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 dateCredit 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 paymentsAuto Loans, Mortgages, & Student LoansMay require a co-signerSecond 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 limitCredit LimitMaximum dollar amount loanedVaries among individuals based upon CreditworthinessBorrower pays interest if credit is not paid back in full each monthExamples 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 historyIncludes:Personal InformationAccount SummaryPublic RecordsCredit InquiriesPersonal Information: NOT allowed—race, religion, marital status, nationalityAllowed ---age, genderPublic records---did you pay your taxes?
6 What is a Credit Score?Numeric “grade” of a consumer’s financial reliabilityMost common scoring system is FICORange from , with 850 being the best
9 What affects your credit score? GoodBadPay bills on timeLength of credit historyVariety of creditLate PaymentsToo much credit (amount)Too many credit cardsToo many inquiriesToo much new credit
10 What are the 3 Credit Bureaus? Experian, Equifax, TransUnionHow often should you check your credit report? Why?
11 How does your credit score affect you? Affects what types of loans you can getAffects your interest rateMay 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 ImpactThis is based upon a 30 year fixed mortgage rate for a $300,000 loanFICO ScoreInterest RateMonthly Payment30 Year Amount7605.9%$1,787$643,3206507.2%$2,047$736,9205909.3%$2,500$900,000$256,680 saved over the lifetime of this loanbecause of a good credit score!
13 Are Credit Cards Bad? Yes & No Can paralyze you with debt Are important for online purchasesCan build your creditShould NEVER be used as your emergency fundBottom line: they must be used responsibly
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 spendinglive/video/dont-buy-stuff/n12020Treat 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 monthUsually only a small percentage (2.5-5%) of the total balance due
17 ~ Total amount of interest paid Minimum PaymentsTo 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 paidFull PaymentPartial PaymentMinimum Payment$15001 month$0$1500$1351 year$125$1625$3011 years$1413$2913
18 Rule #3: Never make a late payment Usually have to pay a feeWill lower your credit scoreWill 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 chargesRemember 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 InterestInterest is charged each month the balance is not paid in fullRate at which interest is charged is referred to as:Annual Percentage Rate (APR)The cost of credit expressed asa yearly interest rate
22 APR’sFixed-rate APR- cannot change during the period of time outlined in a credit card agreementVariable-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 TransfersCash AdvanceAnnual fees (maintenance fee)Minimum interest chargeLoss of APR or Penalty APR
24 Benefits Credit Cards May Offer SkymilesDiscount on merchandise or servicesCash backRewards bonus points (redeemable for cash back, gift cards, discounts)Higher cash back on revolving categories