1. Foundations of Personal Finance Ch. 9

2. Foundations of Personal Finance Ch. 9
Credit 2

3. Chapter Objectives
Explain the __________and disadvantages of using credit.
Identify the different ______of consumer credit.
Describe how to establish a _______ credit__________.
Define the key _______in credit contracts and agreements.
continued

4. Chapter Objectives _______credit terms and charges.
________the steps involved in managing credit.
__________ steps to take in resolving credit problems.
Summarize the ______that govern the use of credit.

5. Understanding Consumer Credit
Credit plays an important role in the economy
Provides extra _______ _______ that supports mass _________and distribution
Helps make more goods and services available to consumers at _______prices
continued

6. Understanding Consumer Credit
Credit is a _________ of ____________
It is an agreement between ____parties
____________ supplies money, goods, or services to the borrower
____________agrees to make future payment by a particular date or according to an agreed-upon schedule
continued

7. Understanding Consumer Credit
There is a ______that the borrower cannot repay what is owed
Creditors __________risk by
having borrowers sign a___________
taking a borrower who _________to ________and even taking back property

8. Foundations of Personal Finance Ch. 9
Reasons to Use Credit
Gives you the ___________to buy _______items that you may not be able to buy with cash
continued

9. Reasons to Use Credit
You can _____ _____ and _______as you pay for them
Credit can be used as a ________of ______ for emergencies and unexpected expenses
You can take ________of ____ _______ when you don’t have cash
continued

10. Reasons to Use Credit
____________eliminates the need to carry a lot of cash
provides a purchase__________
__________ ___________ by phone, mail, and Internet
You can make purchases that are part of a _____-______ financial ______: education, furniture, vacation

11. Drawbacks of Credit Use
Using credit _______ _______ _______
________—using credit costs money (finance_________)
_________—using credit makes it easy to spend money you don’t have
________of serious consequences—financial problems arise when debts aren’t paid on time and in full

12. Foundations of Personal Finance Ch. 9
Cost of Credit
Using credit is ______ _______ than paying with cash
continued

13. Cost of Credit Borrowers must pay ________plus finance_________
Finance charges _______ _________ for
The ______of making credit available
taking the _______ that borrowers may default
continued

14. Cost of Credit Creditors
May ________money to make credit available; when they borrow, they must also pay_______________
______the ________to ________money
_______ __________ for opening and servicing credit accounts
_______ __________ of unpaid accounts and cost of _________overdue debts

15. Finance Charges Are the dollar amounts paid for credit
Consist of _____ _______: _________and_______
Are expressed as_____________

16. Foundations of Personal Finance Ch. 9
In Your Opinion
Have you ever lent money to a friend? Based on your experience, do you think creditors deserve to be paid a finance charge?

17. Annual Percentage Rate (_____)
The _____ the APR, the _____you pay
Example: Interest for a $500 loan repaid in 12 monthly payments would cost
$50.08 at 18%
$58.72 at 21%
$67.36 at 24%

18. Amount of Credit Used The ______ _______ you_____, the _____you _____
Example: Interest on a loan repaid in 12 monthly payments at an APR of 18% would cost
$50.08 for a $500 loan
$ for a $1,000 loan
$ for a $2,000 loan

19. Length of Repayment Period
The ______you take to _____what you borrowed, the ____you_____
Example: Interest on a $500 loan at 1.5% per month (18% APR) would cost
$50.08 if repaid in 12 monthly payments
$99.44 if repaid in 24 monthly payments
$ if repaid in 36 monthly payments

20. Foundations of Personal Finance Ch. 9
_______of Credit
_____-____ credit must be repaid by a ______ _____
____-____ credit allows the borrower to use money for an ________ _______

21. Closed-End Credit
Most are _______ ______ that let you borrow a given amount of money and repay it with interest in regular installments
Examples: student_____, car loans, most home loans
continued

22. Closed-End Credit
A _____ _____requires_________—finance _____may be _____because creditor can take _________if loan is not repaid
An ________ ______—finance ______are usually ______because no collateral; borrower must have strong credit rating or a_________

23. Open-End Credit
Borrower can _______to ____ credit if he or she makes ________ _______, pays finance charges, and stays within borrowing limit
_________charge accounts
____________credit accounts
Offered by retailers, merchants, banks, credit agencies
continued

24. Foundations of Personal Finance Ch. 9
Open-End Credit
You must make at least the ________ _________ each month
Total amount you may owe at any one time is limited

25. __________ Credit Start with a_______ Open a __________account
Apply for a _______card at a local department store or gas company

26. Your Credit Rating
________whether you can get _____and what you will _____for it
Is measured by the ____Cs—_________, ___________, and ____________
A ___________applicant is judged to have the______, ________, and tendency to _______debt

27. The Credit Report
______major national agencies ____ credit ______to____________
_____agency ________ __________ about financial and credit transactions
The information on these reports often_________
Carefully _______your credit reports and report errors to agencies
continued

28. Foundations of Personal Finance Ch. 9
The Credit Report
The report lists
_____credit ______ever_________
Outstanding________
_______ _____, such as _____payments, _______ _____, _______________

29. Credit_______
A credit score is a numerical _________of a loan applicant’s________________
The _______the score, the __________a person’s__________________
The ______the score,
the more ________you will have ______ _______
The _____ _________ credit will be
continued

30. Credit Scores Credit score factors:
Bill_____________
_______ -to-__________-limit-_________
Credit _______ __________
Recent credit application
Different types of credit
You may have more than one credit score generated by different agencies

31. Foundations of Personal Finance Ch. 9
Getting a Credit Card
Common types of credit cards include
_______-purpose
company or _______store
travel and____________

32. Shopping for a Credit Card
_________possible _____,__________, and consequences of failing to carry out the terms of the agreement
Be wary of __________clauses, _________payments, and add-on clauses

33. Foundations of Personal Finance Ch. 9
The Contract
_______the ___________(application) thoroughly before signing it

34. Disclosures Annual percentage rates: What is the______?
_____ _____ will a lower __________ _____ last? What is the ______ _____?
Can the rate be raised for any reason?
Is the rate fixed or variable?
continued

35. Disclosures What is the ______period?
What ________is used to calculate the interest rate?
Is there an ______ _____? If so, how much?
What are fees for
late payments
exceeding credit limit
cash advances
balance transfers

36. ___________Credit Cards
_______to get; offered to those with _______ _______ histories
Often carry _____ ______ rates, _____ annual______, and other charges
______ credit _________
Often a ____ ________ for consumers

37. Foundations of Personal Finance Ch. 9
Managing Your Credit
_____your financial
_______________.
What are your money attitudes and_________?
continued

38. _________Your Credit Keep track of__________ Create a____________
Don’t use more credit than you can pay off each month
_______your _________and keep a _____of credit charges

39. Remember _________to Using__________
______to buy
Pay with___________
_________buying now and buy later with cash

40. Check Monthly Statements
Foundations of Personal Finance Ch. 9
Check Monthly Statements
Check statements against your own record of charges, payments, and credits

41. Check Your Credit Report Regularly
Foundations of Personal Finance Ch. 9
Check Your Credit Report Regularly
Find and ______ ______ immediately
Make sure no one has applied for credit in your_________

42. Report Lost or Stolen Cards
______a _____of your credit cards—issuers, account numbers, issuer phone numbers
______ _____ or stolen _____right away
If your card is lost or stolen, you are responsible for
$____ per card that is charged by others
no charges made by others if you notify the issuer before the card is used

43. Handling Credit Problems
Poor credit use consequences:
________to get _______ and credit cards
Paying ______ ________ rates for credit
Having _______ _________ _________
Having _______ ______ prospects because many employers check credit reports
Paying ________ _________ premiums
continued

44. Handling Credit Problems
Blemishes on credit reports:
Accurate negative information, such as missed or late payments, may remain on your report for ________ _______
Bankruptcies may remain on your report for _____years
continued

45. Foundations of Personal Finance Ch. 9
In Your Opinion
Would you cosign a loan for your best friend or a family member if doing so would endanger your credit rating?

46. Handling Credit Problems
Actions taken to recover debts:
__________are hired to get _____________
___________of property, including_____________
________ against property
Wage___________________

47. ______________
Desperate debtors _____ ______—file for personal bankruptcy
________ ________ _______ from repaying some or all debt
_________ _______ up certain _______ and possessions
Two types—Chapter ___and Chapter__
Consequences of bankruptcy are severe

48. The Easy-Access Credit Trap
______-access credit includes
_______ loans
___________________
______________
__________ loans
A ______shark is someone who uses predatory lending tactics and easy-access credit

49. Foundations of Personal Finance Ch. 9
______ ____________
They may change payment dates and amounts if you have trouble paying bills

50. Get Credit____________
Use reputable nonprofit credit counseling services
Avoid credit counseling firms that
charge high fees
demand that the debtor pay them rather than their creditors

51. Consumer Credit Legislation
______in ______ ____ requires creditors to tell consumers what credit will_____
______Credit ________ Act prohibits creditors from __________against consumers
_____Credit _______Act requires ________and _________ of credit report information
continued

52. Consumer Credit Legislation
Fair Credit Billing Act protects consumers from unfair billing practices
Electronic Funds Transfer Act protects consumers in EFT transactions
Fair Debt Collection Practices Act protects consumers against unfair methods of collecting debts
continued

53. Consumer Credit Legislation
Preservation of Consumers’ Claims and Defenses Ruling ______ ______ who have a legitimate ______with a seller
Bankruptcy Abuse Prevention and Consumer Protection Act
was meant to increase fairness of the bankruptcy system
makes filing for bankruptcy more________

54. Central Ideas of the Chapter
Credit is a powerful financial management tool.
Serious financial problems result from the misuse of credit.

55. Glossary of Key Terms
Back
annual percentage rate (APR). The annual cost of credit a lender charges.
bankruptcy. A legal state in which the courts excuse a debtor from repaying some or all debt. In return, the debtor must give up certain assets and possessions.
closed-end credit. A loan that must be repaid with finance charges by a certain date.

56. Glossary of Key Terms
Back
collateral. Property that a borrower promises to give up in case of default.
contract. A legally binding agreement between a borrower and a creditor.
cosigner. A responsible person who signs a loan along with a borrower thereby agreeing to pay the obligation if the borrower fails to do so.

57. Glossary of Key Terms
Back
credit. An arrangement that allows consumers to buy goods or services and pay for them later.
credit card. Allows consumers to make purchases or borrow money on a time-payment plan.
creditor. The party that supplies money, goods, or services in a credit agreement.

58. Glossary of Key Terms
Back
credit report. A record of a person’s credit history and financial behavior.
creditworthy. A credit applicant judged to have the assets, income, and tendency to repay debt.
default. When a borrower fails to pay the debt owed.

59. Glossary of Key Terms
Back
easy-access credit. A short-term, high-interest loan granted to borrowers regardless of credit history.
foreclosure. The forced sale of a property.
garnishment. A legal procedure requiring a portion of a debtor’s pay to be set aside by the person’s employer to pay creditors.

60. Glossary of Key Terms
Back
grace period. The time between the billing date and the start of interest charges.
lien. A legal claim on a borrower’s property by a creditor who is owed money.
loan shark. Someone who loans money at excessive rates of interest.
open-end credit. Allows the borrower to use a certain amount of money for an indefinite period of time.

61. Glossary of Key Terms
Back
pawnshop. A business that gives customers high-interest loans with personal property, such as jewelry, held as collateral.
payday loan. A short-term, high interest loan that must usually be repaid on the borrower’s next payday.
principal. The amount borrowed on a loan.

62. Glossary of Key Terms
Back
rent-to-own. A credit arrangement in which a consumer pays rent for the use of a product and eventually owns it.
repossession. A lender takes back collateral when a borrower fails to repay a loan.
secured loan. A loan that requires collateral.
title loan. A loan made using the borrower’s car as collateral.