210.1 What is Credit?Credit - the ability to borrow money in return for a promise of future repayment.Never borrow more money than you can easily repay!Using creditfor owning a home (called a mortgage) is almost essential.For educationFor health
3When to BorrowSome people do not use credit wisely. They borrow for what they want. Then, when they really need to use credit, they are unable to get a loan.Or, they take on more debt then they are able to repay.
4Before you borrow, ask yourself Is it important that I buy now?Do I have to borrow?Can I afford the payments?Will I be able to buy other products I want more if I borrow now?The interest you will pay on the purchase could be used to buy other things you want. Is it worth the sacrifice?
510.2 How to Qualify for Credit Credit Worthiness - a measure of your reliability to repay a loan.The 3 C’s for CreditCharacter – your sense of financial responsibilityCapacity – ability to repayCapital – value of what you own
6Credit history – record of your borrowing & repayments. Paying bills on time is the most important factor.Work steadiness.Mobility.Attendance.Savings.Co-sign – agree to repay the loan if the you don’t.
7Your Credit Rating Credit rating Payment history Current debt Length of credit historyNew accounts & inquiriesKind of credit you use
8Credit Bureaus – collect credit information & sells to lenders. The three largestTransUnionEquifaxExperian
910.3 Sources of Consumer Credit Two forms: loans and credit card accountsLoansSecured – backed by something of value, “collateral”UnsecuredBanking Institutions as sources of loansFinance companiesLife insurance companiesCredit card cash advancesPawnbrokersRent-to-Own Companies
10Regular charge accounts – must be paid in full each month, no interest Credit CardsRegular charge accounts – must be paid in full each month, no interestRevolving charge accounts – balance may be carried over month to month with minimum payment, pay interestGrace period – the time between the billing date and the payment due date when no interest is chargedCredit Card costsAnnual FeesInterestCredit limitsPenalties
11Control credit card costs Use a loan as an alternativeDon’t just pay the minimum paymentChoose the least expensive card – annual fees, percentage rates
1210.4 Credit Rights and Responsibilities Truth in Lending – 1968all banks must calculate credit costs the same waymust provide finance charge & annual percentage rateEquality in Lending – may not discriminate based on:SexColorRaceReligionmarital statusage
13Rights (cont)Protect Your Credit History – you have access to your credit history & may amend mistakes to itResolve Billing and Product Quality Problems – may withhold payment if you believe there is a mistakeProtection from Abusive Collection Practices
14Responsibility Act Responsibly Know your debt capacity Self-control Pay more than the minimumAvoid too many credit cardsPay cashKeep records
1510.5 Maintaining a Good Credit Rating Do not miss a paymentSave regularlyMarried couple – establish some credit separatelyCommon MistakesPay on timeDon’t skip a payment – call institution immediately for unusual circumstances
16Read what you signAcceleration clause – entire debt is due if you miss a paymentBalloon Payments – final payment much larger than the scheduled paymentsBankruptcy – when you cannot pay debts & must surrender property.The court sells the property to pay the debts.Carried in credit history for 10 years.True-Name Fraud – stolen identity to open charge accountsThe business is responsible to pay the charges.
17Protect Yourself from Fraud Never give your SS# unless absolutely necessary.Keep your records in a safe.Keep track of your bills.