1. Banking Basics
Standards 1e 2c 3l
6a,b
8a,e
Credit

2. How To Do Your Banking
Chapter 6: A good credit rating sets wheels in motion.

3. CREDIT Graphic Organizer
The class will be divided into teams of 2 or 3. Each team will be assigned a section from Chapter 6.
Each team will create a poster for the classroom graphic organizer. Posters should contain the following information:
The name of the assigned section.
Define any vocabulary words.
Explain any advantages/disadvantages, do’s/don’ts, tips.
Explain any criteria.
Explain any steps in a process.
Provide examples of vocabulary words and mathematical calculations.
Include at least 1 picture/graphic.
The team’s poster will be displayed in class so make sure the poster is legible and use correct grammar, capitalization, spelling, and punctuation. Also remember to identify each team member and the date on the poster.
Each team will present its poster to the class. Each team member must speak an equal amount during the presentation.

4. CREDIT Graphic Organizer Topics
What Is Credit?
The Cost Of Credit
How To Shop For Credit
How To Apply For A Loan
Types Of Loans
Credit Ratings and Scores
Identify Theft

5. What Is Credit? Credit is your reputation for financial responsibility
Does the lender believe you will repay your debt?
Credit is the time allowed for payment for something sold on trust
Do you repay your debt on time?
Credit is a source of revenue for financial institutions
Pay low rates on savings accounts
Charge high rates on loans
Credit is “tomorrow’s” money
You are spending future income so that you may have something today.

6. Don’t Abuse Credit Ask yourself
Do the benefits greatly outweigh the cost of credit?
A car
A home
Is it an emergency?
Is this a profitable opportunity?
Starting a new business

7. The Cost Of Credit Finance charges Principal Term
The rent you pay for using someone else’s money
Consists of interest and any additional fees
Principal
The amount borrowed
Term
The length of time you have use of the money
Annual Percentage Rate (APR)
The true rate of the cost of credit on a yearly basis

8. Calculating the Cost of Credit
Finance Charge = A(N + 1)(APR) 2P
Monthly Payment = A + FC N
A = Amount of money borrowed N = Total number of payments APR = Annual Percentage Rate P = Number of payments per year FC = Finance Charge

9. Calculating the Cost of Credit
Refer to “The Cost of Borrowing” worksheet.
Complete examples together: #1 and #4
Complete the remaining calculations on “The Cost of Borrowing” worksheet.

10. How To Shop For Credit Comparison Categories Finance charge
Annual percentage rate (APR)
Amount borrowed (principal)
Total amount paid
Principal + Finance Charges
Down payment
Initial payment toward purchase of the item
Amount of each payment
Total numbers of payments
Collateral
Something you promise to give up as repayment if you can’t repay the loan
Refer to the Best Buy Worksheet on page 25. Identify at least 1 advantage and 1 disadvantage of each loan from Lenders A, B, C, and D.

11. How To Apply For A Loan The financial institution wants to know:
Credit History
Given your credit track record, will you repay the loan?
Capacity
Given your current income and expenses, do you make enough money to repay the loan?
Collateral
Given your current assets, do you have anything we can take if you don’t repay the loan?
Character
How stable is your lifestyle?
Which of the items above do you believe is most important to the bank? Rank the 4Cs above in order of importance (1 most important – 4 least important) and explain why you chose the rank for each item.

12. How To Build A Credit History
Open a checking account
Open a savings account
Choose 1 of the following if
You can make payments consistently on time!
AND
You pay full balance of any credit card each month!
Open a department store charge account
Open a gasoline credit card
Apply for a car loan

13. Types Of Loans Personal vs. Business
Loan made to an individual
Business
Loan made to a business/company/corporation
AKA Commercial Loan
Installment Loan vs. Revolving Credit
Installment Loan
For a specific purpose
Fixed total amount of money, length of time, monthly payment
AKA: Closed-End Credit
Revolving Credit
Purpose not specified
Maximum amount of money specified
Variable length of time, monthly payment
AKA: Line Of Credit, Open-End Credit
Secured vs. Unsecured
Secured
Collateral required
Unsecured
Collateral not required
AKA: Signature Loan
Credit Card
Repaid in monthly payments of a variable amount
Type of revolving credit

14. Credit Application
You need a loan for _____ . Here are some tips for filling out an application:
Read the entire application first
Get more than one copy in case you make mistakes
Follow all instructions
Print clearly and neatly
Use blue or black ink
Don’t leave blanks – If something does not apply to you write Does Not Apply
Make sure everything is spelled correctly
Make sure all information is accurate
Complete the sample loan application. Evaluate your loan application. If you were a banker, would give yourself a loan (based on your loan application)? Why or Why not? What could you do to improve your chances of getting a loan in the near future?

15. Credit Score Based on your past use of credit
A high number is better than a low one
A good credit score results in a lower interest rate
FICO
One type of credit score
Created by Fair Isaac Corporation
Ranges from
Most people are in the range
A 720 guarantees the most favorable interest rate

16. What Determines Your Credit Score
35% = how you pay your bills
30% = the amount of money you owe and the amount of available credit you have
15% = length of your credit history
10% = mix of installment and revolving credit
10% = number of credit applications
Complete Part 1 of the Credit History handout.
Discuss answers to Part 1.
Complete Part 2 of the Credit History handout.
Discuss answers to Part 2.

17. Identity Theft Guard personal identification
Don’t write passwords on paper
Don’t throw away documents containing personal information
Scrutinize all statements and bills
Annually review your credit report
Use a secure computer system

18. Banking Acts Equal Credit Opportunity Act Truth In Lending
Credit cannot be denied because of race, color, age, sex, marital status
Truth In Lending
Fair and Accurate Credit Transactions Act of 2003

19. How To Do Your Banking
Chapter 7: Now you’re the lender.

20. Mary Weems Read pages 29-30. Watch the Mary Weems scenario.
Read Mary’s credit report on page 31 and her loan application on page 32.
Complete the loan sheet for Mary on page 33.
Analyze Mary’s case by responding to the questions on the Mary Weems Case handout.
Show your instructor the completed loan sheet and your case analysis (responses to the questions).
Meet with the other members of the loan committee to determine if Mary’s loan will be approved or declined.

21. Hawley Davidson Watch the Hawley Davidson scenario.
Read Hawley’s credit report on page 31 and his loan application on page 34.
Complete the loan sheet for Hawley on page 35.
Analyze Hawley’s case by responding to the questions on the Hawley Davidson Case handout.
Show your instructor the completed loan sheet and your case analysis (responses to the questions).
Meet with the other members of the loan committee to determine if Hawley’s loan will be approved or declined.