Credit Management Review
History of Credit in America 1800s Bartering General store gave first credit Monthly, seasonal and yearly credit Bank loans had very high interest rate 1900s Moved from agricultural to labor based economy Weekly paychecks People bought luxuries Credit became a its own business
History of Credit in America 1970s US credit protection laws Credit abuse / over use became common Today Internet exploded use of credit cards by consumers and businesses Non-banks now issue all purpose credit cards Stores Gas stations
Credit use Benefits Convenience Buy now pay later Don’t need to carry cash Emergencies Costs Credit problems Spending beyond what you can afford Interest and fees Sacrifice other spending
Types of Credit Personal Loans Student loans Car loans Debt consolidation Etc. Mortgages Primary (main home) Secondary (main home, second home, motor home) Refinance – replace primary mortgage to get a lower interest rate or money for something (wedding, college, boat, etc.) Lines of credit Home equity line of credit Student loan line of credit
Where to get credit Financial institutions Bank, credit unions, saving and loan Offer personal and business loans and credit cards Finance companies Small companies Usually charge high interest rates Accept credit applications turned down by other financial institutions Controlled by usury laws (set maximum interest rates by state)
Types of Loans Review Purchase Type of financing you would use Type of Credit (open or closed- ended) Secured (Yes/No) Installment (Yes/No) HouseMortgageClosedYes FurniturePersonal loanClosedNoYes New CarPersonal loanClosedYes (usually) Yes College tuition Student loan (personal loan) ClosedNoYes Holiday shopping Credit cardOpenNo
Where to get credit Pawn broker High interest loans backed by collateral Accept collateral that is easy to resell guns, cameras, jewelry, electronics Property must be bought back from the pawn broker to be reclaimed Private lenders Friends, family, acquaintances Life insurance policy Borrow against value of policy
Credit cards today Needed to: Rent a car Reserve a hotel room Buy gasoline at night Replacing travelers' checks More competition leads to user rewards Points (for travel, electronics, etc.) Cash back
5 C’s of Credit Lenders use these to decide if you are credit worthy. 1.Character: reputation (who your are) 2.Capacity: ability to pay (income/salary/paycheck) 3.Capital: net worth or what you own 4.Collateral (asset that secures the loan) 5.Conditions Principal Interest rate Length of time
Consumer Bankruptcy The U.S. Constitution affords you “the ability of relieve all or part of your debts when you can no longer meet your obligations to creditors and lenders” (About.com).About.com When you declare bankruptcy, the court will take possession of your assets (what you own of value) and liquidate it (sell it for cash) in order to pay off you debtors (the people/businesses you owe money to. Chapter 7 – Your liquidated assets are used to pay off your debt. Anything debt left unpaid will be discharged, or forgiven, meaning you are no longer responsible for paying it. Chapter 13 – The court sets up a repayment schedule to help you repay debts. More information at bankruptcylawyer.netbankruptcylawyer.net
Review Choose the best answer for each question. If time allows, we will review the answers before you hand in your work.
Check your work Correct your answers and take extra notes on anything you need to review.