2How To Do Your BankingChapter 6: A good credit rating sets wheels in motion.
3CREDIT Graphic Organizer The class will be divided into teams of 2 or 3. Each team will be assigned a section from Chapter 6.Each team will create a poster for the classroom graphic organizer. Posters should contain the following information:The name of the assigned section.Define any vocabulary words.Explain any advantages/disadvantages, do’s/don’ts, tips.Explain any criteria.Explain any steps in a process.Provide examples of vocabulary words and mathematical calculations.Include at least 1 picture/graphic.The team’s poster will be displayed in class so make sure the poster is legible and use correct grammar, capitalization, spelling, and punctuation. Also remember to identify each team member and the date on the poster.Each team will present its poster to the class. Each team member must speak an equal amount during the presentation.
4CREDIT Graphic Organizer Topics What Is Credit?The Cost Of CreditHow To Shop For CreditHow To Apply For A LoanTypes Of LoansCredit Ratings and ScoresIdentify Theft
5What Is Credit? Credit is your reputation for financial responsibility Does the lender believe you will repay your debt?Credit is the time allowed for payment for something sold on trustDo you repay your debt on time?Credit is a source of revenue for financial institutionsPay low rates on savings accountsCharge high rates on loansCredit is “tomorrow’s” moneyYou are spending future income so that you may have something today.
6Don’t Abuse Credit Ask yourself Do the benefits greatly outweigh the cost of credit?A carA homeIs it an emergency?Is this a profitable opportunity?Starting a new business
7The Cost Of Credit Finance charges Principal Term The rent you pay for using someone else’s moneyConsists of interest and any additional feesPrincipalThe amount borrowedTermThe length of time you have use of the moneyAnnual Percentage Rate (APR)The true rate of the cost of credit on a yearly basis
8Calculating the Cost of Credit Finance Charge = A(N + 1)(APR)2PMonthly Payment = A + FCNA = Amount of money borrowed N = Total number of payments APR = Annual Percentage Rate P = Number of payments per year FC = Finance Charge
9Calculating the Cost of Credit Refer to “The Cost of Borrowing” worksheet.Complete examples together: #1 and #4Complete the remaining calculations on “The Cost of Borrowing” worksheet.
10How To Shop For Credit Comparison Categories Finance charge Annual percentage rate (APR)Amount borrowed (principal)Total amount paidPrincipal + Finance ChargesDown paymentInitial payment toward purchase of the itemAmount of each paymentTotal numbers of paymentsCollateralSomething you promise to give up as repayment if you can’t repay the loanRefer to the Best Buy Worksheet on page 25. Identify at least 1 advantage and 1 disadvantage of each loan from Lenders A, B, C, and D.
11How To Apply For A Loan The financial institution wants to know: Credit HistoryGiven your credit track record, will you repay the loan?CapacityGiven your current income and expenses, do you make enough money to repay the loan?CollateralGiven your current assets, do you have anything we can take if you don’t repay the loan?CharacterHow stable is your lifestyle?Which of the items above do you believe is most important to the bank? Rank the 4Cs above in order of importance (1 most important – 4 least important) and explain why you chose the rank for each item.
12How To Build A Credit History Open a checking accountOpen a savings accountChoose 1 of the following ifYou can make payments consistently on time!ANDYou pay full balance of any credit card each month!Open a department store charge accountOpen a gasoline credit cardApply for a car loan
13Types Of Loans Personal vs. Business Loan made to an individualBusinessLoan made to a business/company/corporationAKA Commercial LoanInstallment Loan vs. Revolving CreditInstallment LoanFor a specific purposeFixed total amount of money, length of time, monthly paymentAKA: Closed-End CreditRevolving CreditPurpose not specifiedMaximum amount of money specifiedVariable length of time, monthly paymentAKA: Line Of Credit, Open-End CreditSecured vs. UnsecuredSecuredCollateral requiredUnsecuredCollateral not requiredAKA: Signature LoanCredit CardRepaid in monthly payments of a variable amountType of revolving credit
14Credit ApplicationYou need a loan for _____ . Here are some tips for filling out an application:Read the entire application firstGet more than one copy in case you make mistakesFollow all instructionsPrint clearly and neatlyUse blue or black inkDon’t leave blanks – If something does not apply to you write Does Not ApplyMake sure everything is spelled correctlyMake sure all information is accurateComplete the sample loan application. Evaluate your loan application. If you were a banker, would give yourself a loan (based on your loan application)? Why or Why not? What could you do to improve your chances of getting a loan in the near future?
15Credit Score Based on your past use of credit A high number is better than a low oneA good credit score results in a lower interest rateFICOOne type of credit scoreCreated by Fair Isaac CorporationRanges fromMost people are in the rangeA 720 guarantees the most favorable interest rate
16What Determines Your Credit Score 35% = how you pay your bills30% = the amount of money you owe and the amount of available credit you have15% = length of your credit history10% = mix of installment and revolving credit10% = number of credit applicationsComplete Part 1 of the Credit History handout.Discuss answers to Part 1.Complete Part 2 of the Credit History handout.Discuss answers to Part 2.
17Identity Theft Guard personal identification Don’t write passwords on paperDon’t throw away documents containing personal informationScrutinize all statements and billsAnnually review your credit reportUse a secure computer system
18Banking Acts Equal Credit Opportunity Act Truth In Lending Credit cannot be denied because of race, color, age, sex, marital statusTruth In LendingFair and Accurate Credit Transactions Act of 2003
19How To Do Your BankingChapter 7: Now you’re the lender.
20Mary Weems Read pages 29-30. Watch the Mary Weems scenario. Read Mary’s credit report on page 31 and her loan application on page 32.Complete the loan sheet for Mary on page 33.Analyze Mary’s case by responding to the questions on the Mary Weems Case handout.Show your instructor the completed loan sheet and your case analysis (responses to the questions).Meet with the other members of the loan committee to determine if Mary’s loan will be approved or declined.
21Hawley Davidson Watch the Hawley Davidson scenario. Read Hawley’s credit report on page 31 and his loan application on page 34.Complete the loan sheet for Hawley on page 35.Analyze Hawley’s case by responding to the questions on the Hawley Davidson Case handout.Show your instructor the completed loan sheet and your case analysis (responses to the questions).Meet with the other members of the loan committee to determine if Hawley’s loan will be approved or declined.