Presentation on theme: "CREDIT Chapter. CREDIT Advantages/Disadvantages l purchasing power l standard of living l provides emergency funds l budgeting l receipts l safety l Can."— Presentation transcript:
CREDIT Advantages/Disadvantages l purchasing power l standard of living l provides emergency funds l budgeting l receipts l safety l Can cost more l Reduces comparison shopping l Ties up future income l Can lead to overspending
Preventing Credit Card Fraud l Carry only the cards you need l Keep a list of # in safe place l Notify creditors if lost or stolen l Keep copy of receipts to compare to bill l Notify creditor is discrepancy appears l Sign new cards l Destroy (cut) expired cards l Dont give numbers over phone l Keep card in view at all times
Sources of Credit l Merchants - retail stores l Banks and Credit Unions –Loans, Credit Vs. Debit l Finance Companies –Small Loans, High Rates l Pawnshops l Private Lenders - family, friends l Unlicensed Lenders –Loan Sharks (lowest rate 120% - ILLEGAL!
Kinds of Credit l Open-Ended Credit ( Credit Cards ) –Open 30-day accounts Must pay full balance each month (diners club/amex) –Revolving credit accounts Pay in full or min. payment l Closed-End Credit (Specified Amount) –Installment loans l Service Credit (Service Given - Pay Later) l Layaway Plans (Down Payment - weekly/mthly )
3 Cs of Credit l Character - will you repay how much you owe, if you pay on time financial responsibility. (Credit history) l Capacity - can you repay do you have $ left over after fixed expenses? Income/expenses (time at current job/house) l Capital - value of what you own savings, investments, property. Assets (collateral)
Credit Records/Reports/Bureaus l A co. That gathers and sells credit information is called a consumer reporting agency (CRA) or credit bureaus. –Computerized. –Name, address, ss#, income, public records, current accounts, loans, bounced checks, payment patterns, sued, etc. –Trans union, Equifax, and Experian l Who sees your report? –Creditors considering granting you credit, employers for employment, insurers, court orders.
l Excellent –Always pays bills on or before due date. –Better if married, owns home, +5 yr. job. l Good –Pays bills on due date or within 10 day grace period l Fair –Pays bills in grace period, occasionally longer –Sometimes assessed late charges l Poor –Misses payments, reminders needed. –Threats to collection agency
Your Credit Rights l Fair Credit Reporting Act. –Promotes the accuracy and privacy of information in consumer credit reports. –If denied credit you can get a free report. –Right to present your side of the story in a brief 100 word statement. l Equal Credit Opportunity Act. –Lenders cant discriminate on the basis of sex, marital status, race, religion, age (18), etc. l Truth and Lending Law & Consumer Credit Protection Act –Know how being charged (APR, Annual Fee, etc.)
Avoiding Unnecessary Credit Costs l Accept only the amount of credit that you need. l Keep cards to a minimum. l Pay cash for small purchases. l Shop for loans. l Use credit to beat inflation. l Time purchases carefully - know your billing dates. l Take advantage of rebate programs.
Creditors Calculate Finance Charges by: l Adjusted Balance Method –pay finance charge only on unpaid amount –$300 - you pay $250 (finance charge on) l Previous Balance Method –Most expensive way. Pay finance charge on the whole month. (allows no deductions on payments made) l Average Daily Balance –Adding all daily balances and dividing by the number of days in the cycle (25-30) –$300 - you pay 250 got there on the 15th - $50 left –300*15 50*15 divided by # of days
How to Select a Credit Card l Distribute Handout l Study for short quiz tomorrow
LOANS l Secured loan - assets offered as collateral to guarantee payment l Unsecured loan - no specific assets are pledged by the credit user as security. Co-signers must pay!
BANKRUPTCY l Involuntary - Debtor is declared bankrupt by a court –Take assets and distribute (proportional share) l Voluntary - a person asks to be declared insolvent (bankrupt) ON FILE FOR YEARS!!!!!!
BANKRUPTCY l Advantages –Debts are erased. –Exemptions are allowed. –Certain income is unaffected. –The cost is small. l Disadvantages –Credit is damaged. –Property is lost. –Some obligations. remain (Taxes, Child support, alimony). –Cosigners must pay.
TYPES l Chapter 11 - for businesses can retain control or court appoints a trustee l Chapter 7 (straight) - Liquidation, assets sold to get cash to pay off debts. Must give up all property except for exempted items. l Chapter 13 - Court enforced plan to repay (3 yrs.) - keep all property –Reaffirmation - an agreement to repay after bankruptcy proceedings are completed
TERMS l Reaffirmation - Agreement to repay some debts after bankruptcy proceeding are completed l Exempted items - property the law allows a debtor to keep or protect in declaring bankruptcy l Discharge - the balance of debts no longer owed after bankruptcy