1. Credit

2. What is Credit?
when goods, services or money is received in exchange for a promise to pay a definite sum of money at a future date
Credit is derived from the Latin word “credo” meaning “I believe”

3. Installment Credit (aka Closed-end Credit)
A one time loan that is repaid in a specified number of equal payments
Auto Loans, Mortgages, & Student Loans
May require a co-signer
Second signer who will pay for the loan if the first party defaults

4. Non-Installment Credit (aka Revolving or Open- end Credit)
Credit is extended in advance with a specific credit limit
Credit Limit
Maximum dollar amount loaned
Varies among individuals based upon Creditworthiness
Borrower pays interest if credit is not paid back in full each month
Examples are Credit Cards & Department Store Cards

5. What is a Credit Report?
Record created by the CRA (Credit Reporting Agency) that provides a detailed report of an individual’s credit history
Includes:
Personal Information
Account Summary
Public Records
Credit Inquiries
Personal Information: NOT allowed—race, religion, marital status, nationality
Allowed ---age, gender
Public records---did you pay your taxes?

6. What is a Credit Score?
Numeric “grade” of a consumer’s financial reliability
Most common scoring system is FICO
Range from , with 850 being the best

8. What affects your credit score?

9. What affects your credit score?
Good
Bad
Pay bills on time
Length of credit history
Variety of credit
Late Payments
Too much credit (amount)
Too many credit cards
Too many inquiries
Too much new credit

10. What are the 3 Credit Bureaus?
Experian, Equifax, TransUnion
How often should you check your credit report? Why?

11. How does your credit score affect you?
Affects what types of loans you can get
Affects your interest rate
May affect where you can live (landlords look at it)

12. This is based upon a 30 year fixed mortgage rate for a $300,000 loan
Credit Score Impact
This is based upon a 30 year fixed mortgage rate for a $300,000 loan
FICO Score
Interest Rate
Monthly Payment
30 Year Amount
760
5.9%
$1,787
$643,320
650
7.2%
$2,047
$736,920
590
9.3%
$2,500
$900,000
$256,680 saved over the lifetime of this loan
because of a good credit score!

13. Are Credit Cards Bad? Yes & No Can paralyze you with debt
Are important for online purchases
Can build your credit
Should NEVER be used as your emergency fund
Bottom line: they must be used responsibly

14. Credit Cards 101

15. Rule #1: Don’t buy stuff you can’t afford
Treat your credit card like a debit card. Make sure you have enough money in your bank account before spending
live/video/dont-buy-stuff/n12020
Treat your credit card like a debit card. Make sure you have enough money in your bank account before spending

16. Rule #2: Always pay off your full balance each month
Minimum payment: the minimum required to pay off each month
Usually only a small percentage (2.5-5%) of the total balance due

17. ~ Total amount of interest paid
Minimum Payments
To prepare for her first semester of college, Miranda purchased a new computer for $1000 and textbooks for $500, spending a total of $1500 on her credit card charging 15% APR. How much would Miranda pay in interest if she makes the minimum payment?
Payment Made
~ Time to pay off card
~ Total amount of interest paid
~ Total amount paid
Full Payment
Partial Payment
Minimum Payment
$1500
1 month $0
$1500
$135
1 year
$125
$1625
$30
11 years
$1413
$2913

18. Rule #3: Never make a late payment
Usually have to pay a fee
Will lower your credit score
Will remain on credit report for 7 years

19. Rule #4: Check your account frequently
Keep a record of your own (receipts, register, etc.)
Identify mischarges or fraudulent charges
Remember online subscription fees

20. Rule #5: Know your Credit Card
Schumer box - Credit card issuers are required to disclose the terms and fees of credit cards in an easy to read box format

21. Annual Percentage Rate (APR)
Credit Card Interest
Interest is charged each month the balance is not paid in full
Rate at which interest is charged is referred to as:
Annual Percentage Rate (APR)
The cost of credit expressed as
a yearly interest rate

22. APR’s
Fixed-rate APR- cannot change during the period of time outlined in a credit card agreement
Variable-rate APR- may change depending on other factors (such as economic conditions)
Introductory Rate- a teaser rate (sometimes 0%) that only lasts a specified amount of time (i.e. 6 mos)
Good APR? < 12 %

23. Other terms to know Late Payment Fee Over-the-limit fee
Balance Transfers
Cash Advance
Annual fees (maintenance fee)
Minimum interest charge
Loss of APR or Penalty APR

24. Benefits Credit Cards May Offer
Skymiles
Discount on merchandise or services
Cash back
Rewards bonus points (redeemable for cash back, gift cards, discounts)
Higher cash back on revolving categories