1. Credit Fundamentals Chapter 18-1

2. Using Credit Two parties involved: 1.Debtor – Anyone who buys on credit or receives a loan 2.Creditor – The one who sells on credit or makes a loan

3. Types of Credit Trade Credit – occurs when a company receives goods from a supplier and pays for them later Loan Credit – borrowed money used for some special purpose and available from several kinds of financial institutions Sales Credit – when you charge a purchase at the time you buy the good or service

4. Charge Accounts Regular Accounts – requires the buyer to make full payment within a stated period – usually 25 to 30 days. Used for everyday needs and small purchases. Budget Accounts – requires that a customer make payments of a fixed amount over several months. Revolving Accounts – (most popular form of sales credit) charge purchase at any time and only part of the debt must be paid each month

5. Credit Cards Bank Cards – bank pays the business for the sales amount minus a service fee ▫ MasterCard and Visa Travel and Entertainment Cards – subscribers pay a yearly membership fee, have spending limits, and are usually expected to pay the entire balance at the end of the month ▫ American Express and Diners Club Retail Store Cards – can only be used at the issuing stores ▫ Kohl’s and GAP

6. Installment Credit Installment Credit – A contract issued by the seller that requires periodic payments at specified times. o Often used to purchase furniture and household appliances o Sign a sales contract that shows the terms o Seller has the right to repossess or take back an item if payments are not made o Usually requires a down payment

7. Consumer Loans An installment loan is one in which you agree to make monthly payments in specific amounts over a period of time. Single payment loan is one in which you do not pay anything until the end of the loan period. Promissory note is a written promise to repay based on a debtor’s excellent credit history.

8. Consumer Loans In all cases, borrower is repaying the full amount borrowed plus finance charges. Lender my ask for some property to be used as security. This property is called collateral and the loan is then a secured loan. If you do not have a good credit history, borrower may require a cosigner.

9. Benefits of Credit Convenience Immediate Possession Savings Credit Ratings Useful in emergencies

10. Credit Concerns Overbuying Careless Buying High Prices Overuse of Credit

11. Credit Score: