1. Credit
What Is Credit?

2. Why it is Important
You’ll probably use credit some day. When you do, it will be helpful to know what credit is and the types of credit you can use.

3. Credit
Buying an item now and paying for it later can be an easy and convenient way to make a purchase
Consumers use credit to buy everything from a tank of gasoline to a new car.
How does buying on credit work?

4. Credit: The Promise to Pay
Credit is an agreement to get money, goods, or services now in exchange for a promise to pay in the future.
When buying on credit, you are delaying payment for the item
The one who lends money or provides credit is called the creditor.

5. Credit: The Promise to Pay
The one who borrows money or uses credit is called the debtor.
Credit is based on the creditor’s confidence that the debtor can and will make the payments
Credit is a matter of trust.

6. Credit: The Promise to Pay
Creditors charge a fee for using their money, which is called interest.
The amount of interest is based on three factors:
Interest rate
Length of the loan
Amount of the loan
It’s important to shop around for credit because creditors may charge different rates.

7. Who Uses Credit
The type of credit used by people for personal reasons is called consumer credit.
Examples of consumer credit would be buying:
House
Car
Boat
Student Loans

8. Who Uses Credit
Business often use credit for the same reasons that consumers do.
They might need to borrow money to buy goods or pay salaries.
Credit used by business is called commercial credit.

9. Who Uses Credit
When businesses borrow money, they often pass along the cost of interest to consumers by charging higher prices on their products.
The federal government uses credit to pay for many of the services and programs it provides to its citizens.
During WWII the federal government uses credit to finance military spending.

10. Who Uses Credit
State and local governments use credit to pay for such things as highways, public housing, stadiums, and water systems.
Everyone Uses Credit

11. Advantages of Credit
The main advantage of credit is that it’s convenient.
You can shop and travel without carrying large amounts of cash
Instead of saving for an expensive, like a car you can get it and use it right away.

12. Advantages of Credit
Without credit, there are some things you can’t buy.
To order airline tickets over the phone or shop on the internet, you need a credit card
Buying on credit enables you to establish a credit rating
A credit rating is a measure of a person's ability and willingness to pay debts on time.

13. Advantages of Credit
A good credit rating tells other lenders that you are a responsible borrower and a good credit risk.
Finally credit contributes to the growth of our economy.
When consumers make credit purchases, businesses must hire more workers and produce more goods to keep up

14. Disadvantages of Credit
Since credit is so convenient to use, it can also be easy to misuse.
With credit, it’s tempting to buy things you can’t afford, buy too much, or buy things you don’t need.
Items also cost more when you use credit instead of cash b/c of the interest
The more items you charge the longer it will take you to pay off

15. Disadvantages of Credit
Example:
Credit Card Balance = $3,000
Interest Rate = 19.8%
Minimum Payment = 2% or $60
Time to pay off = 32 years
Interest you would pay = $9,483

16. Disadvantages of Credit
As the credit card bills pile up, you might have problems paying them.
You may reach your credit limit, the point where you can’t charge anymore
Late or missed payments lower your credit rating, which will make it difficult for you to get credit in the future.

17. Disadvantages of Credit
According to a recent report, half of the people with credit problems are b/w the ages of 18 and 32.
Remember to use credit wisely
You will have to pay the money back

18. Types of Credit Short-term loans last for one year or less.
Medium-term loans last for one to five years.
Long-term loans last longer than five years.

19. Charge Accounts
One of the most common types of short-term and medium-term credit is the charge account.
Dealers or stores generally offer these types
Customers will charge items at the store and will pay some of the total when the bill arrives.
There are 3 main types of charge accounts

20. Regular Charge Accounts
These accounts require that you pay for purchases in full within a certain period of time, usually 25 or 30 days
If the bill is paid on time, you don’t have to pay interest.
If you don’t pay the entire bill, interest is charged on the amount that hasn’t been paid.

21. Revolving Charge Accounts
A revolving account allows you to borrow or charge up to a certain amount of money and pay back a part of the total each month.
Interest will be paid on the unpaid amount.

22. Budget Charge Accounts
Budget charge accounts let you pay for costly items in equal payments spread out over a period of time.
Each payment includes part of the total due on the item plus interest.
Large home appliances, cars, and furniture are bought this way

23. Credit Cards
Credit cards are like charge accounts but some can be used in many different places.
Some credit cards have annual fees, which might range from $25 to $80.
Credit card companies earn money from the interest they charge. Interest rates vary a lot.
There are 3 basic types of credit cards

24. Single Purpose Cards
Single-purpose cards can only be used to buy goods or services at the business that issued the card.
Single-purpose cards operate like revolving charge accounts
Each month you receive a statement listing all the purchases you made in the past 30 days

25. Single Purpose Cards You can pay part or the entire amount you owe
Credit cards issued by oil companies, best buy, kohl's are example of single-purpose credit cards
There is no annual fee for single-purpose cards

26. Multipurpose Cards
Multipurpose cards are also called bank credit cards because banks issue them.
Multipurpose cards work like a revolving charge account.
These cards may be used at many different stores, restaurants , and other businesses all over the world
MasterCard and Vise are examples

27. Travel and Entertainment Cards
Travel and entertainment cards usually work like regular charge accounts.
You must pay the full amount due each month.
Cards such as American Express, and Diners Club are examples
They are accepted worldwide for purchases connected with travel, business, or entertainment

28. Banks and Other Financial Institutions
Financial institutions, such as banks, savings and loans, and credit unions offer many types of loans.
Financial institutions usually have the lowest rates on their loans, but they place more demands on the borrower.
For example, they’ll only lend money to people with good credit ratings.

29. Single Payment Loans
The debtor pays back this type of loan in one payment, including interest (at the end of the loan period).
Many farmers secure single payment loans in the spring to pay for their seed and fertilizer
They will then pay it back in the fall after they harvest their crops

30. Installment Loans
Installment loans are loans repaid in regular payments over a period of time.
The debtor makes equal monthly payments, which cover the amount of the loan and the interest.
Examples would include student loans, personal loans, and car loans

31. Mortgage Loan
A mortgage loan is a form of an installment loan only it is written for a long period, such as 15 to 30 years.

32. Self-Provided Credit Many stores provide credit for their customers.
Clothing, Furniture, appliance, boat, and car dealers are among those who offer credit for customers
Generally, seller-provided credit is extended for less than one year up to five years

33. Self-Provided Credit
One of the reasons they provide such credit is to make it easier for consumers to buy their products, and discourage them from going elsewhere.
They offer higher interest rates

34. Consumer Finance Companies
Consumer finance companies specialize in loans to people who might not be able to get credit elsewhere.
The cost of a loan from a consumer finance company is higher than the cost of a loan from other sources since this loan involves a greater risk.

35. Consumer Finance Companies
The interest rate a consumer finance company charges varies from state to state and can be more than 20 percent.
Before getting a loan from one of these companies, check to see if you can secure a comparable loan from a bank, savings and loan, or a credit union

36. Payroll Advance Services
Many people have difficulty making their paychecks stretch from one payday to the next.
If you don’t have any savings and an unexpected expense occurs, you might look for a short-term loan until payday

37. Pawnshop Loan
A pawnshop loan is based on the value of something you own.
For example you could pawn your bicycle for an amount of money that is less than the bike is worth.
You receive a ticket for the item and can redeem, or buy back, your bike w/n a certain period of time for the loan amount plus a service charge

38. Pawnshop Loan
The service charge is like interest that other loans would charge
If you don’t redeem it, the pawnshop sells your bike
Generally the cost of this type of loan is very high

39. Borrow Until Payday Loan
Some businesses provide very short-term loans, usually for 5 to 14 days.
The cost of this kind of loan is especially high.
Percentages could range from 400%-1,000% when calculating it on a annual basis
A payday loan is made without a credit check, but you must have proof of a checking account and employment.

40. Borrow Until Payday Loan
It is strongly recommended that you don’t use this source of credit
People with poor credit ratings are most likely to use this service because they can’t get a loan anywhere else.