is simply borrowed money – and it usually involves interest.

26. Credit Basics Mortgage A mortgage is a special kind of loan – it’s only a loan for a house. Mortgages usually have lower interest rates because the buyer has “collateral” – the house. If a buyer fails to make the mortgage payments, the bank can foreclose, which means the bank takes the house.

27. Why does good credit matter? People often wonder why good credit matters. They think “I’ll just charge it and pay it off over time.” People often wonder why good credit matters. They think “I’ll just charge it and pay it off over time.” It’s quick and easy, maybe too easy. It’s quick and easy, maybe too easy. Misusing credit today can hurt you tomorrow…. Misusing credit today can hurt you tomorrow….

28. Which house do you want? Person # 1 Good Credit Person #2 Better than Average Credit Person #3 Average Credit Person #4 Bad Credit Cost of House $200,000 # of Payments 360 Mortgage rate 6%6.5%7%8% Monthly payment $1199.10$1264.14$1330.60$1467.53 Interest paid over 30 years $231,676.38$255,088.98$279,017.80$328,310.49 Total Cost of House $431,676.38$455,088.98$479,017.80$528,310.49