Why Credit is Important FICO or credit score: Credit Card Issuers & Lenders –Determine APR Auto Insurers – Determine Premium Employers – Are you a worthy hire? Landlords –Are you a reliable tenant?
The Three Cs of Credit Character: The way you handle money and have repaid debt in the past. Capacity: Your ability to pay the debt after considering other monthly expenses. Capital: The value of your assets or what you own.
Learning Boosts Earning EducationAverage Annual Income Professional$71,258 Doctorate$60,729 Master's$48,772 Bachelor's$40,387 Associate$26,536 Some college, no degree$20,998 High school graduate only$18,571 Not a high school graduate$10,839
Your Paycheck 50% of U.S. young adults work Earn a minimum of $5.15 per hour Work an average of 20 hours / week $412 - Monthly $4,946 - Annual
Where Does All the Money Go? Food, Snacks & Beverages Movies School Events Music, CDs, Concerts Clothing, Cosmetics & Shoes Cars, Gas & Insurance Cell Phones
Credit Cards – The Perceived Great Equalizer Credit lets you buy more than they can afford. –Credit and credit cards –Current World Problem Needs are essentials –Food –Shelter –Clothing –Reliable transportation Wants are extras –Eating out –Big, expensive house –Shop till you drop –Brand new or an expensive car
Who Uses Credit Cards? U.S. population = 298 million Use credit cards = 150 million Pay off monthly = 50 million Carry a balance = 100 million 2/3 of credit card users dont pay off their balance $9,300 = average debt per household
Americas Love of Credit 1.6 million bankruptcies were filed in 2004 Americans are declaring bankruptcy at 10x the rate they were during the depression
Personal Savings Rate Declining 1974 to 1984 –10% 1985-1994 –Fell to 4.8% 2004 –1.8% 2005 –-0.5% 2006 –-0.7% Hasnt been negative since the Great Depression
Saving for the Future Save 10% of every monthly check Use savings for: –Emergencies –Big purchases Trip with friends Car –Down payment on a home –Retirement
Advantages & Disadvantages of Credit Card Advantages –Convenient –On-line purchases –Kick-backs i.e. cash, airline miles, etc. –Can rent a car Disadvantages –Doesnt seem like real money –Easy to overspend
Use Credit Wisely You should use credit to buy: –House –Car –Education (student loan) and youll avoid trouble
Only Buy What You Can Afford Pay off monthly balances –Avoid interest –Avoid late fees Know your budget Know yourself –Are you an impulse buyer?
Pay More than the Minimum If you have a credit card balance: –Make a plan to pay as much as you can every month –Start with the credit card with the highest interest rate –Pay off the credit cards as quickly as you can
Limit the Number of Cards Americans have an average of 8 credit cards
Always Pay on Time Avoid late fees Keep your money in your pocket Maintain a good credit score –Late payments have the biggest negative impact. Easiest way to make money is to save money.
Choose a Low Rate 0% is lowest –But remember the catch 15.75% average fixed rate. If you pay your card off every month, the rate wont matter.