Understanding Loans and Borrowing Money

Development of Credit  In the Past  Credit Today

The Vocabulary of Credit  (1) borrower,  (2) creditor,  (3) Capital,  (4) Collateral,  (5) repossession,  (6) balance due,  (7) finance charge,  (8) minimum payment,  (9) late fee,  (10) due date,  (11) installment agreement and  (12) secured loan.

Advantages of Consumer Credit  Expand your purchasing potential  Raise your standard of living.  Credit is also very convenient.

Disadvantages of Consumer Credit  Credit purchases may cost more than cash purchases  The larger your balance and the longer you take to pay it off, the greater the finance charges

Kind of Credit  Open-Ended Credit  Closed-End Credit  Service Credit

Source of Credit  Retail Stores  Credit Card Companies  Banks and Credit Unions  Finance Companies  Pawnbrokers  Private Lenders  Other Sources of Consumer Credit

Credit Records  Your Credit File  How Information is Gathered and Used  Types of Information Stored

Creditworthiness  The five Cs of Credit:  (1) Character: Will you repay the debt?,  (2) Capacity: Can you repay the debt?,  (3) Capital: Is the creditor fully protected if you fail to repay?,  (4) Conditions: What general economic conditions can affect your repayment of debt?,  (5) Collateral: What assets back up your promise to pay?

Getting Started with Credit  Begin with a Saving Account  Open a Checking Account  Open a Store Credit Account  Get a Small Loan  Apply for a Credit Card

Credit Ratings  Different bureaus use different rating systems, but a point system is common.  Another rating system, rates consumers according to how reliably they pay back money borrowed or charged.  Consumers may earn ratings such as excellent, good, fair, or poor.

Credit Reports  Sections of a credit report:  (1) Summary of Information,  (2) Public Record Information,  (3) Credit Information,  (4) Account Detail,  (5) Requests for Credit History,  (6) Personal Information.

Credit laws  Consumer Credit Protection Act  Fair Credit Reporting Act  Fair Credit Billing Act  Equal Credit Opportunity Act  Fair Debt Collection Practices Act

Responsibilities of Consumer Credit  Responsibilities to Yourself  Responsibilities to Creditors  Creditors' Responsibilities to You.

Protecting Yourself From Credit Card Fraud  Safeguarding Your Cards  Protecting Your Cards Online

EXTRA CREDIT ASSIGNMENT  Define and explain:  (1) Standard Loan Practices,  (2) Predatory Lending Practices and  (3) Legal debt Collection Practices  [2 PARAGRAPHS ON EACH TOPIC]  YOU MUST DO INTERNET RESEARCH AND PROVIDE YOUR SOURCES

Avoiding Unnecessary Credit Cost  To reduce your credit costs:  (1)accept only the credit you need,  (2) make more than the minimum payment each month,  (3) Do not increase spending when income increases,  (4) Keep no more than two credit cards,  (5) pay cash for small purchases,  (6) Understand the cost of credit,  (7) Shop for loans,  (8) Take advantage of rebate programs.

Why Credit Cost Vary  (1) Source of credit,  (2) Amount financed and length of time,  (3) Ability to repay debt,  (4) Type of credit selected,  (5) Collateral,  (6) Prime rate,  (7) Economic conditions,  (8) The business's costs of providing credit.

Computing the Cost of Credit  Simple Interest Formula  Annual Percentage Rate Formula  Credit Card Billing Statements