How to Get and Keep Credit Chapter 26 Take a note sheet on your way in Complete the bookwork for chapter 26 5/24/2019

Applying for Credit To open a credit or charge account, you will have to fill out an application form. The form asks for information about: where you live where you work and what other credit you have received 5/24/2019

Credit Worthiness Creditors want to make sure you are worth the risk When you apply for credit, there are five primary considerations that affect a lender's decision to approve or decline your loan application 5/24/2019

The Five Cs Capacity - your ability to repay the loan Character - whether your lender thinks you will repay the loan Credit History - report that tells whether you pay your bills on time or have failed to pay debts Capital - what you are worth Collateral - What you agree to forfeit if you fail to repay your loan 5/24/2019

The creditor will take into account all these factors to decide how much you can borrow. The maximum amount you can spend or charge on a credit account is called your credit limit. 5/24/2019

Credit Limit The maximum amount you can spend or charge on a credit account. You will not be able to charge more than the limit If you pay your bills on time, the creditor will often increase your credit limit 5/24/2019

Cosigner A cosigner is someone other than you who signs for a loan. The cosigner agrees to repay the loan if you fail to repay as promised. Cosigners are jointly liable for loans, which means that the lender can look to them for payment. 5/24/2019

When do you need a cosigner? You are under the age of 18 Individuals under 18 years of age who are granted credit can't legally be held responsible for unpaid debt. You have no credit history If you're a first-time borrower, you probably don't have much credit history. You have a poor credit history Loan applicants who have failed to make payments as promised in the past aren't reliable. 5/24/2019

A cosigner does not relieve you of your responsibility to pay back the loan as promised. If you don't, it will affect your credit rating and that of your cosigner's. 5/24/2019

Installment Loans Down Payment – a portion of the cost that you pay when you purchase a product. Principal – the amount of money you still owe. 5/24/2019

Secured Loan A loan that is backed by collateral is a secured loan Car loans Mortgages Home equity loans Repossess If you put up something valuable as collateral on a loan, such as a car, a creditor has the legal right to take back the collateral if you miss a payment. 5/24/2019

Unsecured Loan The loan is not backed by collateral Interest charges are often higher than on a secured loan. 5/24/2019

Paying for Credit Before you take out a loan or apply for a credit card, you should figure out the costs to see if you can afford it. Different cards have different rates. Also, look to see what the fees are for various types of transactions. 5/24/2019

Annual Percentage Rate (APR) This percentage rate determines the cost of your credit on a yearly basis. An APR of 18% means that for each $100 you owe, you pay $18 per year. This amounts to $1.50 per month ($18/12) The amount of interest you pay a year depends on the interest rate, the total length of the loan, and the amount of the loan. 5/24/2019

A single credit card may have several APRs One for purchases One for cash advances And yet another for balance transfers The APRs for cash advances and balance transfers often are higher than the APR for purchases for example, 14% for purchases, 18% for cash advances, and 19% for balance transfers 5/24/2019

Tiered APRs Different rates are applied to different levels of the outstanding balance For example 16% on balances of $1–$500 7% on balances above $500. 5/24/2019

A penalty APR The APR may increase if you are late in making payments. For example your card agreement may say, “If your payment arrives more than ten days late two times within a six-month period, the penalty rate will apply.” 5/24/2019

If you carry over a part of your balance from month to month, even a small difference in the APR can make a big difference in how much you will pay over a year. 5/24/2019

Fixed vs. Variable APR Some credit cards are “fixed rate”--the APR doesn’t change, or at least doesn’t change often. Even the APR on a “fixed rate” credit card can change over time. However, the credit card company must tell you before increasing the fixed APR. 5/24/2019

Other credit cards are “variable rate”--the APR changes from time to time. 5/24/2019

Grace Period The number of days you have to pay your bill in full without triggering a finance charge. 5/24/2019

Finance Charge The dollar amount you pay to use credit. The amount depends in part on your outstanding balance and the APR. 5/24/2019

Minimum Finance Charge Some credit cards have a minimum finance charge. 5/24/2019

Fees Annual fee Cash advance fee Balance transfer fee Late payment fee Over-the-credit-limit fee Credit limit increase fee Other 5/24/2019

Keeping Credit To continue using credit or to get new credit, you need to maintain a good credit rating. Creditors are happy to extend credit to people with a good rating. 5/24/2019

Making the Minimum Payment Each credit card statement always includes a minimum payment you have to make on a bill. Many people think that they can get by just making the minimum payment It would take over 30 years to pay off a credit card debt of $2,500 at 18.9% if you only make the minimum payment. 5/24/2019

Overextending Your Credit The more credit cards you have, the more you might be tempted to make impulse purchases 5/24/2019

Credit Problems Late payments, missed payments, too much credit, and other problems can give you a bad credit rating. Misusing credit can lead to more immediate problems. Garnishment of wages - When creditors take all or part of you paycheck if you miss a payment 5/24/2019

Chapter 26 Book Work Page 422 Fast Review #’s 1-4 Page 430 Using Business Key Words #’s 1-14 5/24/2019