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© Goodheart-Willcox Co., Inc.
© Goodheart-Willcox Co., Inc. Chapter Objectives Explain 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
© Goodheart-Willcox Co., Inc. Chapter 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.
© Goodheart-Willcox Co., Inc. Understanding Consumer Credit Credit plays an important role in the economy Provides extra _______ _______ that supports mass _________and distribution –H–Helps make more goods and services available to consumers at _______prices continued
© Goodheart-Willcox Co., Inc. Understanding 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 schedule continued
© Goodheart-Willcox Co., Inc. Understanding Consumer Credit There is a ______that the borrower cannot repay what is owed Creditors __________risk by –h–having borrowers sign a___________ –t–taking a borrower who _________to ________and even taking back property
© Goodheart-Willcox Co., Inc. Reasons to Use Credit Gives you the ___________to buy _______items that you may not be able to buy with cash continued
© Goodheart-Willcox Co., Inc. Reasons to Use Credit You can _____ _____ and _______as you pay for them Credit can be used as a ________of ______ for emergencies and unexpected expenses You can take ________of ____ _______ when you don’t have cash continued
© Goodheart-Willcox Co., Inc. Reasons to Use Credit –_–____________eliminates the need to carry a lot of cash –p–provides a purchase__________ –_–__________ ___________ by phone, mail, and Internet You can make purchases that are part of a _____-______ financial ______: education, furniture, vacation
© Goodheart-Willcox Co., Inc. Drawbacks 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
© Goodheart-Willcox Co., Inc. Cost of Credit Using credit is ______ _______ than paying with cash continued
© Goodheart-Willcox Co., Inc. Cost of Credit Borrowers must pay ________plus finance_________ Finance charges _______ _________ for –T–The ______of making credit available –t–taking the _______ that borrowers may default continued
© Goodheart-Willcox Co., Inc. Cost of Credit Creditors –M–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
© Goodheart-Willcox Co., Inc. Finance Charges Are the dollar amounts paid for credit Consist of _____ _______: _________and_______ Are expressed as_____________
© Goodheart-Willcox Co., Inc. In Your Opinion Have you ever lent money to a friend? Based on your experience, do you think creditors deserve to be paid a finance charge?
© Goodheart-Willcox Co., Inc. Annual Percentage Rate (_____) The _____ the APR, the _____you pay Example: Interest for a $500 loan repaid in 12 monthly payments would cost –$–$50.08 at 18% –$–$58.72 at 21% –$–$67.36 at 24%
© Goodheart-Willcox Co., Inc. Amount of Credit Used The ______ _______ you_____, the _____you _____ Example: Interest on a loan repaid in 12 monthly payments at an APR of 18% would cost –$–$50.08 for a $500 loan –$–$ for a $1,000 loan –$–$ for a $2,000 loan
© Goodheart-Willcox Co., Inc. Length 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
© Goodheart-Willcox Co., Inc. _______of Credit _____-____ credit must be repaid by a ______ _____ ____-____ credit allows the borrower to use money for an ________ _______
© Goodheart-Willcox Co., Inc. Closed-End Credit Most are _______ ______ that let you borrow a given amount of money and repay it with interest in regular installments Examples: student_____, car loans, most home loans continued
© Goodheart-Willcox Co., Inc. Closed-End Credit A _____ _____requires_________— finance _____may be _____because creditor can take _________if loan is not repaid An ________ ______—finance ______are usually ______because no collateral; borrower must have strong credit rating or a_________
© Goodheart-Willcox Co., Inc. Open-End Credit Borrower can _______to ____ credit if he or she makes ________ _______, pays finance charges, and stays within borrowing limit –_–_________charge accounts –_–____________credit accounts Offered by retailers, merchants, banks, credit agencies continued
© Goodheart-Willcox Co., Inc. Open-End Credit You must make at least the ________ _________ each month Total amount you may owe at any one time is limited
© Goodheart-Willcox Co., Inc. __________ Credit Start with a_______ Open a __________account Open a _________account Apply for a _______card at a local department store or gas company
© Goodheart-Willcox Co., Inc. Your Credit Rating ________whether you can get _____and what you will _____for it Is measured by the ____Cs—_________, ___________, and ____________ A ___________applicant is judged to have the______, ________, and tendency to _______debt
© Goodheart-Willcox Co., Inc. The Credit Report ______major national agencies ____ credit ______to____________ _____agency ________ __________ about financial and credit transactions The information on these reports often_________ Carefully _______your credit reports and report errors to agencies continued
© Goodheart-Willcox Co., Inc. The Credit Report The report lists –_–_____credit ______ever_________ –O–Outstanding________ –_–_______ _____, such as _____payments, _______ _____, _______________
© Goodheart-Willcox Co., Inc. Credit_______ A credit score is a numerical _________of a loan applicant’s________________ The _______the score, the __________a person’s__________________ The ______the score, –t–the more ________you will have ______ _______ –T–The _____ _________ credit will be continued
© Goodheart-Willcox Co., Inc. Credit Scores Credit score factors: –B–Bill_____________ –_–_______ -to-__________-limit-_________ –C–Credit _______ __________ –R–Recent credit application –D–Different types of credit You may have more than one credit score generated by different agencies
© Goodheart-Willcox Co., Inc. Getting a Credit Card Common types of credit cards include –_–_______-purpose –c–company or _______store –t–travel and____________
© Goodheart-Willcox Co., Inc. Shopping for a Credit Card _________possible _____,__________, and consequences of failing to carry out the terms of the agreement Be wary of __________clauses, _________payments, and add-on clauses
© Goodheart-Willcox Co., Inc. The Contract _______the ___________ (application) thoroughly before signing it
© Goodheart-Willcox Co., Inc. Disclosures Annual percentage rates: –W–What is the______? –_–_____ _____ will a lower __________ _____ last? What is the ______ _____? –C–Can the rate be raised for any reason? –I–Is the rate fixed or variable? continued
© Goodheart-Willcox Co., Inc. Disclosures What is the ______period? What ________is used to calculate the interest rate? Is there an ______ _____? If so, how much? What are fees for –l–late payments –e–exceeding credit limit –c–cash advances –b–balance transfers
© Goodheart-Willcox Co., Inc. ___________Credit Cards _______to get; offered to those with _______ _______ histories Often carry _____ ______ rates, _____ annual______, and other charges ______ credit _________ Often a ____ ________ for consumers
© Goodheart-Willcox Co., Inc. Managing Your Credit _____your financial _______________. What are your money attitudes and_________? continued
© Goodheart-Willcox Co., Inc. _________Your Credit Keep track of__________ –C–Create a____________ –D–Don’t use more credit than you can pay off each month –_–_______your _________and keep a _____of credit charges
© Goodheart-Willcox Co., Inc. Remember _________to Using__________ ______to buy Pay with___________ _________buying now and buy later with cash
© Goodheart-Willcox Co., Inc. Check Monthly Statements Check statements against your own record of charges, payments, and credits
© Goodheart-Willcox Co., Inc. Check Your Credit Report Regularly Find and ______ ______ immediately Make sure no one has applied for credit in your_________
© Goodheart-Willcox Co., Inc. Report Lost or Stolen Cards ______a _____of your credit cards— issuers, account numbers, issuer phone numbers ______ _____ or stolen _____right away If your card is lost or stolen, you are responsible for –$–$____ per card that is charged by others –n–no charges made by others if you notify the issuer before the card is used
© Goodheart-Willcox Co., Inc. Handling Credit Problems Poor credit use consequences: –_–________to get _______ and credit cards –P–Paying ______ ________ rates for credit –H–Having _______ _________ _________ –H–Having _______ ______ prospects because many employers check credit reports –P–Paying ________ _________ premiums continued
© Goodheart-Willcox Co., Inc. Handling Credit Problems Blemishes on credit reports: –A–Accurate negative information, such as missed or late payments, may remain on your report for ________ _______ –B–Bankruptcies may remain on your report for _____years continued
© Goodheart-Willcox Co., Inc. In Your Opinion Would you cosign a loan for your best friend or a family member if doing so would endanger your credit rating?
© Goodheart-Willcox Co., Inc. Handling Credit Problems Actions taken to recover debts: –_–__________are hired to get _____________ –_–___________of property, including_____________ –_–________ against property –W–Wage___________________
© Goodheart-Willcox Co., Inc. ______________ Desperate debtors _____ ______—file for personal bankruptcy –_–________ ________ _______ from repaying some or all debt –_–_________ _______ up certain _______ and possessions Two types—Chapter ___and Chapter__ Consequences of bankruptcy are severe
© Goodheart-Willcox Co., Inc. The Easy-Access Credit Trap ______-access credit includes –_–_______ loans –_–___________________ –_–______________ –_–__________ loans A ______shark is someone who uses predatory lending tactics and easy- access credit
© Goodheart-Willcox Co., Inc. ______ ____________ They may change payment dates and amounts if you have trouble paying bills
© Goodheart-Willcox Co., Inc. Get Credit____________ Use reputable nonprofit credit counseling services Avoid credit counseling firms that –c–charge high fees –d–demand that the debtor pay them rather than their creditors
© Goodheart-Willcox Co., Inc. Consumer 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 information continued
© Goodheart-Willcox Co., Inc. Consumer Credit Legislation Fair Credit Billing Act protects consumers from unfair billing practices Electronic Funds Transfer Act protects consumers in EFT transactions Fair Debt Collection Practices Act protects consumers against unfair methods of collecting debts continued
© Goodheart-Willcox Co., Inc. Consumer Credit Legislation Preservation of Consumers’ Claims and Defenses Ruling ______ ______ who have a legitimate ______with a seller Bankruptcy Abuse Prevention and Consumer Protection Act –w–was meant to increase fairness of the bankruptcy system –m–makes filing for bankruptcy more________
© Goodheart-Willcox Co., Inc. Central Ideas of the Chapter Credit is a powerful financial management tool. Serious financial problems result from the misuse of credit.
© Goodheart-Willcox Co., Inc. Glossary of Key Terms annual 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. Back
© Goodheart-Willcox Co., Inc. Glossary of Key Terms collateral. 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. Back
© Goodheart-Willcox Co., Inc. Glossary of Key Terms credit. 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. Back
© Goodheart-Willcox Co., Inc. Glossary of Key Terms credit 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. Back
© Goodheart-Willcox Co., Inc. Glossary of Key Terms easy-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. Back
© Goodheart-Willcox Co., Inc. Glossary of Key Terms grace 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. Back
© Goodheart-Willcox Co., Inc. Glossary of Key Terms pawnshop. 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. Back
© Goodheart-Willcox Co., Inc. Glossary of Key Terms rent-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. Back
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