THE BASICS OF CREDIT TYPES OF CREDIT SECURED CREDIT (Mortgage or Car Loan) In This Type of credit, you make a large purchase like a car or a home and the lender owns the item until you have paid it in full in including interest If you fail to make the payments the item will be seized by the lender of a representative What role should consumers play in the economy

THE BASICS OF CREDIT UNSECURED CREDIT (credit cards) In this type of credit, a credit card company agrees to let you charge items to an account You agree that you will pay back the initial purchase price, plus interest The interest is based on the time required to pay the funds back Unsecured credit charges higher rates of interest than secured credit

THE BASICS OF CREDIT PRIVATE LOANS These are unregulated loans from friends or family In these situations the repayment options can be formal or informal and the amounts of interest can vary dramatically These loans are often used for items traditional creditors would not finance

THE BASICS OF CREDIT THINGS YOU NEED TO KNOW Items that are considered when you apply for a loan include Wages you earn How long you have been employed Spouse’s income and credit history Current monthly bills Item you are attempting to finance Past borrowing history

THE BASICS OF CREDIT INTEREST RATES VARY Items that cause interest rates to vary History with the lending institution Loan term Type of spending with borrowed money Choice of a floating rate

THE BASICS OF CREDIT SOME TERMS YOU SHOULD KNOW CO SIGNER A person who will guarantee to pay back the money you have borrowed under the agreed to conditions should you default on your loan FINANCE CHARGES The total amount one will pay in addition to the purchase price, when using credit. It includes interest charges, service charges and sometimes insurance

THE BASICS OF CREDIT SOME TERMS YOU SHOULD KNOW OPPORTUNITY COST The loss of the next best alternative when scarce resources are used for one thing instead of another ANNUAL PRECENTAGE RATE (APR) The rate of interest you will be charged stated as a yearly rate. Lenders must tell borrowers the APR

THE BASICS OF CREDIT ADVANTGES OF CREDIT Convenient Provides detailed accurate records Safer than cash Permits buying sale items when cash is not available Permits using items while paying

THE BASICS OF CREDIT DISADVANTGES OF CREDIT Makes it easier to overspend and exceed a budget Has the opportunity of cost of reduced future spending Often requires additional costs in interest and service charges Requires the approval of a creditor If abused may not have the opportunity to borrow in the future

THE CREDIT CARD INDUSTRY: ADVANCED Credit Card Trick #1: Partial Payment When you use your credit card, you're borrowing money. If you pay it back in full, on time, every month -- there’s no interest. But if you pay just part of your balance – you’ll owe interest on your total monthly bill. It’s called “Partial Payment” and it is in your cardholder’s agreement, in some form.

THE CREDIT CARD INDUSTRY: ADVANCED Credit Card Trick #2: Currency Conversion Fee The fee is applied to foreign purchases – including those made online. It's often rolled into the currency exchange rate, which means you likely won’t see it appear as an individual charge on your bill. You will be charged a fee every time you buy anything in foreign dollars – on top of the exchange rate. And you’ll be charged again if you return the item

THE CREDIT CARD INDUSTRY: ADVANCED Credit Card Trick #3: Interest Rate Increases A credit card company can step up your rate at their discretion. If you miss a couple of payments, your rate can rise as much as five per cent. Companies have the right to increase your interest rate at any time. There is a ceiling though: we can only raise your rate by a maximum of 60 per cent.

THE CREDIT CARD INDUSTRY: ADVANCED Credit Card Trick #4: Due Date Issues You make your payment on the internet on the due date and assume no interest charges But in the fine print of its cardholder’s agreement, companies warn that it could take three to five days to process a payment.

THE CREDIT CARD INDUSTRY:THE STATS THE CANADIAN REALITY Number of credit cards (Visa and MasterCard) in circulation in Canada in 2003: 50.4 million, or more than two cards per Canadian adult. Number of cards which carried a balance: 22.2 million Amount Canadians owed on their Visa and MasterCards by the end of 2003: $49.8 billion Percentage of Canadian Visa/MasterCard holders who haven’t paid their bill in three months or more in 2003: 0.8%

THE CREDIT CARD INDUSTRY:THE STATS THE CANADIAN REALITY Net retail sales via Visa or MasterCard in 2003: $150.49 billion Number of Visa and MasterCard sales processed in 2003 in Canada: 1,524,800 Average Visa/MasterCard sale in 2003: $102.00 Number of credit cards reported lost or stolen in 2003: 810,859. Number of cards fraudulently used in 2003: 146,310 Fraudulent sales written off in 2003: $183,600,000 Number of merchants in Canada that accepted Visa/MasterCard as payment in 2003: 1,187,384

THE CREDIT CARD INDUSTRY:THE STATS THE CANADIAN REALITY Range in interest rates offered by bank-issued credit cards: 9.90% - 19.90% Range in annual fees charged by bank-issued credit cards: $0 - $234 Range in interest rates offered by retailer-issued credit cards: 24.0% - 28.8% Number of retailer-issued credit cards in circulation in Canada in 2003: 23.9 million