Credit Wisdom

Managing Money & Credit: A Lifelong Skill

Credit an agreement to obtain money, goods, or services now in exchange for a promise to pay in the future

Character: The way you handle money and have repaid debt in the past. Capacity: Your ability to pay the debt after considering other monthly expenses. Capital: The value of your assets or what you own. Using Credit Wisely

The Three Cs of Credit Character: The way you handle money and have repaid debt in the past. Capacity: Your ability to pay the debt after considering other monthly expenses. Capital: The value of your assets or what you own.

Why Credit is Important FICO or credit score: Credit Card Issuers & Lenders –Determine APR Auto Insurers – Determine Premium Employers – Are you a worthy hire? Landlords –Are you a reliable tenant?

What’s Next? Life After High School

Learning Boosts Earning EducationAverage Annual Income Professional$71,258 Doctorate$60,729 Master's$48,772 Bachelor's$40,387 Associate$26,536 Some college, no degree$20,998 High school graduate only$18,571 Not a high school graduate$10,839

Who Uses Credit Cards? U.S. population = 298 million Use credit cards = 150 million Pay off monthly = 50 million Carry a balance = 100 million 2/3 of credit card users don’t pay off their balance

America’s Love of Credit million Credit Cards in US Average Credit Card $15,956 per household 1.4 million bankruptcies in 2011

Advantages Credit Card Credit is convenient. You can shop and travel without carrying cash. You can buy items right away without saving. Credit is useful in an emergency. Credit can help you keep track of spending. Credit contributes to economic growth.

Disadvantages of Credit Cards Credit can be easy to misuse. Items cost more when you use credit. Using credit means you have committed some of your future income to your debt. You cannot use credit after you reach your credit limit. Late or missed payments lower your credit rating.

Use Credit Wisely You should use credit to buy: –House –Car –Education (student loan) and you’ll avoid trouble

Only Buy What You Can Afford Pay off monthly balances –Avoid interest –Avoid late fees Know your budget Know yourself –Are you an impulse buyer?

What to Consider… There are five main factors to consider when selecting a credit card: Interest rate Extra fees Whether the interest rate will change Whether a cosigner is needed Whether there is a grace period

The Cost of Credit To gauge the cost of credit, first look at the annual percentage rate (APR). annual percentage rate (APR) the cost of credit on a yearly basis

The Cost of Credit A credit card might offer a low introductory APR but change to a much higher rate after a few months.

The Cost of Credit Credit card companies will usually charge a fee for a cash advance. cash advance a loan given in cash by a credit card company in anticipation of the borrower’s being able to repay it

The Cost of Credit Credit card companies will usually charge a fee for late or missed payments. Another fee is charged if the card holder is over the credit limit.

Other Considerations You may need a cosigner when you apply for credit. cosigner someone who agrees to be responsible for a debt if the main applicant does not repay it

Other Considerations You should consider whether there is a grace period for payments on your credit card. grace period an amount of time allowed to repay a debt without having to pay interest charges

Applying for a Credit Card A credit card application asks for information about your address, your job, what other credit you have, and details about your income and savings.

Pay More than the Minimum If you have a credit card balance: –Make a plan to pay as much as you can every month –Start with the credit card with the highest interest rate –Pay off the credit cards as quickly as you can

Limit the Number of Cards Americans have an average of 8 credit cards

Always Pay on Time Avoid late fees Keep your money in your pocket Maintain a good credit score –Late payments have the biggest negative impact. Easiest way to make money is to save money.

Installment Loans secured loan a loan that is backed by collateral unsecured loan a loan that is not backed by collateral A mortgage is an example of a secured loan. A credit card debt is an example of an unsecured loan.

What makes up your Credit Score?

What Can You Do to Increase Score? Pay Bills On Time

Choose a Low Rate 0% is lowest –But remember the catch 15.75% average fixed rate. If you pay your card off every month, the rate won’t matter.

What Not to Use Credit For: Pay Day Loans

Payday Loans / Check Cashing Stay Away! What is it? –Cash Loan –Extremely High Interest –Short-term (14 – 45 days)

How Do They Work? You postdate a check They give you a loan Loan last for 2 weeks They charge you a fee for borrowing the money—equivalent APR can be over 300%.

Risks of Payday Loans Not a long-term cash solution Borrowers get trapped in a payday loan cycle of debt –Take out loan after loan

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