3Chapter ObjectivesExplain the __________and disadvantages of using credit.Identify the different ______of consumer credit.Describe how to establish a _______ credit__________.Define the key _______in credit contracts and agreements.continued
4Chapter Objectives _______credit terms and charges. ________the steps involved in managing credit.__________ steps to take in resolving credit problems.Summarize the ______that govern the use of credit.
5Understanding Consumer Credit Credit plays an important role in the economyProvides extra _______ _______ that supports mass _________and distributionHelps make more goods and services available to consumers at _______pricescontinued
6Understanding Consumer Credit Credit is a _________ of ____________It is an agreement between ____parties____________ supplies money, goods, or services to the borrower____________agrees to make future payment by a particular date or according to an agreed-upon schedulecontinued
7Understanding Consumer Credit There is a ______that the borrower cannot repay what is owedCreditors __________risk byhaving borrowers sign a___________taking a borrower who _________to ________and even taking back property
8Foundations of Personal Finance Ch. 9 Reasons to Use CreditGives you the ___________to buy _______items that you may not be able to buy with cashcontinued
9Reasons to Use CreditYou can _____ _____ and _______as you pay for themCredit can be used as a ________of ______ for emergencies and unexpected expensesYou can take ________of ____ _______ when you don’t have cashcontinued
10Reasons to Use Credit____________eliminates the need to carry a lot of cashprovides a purchase____________________ ___________ by phone, mail, and InternetYou can make purchases that are part of a _____-______ financial ______: education, furniture, vacation
11Drawbacks of Credit Use Using credit _______ _______ _______________—using credit costs money (finance_________)_________—using credit makes it easy to spend money you don’t have________of serious consequences—financial problems arise when debts aren’t paid on time and in full
12Foundations of Personal Finance Ch. 9 Cost of CreditUsing credit is ______ _______ than paying with cashcontinued
13Cost of Credit Borrowers must pay ________plus finance_________ Finance charges _______ _________ forThe ______of making credit availabletaking the _______ that borrowers may defaultcontinued
14Cost of Credit Creditors May ________money to make credit available; when they borrow, they must also pay_____________________the ________to ________money_______ __________ for opening and servicing credit accounts_______ __________ of unpaid accounts and cost of _________overdue debts
15Finance Charges Are the dollar amounts paid for credit Consist of _____ _______: _________and_______Are expressed as_____________
16Foundations of Personal Finance Ch. 9 In Your OpinionHave you ever lent money to a friend? Based on your experience, do you think creditors deserve to be paid a finance charge?
17Annual Percentage Rate (_____) The _____ the APR, the _____you payExample: Interest for a $500 loan repaid in 12 monthly payments would cost$50.08 at 18%$58.72 at 21%$67.36 at 24%
18Amount of Credit Used The ______ _______ you_____, the _____you _____ Example: Interest on a loan repaid in 12 monthly payments at an APR of 18% would cost$50.08 for a $500 loan$ for a $1,000 loan$ for a $2,000 loan
19Length of Repayment Period The ______you take to _____what you borrowed, the ____you_____Example: Interest on a $500 loan at 1.5% per month (18% APR) would cost$50.08 if repaid in 12 monthly payments$99.44 if repaid in 24 monthly payments$ if repaid in 36 monthly payments
20Foundations of Personal Finance Ch. 9 _______of Credit_____-____ credit must be repaid by a ______ _________-____ credit allows the borrower to use money for an ________ _______
21Closed-End CreditMost are _______ ______ that let you borrow a given amount of money and repay it with interest in regular installmentsExamples: student_____, car loans, most home loanscontinued
22Closed-End CreditA _____ _____requires_________—finance _____may be _____because creditor can take _________if loan is not repaidAn ________ ______—finance ______are usually ______because no collateral; borrower must have strong credit rating or a_________
23Open-End CreditBorrower can _______to ____ credit if he or she makes ________ _______, pays finance charges, and stays within borrowing limit_________charge accounts____________credit accountsOffered by retailers, merchants, banks, credit agenciescontinued
24Foundations of Personal Finance Ch. 9 Open-End CreditYou must make at least the ________ _________ each monthTotal amount you may owe at any one time is limited
25__________ Credit Start with a_______ Open a __________account Apply for a _______card at a local department store or gas company
26Your Credit Rating________whether you can get _____and what you will _____for itIs measured by the ____Cs—_________, ___________, and ____________A ___________applicant is judged to have the______, ________, and tendency to _______debt
27The Credit Report______major national agencies ____ credit ______to_________________agency ________ __________ about financial and credit transactionsThe information on these reports often_________Carefully _______your credit reports and report errors to agenciescontinued
28Foundations of Personal Finance Ch. 9 The Credit ReportThe report lists_____credit ______ever_________Outstanding_______________ _____, such as _____payments, _______ _____, _______________
29Credit_______A credit score is a numerical _________of a loan applicant’s________________The _______the score, the __________a person’s__________________The ______the score,the more ________you will have ______ _______The _____ _________ credit will becontinued
30Credit Scores Credit score factors: Bill____________________ -to-__________-limit-_________Credit _______ __________Recent credit applicationDifferent types of creditYou may have more than one credit score generated by different agencies
31Foundations of Personal Finance Ch. 9 Getting a Credit CardCommon types of credit cards include_______-purposecompany or _______storetravel and____________
32Shopping for a Credit Card _________possible _____,__________, and consequences of failing to carry out the terms of the agreementBe wary of __________clauses, _________payments, and add-on clauses
33Foundations of Personal Finance Ch. 9 The Contract_______the ___________(application) thoroughly before signing it
34Disclosures Annual percentage rates: What is the______? _____ _____ will a lower __________ _____ last? What is the ______ _____?Can the rate be raised for any reason?Is the rate fixed or variable?continued
35Disclosures What is the ______period? What ________is used to calculate the interest rate?Is there an ______ _____? If so, how much?What are fees forlate paymentsexceeding credit limitcash advancesbalance transfers
36___________Credit Cards _______to get; offered to those with _______ _______ historiesOften carry _____ ______ rates, _____ annual______, and other charges______ credit _________Often a ____ ________ for consumers
37Foundations of Personal Finance Ch. 9 Managing Your Credit_____your financial_______________.What are your money attitudes and_________?continued
38_________Your Credit Keep track of__________ Create a____________ Don’t use more credit than you can pay off each month_______your _________and keep a _____of credit charges
39Remember _________to Using__________ ______to buyPay with____________________buying now and buy later with cash
40Check Monthly Statements Foundations of Personal Finance Ch. 9Check Monthly StatementsCheck statements against your own record of charges, payments, and credits
41Check Your Credit Report Regularly Foundations of Personal Finance Ch. 9Check Your Credit Report RegularlyFind and ______ ______ immediatelyMake sure no one has applied for credit in your_________
42Report Lost or Stolen Cards ______a _____of your credit cards—issuers, account numbers, issuer phone numbers______ _____ or stolen _____right awayIf your card is lost or stolen, you are responsible for$____ per card that is charged by othersno charges made by others if you notify the issuer before the card is used
43Handling Credit Problems Poor credit use consequences:________to get _______ and credit cardsPaying ______ ________ rates for creditHaving _______ _________ _________Having _______ ______ prospects because many employers check credit reportsPaying ________ _________ premiumscontinued
44Handling Credit Problems Blemishes on credit reports:Accurate negative information, such as missed or late payments, may remain on your report for ________ _______Bankruptcies may remain on your report for _____yearscontinued
45Foundations of Personal Finance Ch. 9 In Your OpinionWould you cosign a loan for your best friend or a family member if doing so would endanger your credit rating?
46Handling Credit Problems Actions taken to recover debts:__________are hired to get ________________________of property, including_____________________ against propertyWage___________________
47______________Desperate debtors _____ ______—file for personal bankruptcy________ ________ _______ from repaying some or all debt_________ _______ up certain _______ and possessionsTwo types—Chapter ___and Chapter__Consequences of bankruptcy are severe
48The Easy-Access Credit Trap ______-access credit includes_______ loans___________________________________________ loansA ______shark is someone who uses predatory lending tactics and easy-access credit
49Foundations of Personal Finance Ch. 9 ______ ____________They may change payment dates and amounts if you have trouble paying bills
50Get Credit____________ Use reputable nonprofit credit counseling servicesAvoid credit counseling firms thatcharge high feesdemand that the debtor pay them rather than their creditors
51Consumer Credit Legislation ______in ______ ____ requires creditors to tell consumers what credit will___________Credit ________ Act prohibits creditors from __________against consumers_____Credit _______Act requires ________and _________ of credit report informationcontinued
52Consumer Credit Legislation Fair Credit Billing Act protects consumers from unfair billing practicesElectronic Funds Transfer Act protects consumers in EFT transactionsFair Debt Collection Practices Act protects consumers against unfair methods of collecting debtscontinued
53Consumer Credit Legislation Preservation of Consumers’ Claims and Defenses Ruling ______ ______ who have a legitimate ______with a sellerBankruptcy Abuse Prevention and Consumer Protection Actwas meant to increase fairness of the bankruptcy systemmakes filing for bankruptcy more________
54Central Ideas of the Chapter Credit is a powerful financial management tool.Serious financial problems result from the misuse of credit.
55Glossary of Key TermsBackannual percentage rate (APR). The annual cost of credit a lender charges.bankruptcy. A legal state in which the courts excuse a debtor from repaying some or all debt. In return, the debtor must give up certain assets and possessions.closed-end credit. A loan that must be repaid with finance charges by a certain date.
56Glossary of Key TermsBackcollateral. Property that a borrower promises to give up in case of default.contract. A legally binding agreement between a borrower and a creditor.cosigner. A responsible person who signs a loan along with a borrower thereby agreeing to pay the obligation if the borrower fails to do so.
57Glossary of Key TermsBackcredit. An arrangement that allows consumers to buy goods or services and pay for them later.credit card. Allows consumers to make purchases or borrow money on a time-payment plan.creditor. The party that supplies money, goods, or services in a credit agreement.
58Glossary of Key TermsBackcredit report. A record of a person’s credit history and financial behavior.creditworthy. A credit applicant judged to have the assets, income, and tendency to repay debt.default. When a borrower fails to pay the debt owed.
59Glossary of Key TermsBackeasy-access credit. A short-term, high-interest loan granted to borrowers regardless of credit history.foreclosure. The forced sale of a property.garnishment. A legal procedure requiring a portion of a debtor’s pay to be set aside by the person’s employer to pay creditors.
60Glossary of Key TermsBackgrace period. The time between the billing date and the start of interest charges.lien. A legal claim on a borrower’s property by a creditor who is owed money.loan shark. Someone who loans money at excessive rates of interest.open-end credit. Allows the borrower to use a certain amount of money for an indefinite period of time.
61Glossary of Key TermsBackpawnshop. A business that gives customers high-interest loans with personal property, such as jewelry, held as collateral.payday loan. A short-term, high interest loan that must usually be repaid on the borrower’s next payday.principal. The amount borrowed on a loan.
62Glossary of Key TermsBackrent-to-own. A credit arrangement in which a consumer pays rent for the use of a product and eventually owns it.repossession. A lender takes back collateral when a borrower fails to repay a loan.secured loan. A loan that requires collateral.title loan. A loan made using the borrower’s car as collateral.