1. Lesson 7-2 Getting Started with Credit Learning Objectives: - Compare the sources of credit - List and explain the benefits of credit

2. Getting Credit  Credit is the ability to borrow money and pay it back later. The repayment usually involves interest  The purpose of credit is to allow buyers to purchase items and pay for them later.  The person who borrow money is called a debtor.  The person who lends money (the lender) is called the creditor.  Before getting credit, should have a checking or savings account first and prove that you can manage them.  Apply for credit – provide name, address, social security number, where do you work, how much do you make, and how long have you worked there.

3. Types of credit  Service Credit is the ability to receive services and pay for them later. Examples are the use of electricity, water, sewer, and other utilities. May also receive from doctors, dentists, and others.  Credit Cards are a plastic card linked to a credit account that can be used to make purchases. Credit cards are available from banks and other companies. Ex. Visa, Mastercard, Discover  Revolving credit is an account which the account holder can charge repeatedly up to a maximum amount.  Interest is charged on outstanding balances every month. Interest on credit cards can be quite high.  Store Accounts are a credit account that allows you to charge items or services only at that store or with that merchant.  Store accounts may be revolving credit accounts or them may be installments plans.  Installment credit is credit used to finance a single-high-priced item through a series of equal payments made over a set period of time.

4. Types of Credit (cont’d)  Charge Cards are a form of credit card where the balance must be paid in full each month. These often require a large annual fee. Ex. American Express, Diners Club.  Consumer Loans are a direct loan of cash made to a consumer at a fixed interest rate for a set period of time.  The lender may require the borrower to offer security for the loan. Property that can be used as security for a loan is called collateral.  If the borrower does not repay the loan, the lender may take possession of the collateral and sell it to get the money owed.  If the borrower does not have collateral to offer, the lender may require a cosigner. A cosigner agrees to make the payments if the borrower does not make payments.  Line of Credit is a preapproved loan amount that a debtor can borrow against, pay back, and borrow again as needed.

5. Benefits of Credit  Convenience and Rewards  Easy to use and don’t have to carry large amounts of cash  Rewards programs - receive points or other bonuses, such as cash back  Increased Spending Power  Allows you to buy now what you might have to wait for up to a year to save for.  Records and Protection – Some credit card companies offer various benefits or protections such as:  You pay no charge for any fraudulent use of the card  You can withhold payment for disputed items while the dispute is being investigated.  If a store refuses to refund the price of a returned item, the credit card company will refund the purchase price up to a certain dollar limit.  If goods are damaged or stolen within 90 days of service, the credit card company will replace or refund eligible items.  You can receive an emergency replacement for a lost card quickly, often within 24 hours.

6. Credit Reports and your Credit Score  A credit report contains a complete record of your borrowing and repayment history.  Your credit score, also known as your FICO, is compiled on a point system.  FICO stands for Fair Isaac Corporation, the group that designed the credit scoring system.  Credit scores are based on payment history (35 %), amounts owned (30%), length of credit history (15%), new credit (10%), and types of credit (10%).  Excellent FICO Score 700-850 range  Very Good Score 600’s – often have to have this to get a mortgage  Average 500’s  Below 500 means lack of credit or poor credit

7. Assignment  Pg. 234 – do problems 1-12, 15, 16, 18, 19