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Presentation on theme: "Credit."— Presentation transcript:

1 Credit

2 What is Credit? when goods, services or money is received in exchange for a promise to pay a definite sum of money at a future date Credit is derived from the Latin word “credo” meaning “I believe”

3 Installment Credit (aka Closed-end Credit)
A one time loan that is repaid in a specified number of equal payments Auto Loans, Mortgages, & Student Loans May require a co-signer Second signer who will pay for the loan if the first party defaults

4 Non-Installment Credit (aka Revolving or Open- end Credit)
Credit is extended in advance with a specific credit limit Credit Limit Maximum dollar amount loaned Varies among individuals based upon Creditworthiness Borrower pays interest if credit is not paid back in full each month Examples are Credit Cards & Department Store Cards

5 What is a Credit Report? Record created by the CRA (Credit Reporting Agency) that provides a detailed report of an individual’s credit history Includes: Personal Information Account Summary Public Records Credit Inquiries Personal Information: NOT allowed—race, religion, marital status, nationality Allowed ---age, gender Public records---did you pay your taxes?

6 What is a Credit Score? Numeric “grade” of a consumer’s financial reliability Most common scoring system is FICO Range from , with 850 being the best


8 What affects your credit score?

9 What affects your credit score?
Good Bad Pay bills on time Length of credit history Variety of credit Late Payments Too much credit (amount) Too many credit cards Too many inquiries Too much new credit

10 What are the 3 Credit Bureaus?
Experian, Equifax, TransUnion How often should you check your credit report? Why?

11 How does your credit score affect you?
Affects what types of loans you can get Affects your interest rate May affect where you can live (landlords look at it)

12 This is based upon a 30 year fixed mortgage rate for a $300,000 loan
Credit Score Impact This is based upon a 30 year fixed mortgage rate for a $300,000 loan FICO Score Interest Rate Monthly Payment 30 Year Amount 760 5.9% $1,787 $643,320 650 7.2% $2,047 $736,920 590 9.3% $2,500 $900,000 $256,680 saved over the lifetime of this loan because of a good credit score!

13 Are Credit Cards Bad? Yes & No Can paralyze you with debt
Are important for online purchases Can build your credit Should NEVER be used as your emergency fund Bottom line: they must be used responsibly

14 Credit Cards 101

15 Rule #1: Don’t buy stuff you can’t afford
Treat your credit card like a debit card. Make sure you have enough money in your bank account before spending live/video/dont-buy-stuff/n12020 Treat your credit card like a debit card. Make sure you have enough money in your bank account before spending

16 Rule #2: Always pay off your full balance each month
Minimum payment: the minimum required to pay off each month Usually only a small percentage (2.5-5%) of the total balance due

17 ~ Total amount of interest paid
Minimum Payments To prepare for her first semester of college, Miranda purchased a new computer for $1000 and textbooks for $500, spending a total of $1500 on her credit card charging 15% APR. How much would Miranda pay in interest if she makes the minimum payment? Payment Made ~ Time to pay off card ~ Total amount of interest paid ~ Total amount paid Full Payment Partial Payment Minimum Payment $1500 1 month $0 $1500 $135 1 year $125 $1625 $30 11 years $1413 $2913

18 Rule #3: Never make a late payment
Usually have to pay a fee Will lower your credit score Will remain on credit report for 7 years

19 Rule #4: Check your account frequently
Keep a record of your own (receipts, register, etc.) Identify mischarges or fraudulent charges Remember online subscription fees

20 Rule #5: Know your Credit Card
Schumer box - Credit card issuers are required to disclose the terms and fees of credit cards in an easy to read box format

21 Annual Percentage Rate (APR)
Credit Card Interest Interest is charged each month the balance is not paid in full Rate at which interest is charged is referred to as: Annual Percentage Rate (APR) The cost of credit expressed as a yearly interest rate

22 APR’s Fixed-rate APR- cannot change during the period of time outlined in a credit card agreement Variable-rate APR- may change depending on other factors (such as economic conditions) Introductory Rate- a teaser rate (sometimes 0%) that only lasts a specified amount of time (i.e. 6 mos) Good APR? < 12 %

23 Other terms to know Late Payment Fee Over-the-limit fee
Balance Transfers Cash Advance Annual fees (maintenance fee) Minimum interest charge Loss of APR or Penalty APR

24 Benefits Credit Cards May Offer
Skymiles Discount on merchandise or services Cash back Rewards bonus points (redeemable for cash back, gift cards, discounts) Higher cash back on revolving categories

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