1. Credit Buy Now, Pay Later

2. Credit Someone is willing to loan you money (principal) in exchange for your promise to pay it back, usually with interest Interest The amount you pay to use someone elses money. The higher the interest rate, the greater the cost of using credit

3. Credit Terminology Annual Percentage Rate (APR) The amount it costs you a year to use credit, expressed as a percentage rate Annual fee Yearly charge for the privilege of using credit Finance Charge Actual dollar cost of using credit Origination fee Associated with home loans – charge for setting up loan

4. Credit Terminology Loan term How long the loan lasts The longer the loan term the greater the cost of using credit

5. Credit Costs Loan Length $100,000 loan at 10% with a loan term of 30 years – a common length for a house End up paying an extra $215,926 Interest Rate Higher the interest rate, the higher the cost of the loan

6. Credit Benefits Access to cash in an emergency The ability to use it now Wouldnt be able to buy a car or home Safety and convenience Avoid carrying large amounts of cash Purchases over the internet and phone Earn bonus points or miles

7. Sources of Credit Credit Cards Installment Loans Student Loans Mortgages

8. Credit Cards APR (Annual Percentage Rate) Annual Fee Grace Period Minimum Payment Credit Limit

9. Installment Loans Loan for a large purchase Car Appliance Make payments on a regular basis (usually monthly) Interest rates lower than credit cards

10. Student Loans Bank Federal Government Low interest rates Tax Break

11. Mortgages Home loan Large amount of money Long period of time (15-30 years) Tax Break

12. Setting Limits of Credit How much is too much? Maximum of 20% of your net income should go toward all of your loan payments (excluding a mortgage) For instance- assume your take home pay is $1000 per month from a full-time job. No more than $200 a month should go towards car payments, credit card payments, etc.

13. Credit Reports Your credit history, a record of your personal (or family) transactions. Reflects your credit history for the past seven to 10 years Build good credit history Dont bounce checks Save Make payments on time

14. Three Cs of getting credit Capacity Ability to repay the loan Character Trustworthy – pay bills on time Capital Own something – car, home, investment accounts, etc.

15. Debt The entire amount of money you owe to lenders

16. Bankruptcy Legal process that allows someone deeply in debt to create a plan to get out. In 2000, 1.2 million Americans filed for bankruptcy

17. Bankruptcy Chapter 7 Erase most of your debt Typically unemployed or very low income Financial counseling as part of the process Chapter 13 Allows you to pay back some of your debts, but with more time Court oversees the repayment plan to ensure accountability.

18. Credit How credit works Costs of credit Advantages of credit Types and sources of credit What happens when you abuse or misuse credit