Mr. Stasa – Willoughby-Eastlake City Schools ©

Credit Card facts…  Americans currently owe over 1 trillion dollars in credit card debt  At least 7 million Americans owe more than $25,000 on just credit cards alone  Americans are charged more than $116,000,000,000 each year in just interest alone  Americans are charged more than 23 billion in late fees each year.

What Would You Do?  What would you do if a student, who you didn’t know, approached you at lunch to borrow $5 and promised to pay you back the next day?  Would you instantly let that student borrow your $5?  What question(s) would you have for this student?  What could you do to determine if this student is a reliable borrower?

Terminology  Credit is money loaned to you by a creditor that must be paid back.  A Creditor (or lender) is someone who must be repaid for having lent money.

Examples of creditors  Credit card companies  Banks  Department stores  Gas stations  Cash-advance stores

What should a creditor should do if…  You take out a loan to buy a car, but never make payments on the loan?  You take out a loan to go to college, but you never make payments on the loan?  You buy clothes on your store credit card but never make payments on the card? REPOSSESS GARNISH WAGES SUE

What if you miss payments? 1. Begin receiving overdue notices in mail 2. Receive phone calls from card company or collection agency 3. Card company reports you to credit bureaus 4. Late fees will begin with interest rates increasing 5. Legal action will be taken (garnish wages, court action)

Types of Loans  An unsecured loan is when the lender agrees to provide a loan that is not tied to any collateral.  If the borrower is unable to re-pay the loan, the lender does not have the ability to take possession of personal property.  Interest rates are typically higher  Examples are:  Personal loans  Student loans

Types of Loans  A secured loan is when the lender agrees to provide the loan that is tied to collateral.  If the borrower is unable to repay the loan, the lender can repossess personal property that is tied to that loan.  Example: If someone purchases a house using a mortgage, the bank can repossess the house if the borrower can’t make payments.  Examples:  House  Car

Did you know…  There are companies that keep track of whether or not your pay your bills and if you make your payments on time?  Making irresponsible choices can stay on your record (credit history) for 7 years or more

Three Types of Credit 1. Installment Credit 2. Revolving Credit 3. Open Credit

Installment Credit  Installment credit are loans that must be repaid with fixed monthly payments. Late fees and interest increases can result with missed payments.  Examples include:  Car loans  Mortgage  Student loans  Personal loan

Revolving Credit  Revolving credit allows you to pay your balance in full each month but are required to make at least the minimum payment.  Examples include:  Credit cards  Store credit cards

When Making Payments You Can… Minimum Payment is the smallest amount that can be paid every month 1. Pay total amount owed OR 2. Make smaller payments (minimum payment)

Minimum Payment Sample You receive your credit card bill: Total amount owed is $2, The interest rate on your card is 15.24% The minimum payment is $54.00

Open Credit  Open credit requires you to pay your balance in full each month for services used. Failure to make full payment can result in immediate termination of services.  Examples include:  Cell phones  Utilities  Rent  Car lease

Guess which is which!!  Which are OPEN, REVOLVING, or INSTALLMENT? Cell PhoneStudent LoansRent Credit CardWater BillMortgage Car LoanCar LeaseStore Credit Card

What’s a Credit Score?  A credit score is a three-digit number that predicts a person’s financial risk  Scores range from 300 – 850 points  The higher the number, the lower the risk you are

Credit Score Description Excellent score. The lender will offer you their best interest rate Great score. There won't be any trouble in getting a loan at good interest rate Good score. There won't be any problem in getting a loan at good interest rate Fair score. You may qualify for the loan but not at good interest rates Poor score. You may qualify but the interest rates will be very high Very poor score. It's doubtful that you may qualify for the loan, and if you qualify, the interest rates will be extremely high.

Credit Score Impact E XAMPLE : $15,000 LOAN (3 YEAR FIXED AUTOMOBILE ) FICO Score Interest Rate Monthly Payment 3 Year Amount $2,124 can be saved over the lifetime of this loan because of a good credit score! Credit score determines the interest rates for loans % $457$16, % $475 $17, % $516$18,576

Where Does America Fall? F5PEVM&feature=related

What’s a Credit Score Made of?  There are five major categories that make up a credit score: 1. Payment history 2. Amounts owed 3. Length of credit history 4. New credit 5. Types of credit used O6Iw

The 4 C’s of Credit  Collateral  What do you have of value that a lender can take if you do not repay the loan as promised?  Capacity  Do you have the financial ability to repay a loan with your current income?  Lenders look at income and employment history.  Capital  Is the lender fully protected if you cannot repay the loan?  Character  Are you responsible? Do you have good credit history of paying your bills on time?