1. CREDIT

2. What do you know about credit? What do you want to know about credit?

3. Sources of Consumer Credit Commercial Banks Single payment loan Personal Installment loans Passbook loans Credit Card loans Second mortgages Need established credit history Often require collateral Prefer large loans Determines repayment schedule Varied credit rates Requires days for approval Consumer Finance Companies Personal installment loans Second mortgages No credit history required Loans may be unsecured Rates vary with size of loan Applications processed quickly Credit Unions Personal Installment loans Credit Card loans Second mortgages Lend to members only Unsecured loans May require collateral or cosigner Payroll deductions Life Insurance Companies Single payment or partial payment loans Lend on cash value of insurance policy No date o r penalty on repayment Deduct to amount owed from death benefit of policy Federal Savings Banks Personal installment loans Home improvement loans Education loans Savings account loans Second mortgages Will lend to credit worthy individuals Often require collateral Rates vary based on size of loan and length of payment

4. TYPES OF CREDIT CLOSED-END CREDIT LOANS THAT MUST BE REPAID WITH FINANCE CHARGES BY A CERTAIN DATE. SECURED LOANS REQUIRE COLLATERAL. COLLATERAL IS PROPERTY THAT THE BORROWER MUST GIVE UP IN CASE OF DEFAULT UNSECURED LOANS IN MADE ON THE STRENGTH OF YOUR SIGNATURE ALONE DIFFICULT TO OBTAIN WITHOUT A STRONG CREDIT RATING OR MAY NEED A COSIGNER THE COSIGNER PROMISES TO REPAY THE LOAN IF THE BORROWER DEFAULTS MOST OFTEN IS AN INSTALLMENT LOAN -MUST REPAY WITH INTEREST IN REGULAR INSTALLMENTS,

5. TYPES OF CREDIT OPEN-END CREDIT BORROWER USES A CERTAIN AMOUNT OF MONEY FOR AN INDEFINITE PERIOD OF TIME REGULAR CHARGE ACCOUNTS Let’s you charge goods and services in exchange for your promise to pay in full within 25 days of billing date REVOLVING CREDIT ACCOUNTSMay pay in full each month or spread payments over a period of time with finance charges

6. APPLYING FOR CREDIT FIVE C’S OF CREDIT CHARACTERWILL YOU REPAY THE LOAN? CAPACITY CAPITAL COLLATERAL CREDIT HISTORY CAN YOU REPAY THE LOAN? WHAT ARE YOUR ASSETS AND NET WORTH? WHAT IF YOU DO NOT REPAY THE LOAN? WHAT IS YOUR CREDIT HISTORY?

7. If you have a credit card or borrowed money you have a credit report What is a credit report? It is a collection of facts about you that tells lenders whether you are a good risk to lend money Do you have a credit report Suzie Orman How Did the Credit Crunch Happan

8. What is in a credit report? Information about your credit history: EVERY loan and credit card you have applied for or received How much you owe each month Whether payments are made on time or not When other lenders have asked to see your credit report

9. What is in a credit report? You three digit FICO score: Tells the lender in a single number how good a credit risk you are Score is between 300 and 850 >750Excellent credit risk 720-750Very Good credit risk 720-660Acceptable credit risk 620-660Uncertain credit risk <620Risky NOTE:FICO-short for Fair Isaac Company, the firm that invented the score http://www.bankrate.com/calculators/credit-score-fico- calculator.aspx Estimate your FICO SCORE Credit Score Blues

10. Copyright, 1996 © Dale Carnegie & Associates, Inc. HOW TO CHOOSE A CREDIT CARD MINI-LESSON INDIANA DEPARTMENT OF FINANCIAL INSTITUTIONS CONSUMER EDUCATION

11. CHARGE IT! Using credit cards to pay for goods and services is a fact of life for most consumers. Yet, many consumers do not take the time to comparison shop for credit cards. We are more interested in rebates, bonuses, or perks which allow us to earn credit toward other services or purchases. The more we charge with our credit cards, the bigger our rebate or bonus, but we fail to realize that usually these cards carry higher annual fees and finance charges.

12. Charge It! It is not a problem if you pay off your balance each month, but statistics on credit card use show that Americans are carrying increasingly high levels of credit card debt. You can use credit cards to pay for telephone calls, speeding tickets, every kind of service, support for charitable organizations, funerals and credit cards can even reimburse you when purchases are lost, stolen, or go on sale. So it is important to compare credit terms and costs of similar cards so that you can select the credit card that will give you the features and terms that meet your needs.

13. Types of Credit Cards There are three basic types of credit cards: Travel and entertainment cards such as American Express or Diners Club. They have no predetermined spending limits and must be paid in full each month. Bank cards such as MasterCard, Visa, Discover, Optima, GM and Ford cards which are sponsored by individual banks. The bank defines spending limit (sometimes called credit lines) and each offers different terms and conditions.

14. . Types of Credit Cards Banks offer a choice of payment methods, either pay the balance in full with no interest or pay a minimum part or some part of the balance with a finance charge. Company or Retail store cards such as Sears, J.C. Penney, Shell, or Mobil. These cards are only accepted by the specific company and do not have an annual fee. However, the terms and conditions of these cards vary widely.

15. Benefits of Credit Cards You can shop or travel without having to carry large sums of cash. Credit cards are accepted all over the world and generally give the best currency exchange rates. You have immediate use of goods and services, especially important for expensive items like appliances or furniture. Credit cards can be used to deal with unexpected financial emergencies.

16. Benefits of Credit Cards They will help you keep track of how much you are spending each month by giving you a record of purchases. Credit cards offer a protection against theft. If your card is lost or stolen and you notify the credit card company immediately, you can only be liable for $50 of unauthorized spending. Some offer special services such as reserving rental cars or tickets, replacement of lost or stolen merchandise, extension of the warranty or guarantee, and air travel insurance.

17. Benefits of Credit Cards There is also consumer protection power with some credit cards. The credit card company may intercede on your behalf if you are unhappy with a purchase or if you failed to receive a purchase.

18. Credit Card Terms When selecting a credit card, the following credit terms and conditions are important because they affect the total cost of credit: "Annual Fee" A flat, yearly charge similar to a membership fee, usually $25 to $50. "Annual Percentage Rate" The APR is the measure of the cost of credit expressed as a yearly rate. "Finance Charge” The dollar amount you pay to use credit, includes interest costs and all charges associated with the transaction.

19. Credit Card Terms "Grace Period " The grace period is the number of days you have before a credit card company starts charging interest on new purchases. Not all credit cards have a grace period. "Periodic Rate" The interest rate the card issuer applies to your outstanding account balance to figure the finance charge for each billing cycle. "Transaction Fees” A fee for a cash advance, a late payment, or going over your credit limit. Sometimes there is a monthly fee if you did not use the card.

20. Credit Card Terms " Calculation of Finance Charges” It is very important to know how the interest rate is calculated to compare and select the best credit terms. The credit card issuer will use one of three methods. You can decide which method is best suited to your payment style. The method used can make a big difference in the total amount of money you pay in finance charges. This is especially important when the APR's are identical for several credit cards. There can be a significant difference in the total amount of finance charges depending on the balance computation method used.

21. Credit Card Terms "Average Daily Balance Method” This is the most commonly used method. You are given credit for your payment from the day the credit card issuer receives it and the interest is calculated on the basis of the average amount owed during the previous month. "Adjusted Balance Method” This method is the most beneficial to the consumer and produces the lowest finance charges. The balance is calculated by subtracting the payments and any refund credits from the balance you owe at the end of the previous billing period.

22. Credit Card Terms "Previous Balance Method” This is the most expensive method. The finance charge is calculated on the balance owed at the end of the previous billing cycle. Payments, credits and new purchases made in the current billing cycle are not included.

23. Computing Finance Charges Beginning Balance$1,000 Payment $800 on the 15th on the month APR 18% or (l.5% monthly) "Average Daily Balance" "Average Daily Balance" Balance $600 ($1,000 for 15 days and $200 for 15 days) Finance Charge $9 ($600 times.015) " Adjusted Balance" " Adjusted Balance" Balance $200 ($1,000 minus $800) Finance Charge $3 ($200 times.015) ‏ " Previous Balance” " Previous Balance” Balance $1,000 Finance Charge $15 ($1,000 times.015)

24. EVALUATING CREDIT CARDS When you evaluate various credit card options, consider the following factors as well: Compare the credit card interest rates. Look for a low interest rate card but remember the interest rate is not fixed so it can be adjusted either quarterly or by written notice by the bank or company. You may be able to negotiate with your bank for a lower interest rate. Compare how finance charges are calculated to help determine the total cost of credit.

25. Evaluating Credit Cards Look at all charges for each card. Some companies add other fees, such as late-payment fees if your payment arrives after the due date, or transaction fees every time you use the card. Grace periods vary as well. Companies generally start the grace period at the time the purchase is posted to your account. However with some cards, the grace period can start on the day of purchase.

26. Evaluating Credit Cards Decide what credit limit is appropriate for you. Determine the amount of money you can charge each month based on your income. The credit card you choose should be widely accepted. Fewer credit cards will make it is easier to keep track of your credit spending. Compare services and features, such as travel insurance, rebates, purchase protection plans, cash- back incentives, or extended warranties. Evaluate these features in terms of the extra credit costs.

27. Evaluating Credit Cards Make sure the annual fees are reasonable. Not all credit cards require an annual fee. It is worth shopping around to get the lowest fee or no fee, especially if you pay off your balance each month. Read each contract carefully before you sign so that you understand all the costs and conditions. Shop for a credit card the same way you would shop for any goods or service. Try to negotiate for the options and conditions you want at the lowest cost available.

28. QUESTIONS TO ASK What credit limit do you set for each card each month? (should be realistic to income and spending and a set amount for each card) Where will you use your card? (Which stores and for what services?) Which type of credit card(s) is appropriate? (Which type of card best meets your needs?)‏

29. Questions To Ask Will you pay off the balance each month? (Look for a low annual fee or no fee, other fees and a grace period.) Will you carry a balance? (Look for a low APR and periodic rate and determine which balance computation method is used.) Is there a grace period? (Look for an interest-free grace period, generally 25 to 30 days.)

30. How Many Cards? Having too many credit cards can lead to overspending. If you limit the number of cards and set a limit on each card, you can control spending and avoid excessive debt. should not exceed 20% of your take home pay. Generally, you decide how many credit cards you need based on your spending habits and income. The accepted rule is that your monthly payments on all debts, excluding your mortgage payment, should not exceed 20% of your take home pay.

31. How Many Cards? Generally, consumers want at least one bank card because it is widely accepted, can be used for identification and offers a variety of services and features. You might consider having two different bank cards. One with a no or low annual fee and higher interest rate for the balance you pay in full each month. A second one that has a low-interest rate and APR with a grace period for the balance you may not be able to pay in full. If you patronize a particular store or service station, you many want to get one of their cards for convenience.

32. User Responsibilities A credit card user, has the following responsibilities: Assess your financial situation and determine how much you can repay monthly. Understand the contract's costs and conditions so that you know the total cost of credit purchases. Keep copies of credit transactions and compare with your monthly statement. Remove carbons from credit card receipts and destroy them.

33. User Responsibilities Do not give your credit card numbers to anyone you do not know and trust Pay your bill on time. Inform the creditor of any billing errors promptly. Notify the creditor if you cannot make your payments. Make a list of all credit card account numbers and the issuer's telephone number to use if your card(s) are lost or stolen.

34. ACITIVTY Using the Credit Card Comparison Worksheet evaluate three different credit card applications to determine the credit card costs, terms, and options. Then list the features that best suit your needs and spending habits in order of priority. With this information, you can analyze each credit card and select the right credit card for you.

35. Activity U se advertisements to identify local businesses that could be included under each source. List the advantages and disadvantages of using each source. Give students a copy of our Brochures.

36. Why a credit report is important? Affect your ability to buy a home or a car Low scores will pay higher interest rates May affect your ability to get a job or rent an apartment Affect you insurance rates

37. FICO® scoreAPR [?]Monthly payment 760-8504.650%$1,547 700-7594.872%$1,587 680-6995.049%$1,619 660-6795.263%$1,659 640-6595.693%$1,740 620-6396.239%$1,845 Sample of the FICO score on Mortgage Interests on a 30 year fixed loan

38. How to get and keep a good credit score Check your credit score regularly Do not hold or apply for too many credit cards Pay all your bills on time Do NOT run up large balances that you cannot repay Do apply for some credit to get a credit history Hurting Your Credit Score

39. Free Credit Report Annually https://www.annualcreditreport.com/cra/index.jsp Experian-1-888-397-3742 www.experian.com TransUnion-1-800-916-8800 www.transunion.com Equifax-1-800-685-1111 www.equifax.com

40. Free Credit Report Annually https://www.annualcreditreport.com/cra/index.jsp How to dispute errors http://www.ftc.gov/bcp/edu/pubs/consumer/cred it/cre21.shtm