1234 5678 9012 3456 Credit: History, Types, Dangers Chapters 16 - 19 1234 5678 9012 3456 Lance L. Lancer 12/12

Credit What is the first thing that comes to mind when you hear the word credit? What is the first thing that comes to mind when I say credit? Word Association: Credit Visa Shopping

Confessions of a Shopaholic How did she view credit cards? Why did those views come about? Why was money so important to her? How do you think this could have been avoided? Or how has it been in your own homes? Click on photo for video clip

Your Turn: Confessions of a Shopaholic How did she view credit cards? Why did those views come about? Why was money so important to her? How do you think this could have been avoided? How did she view credit cards? Why did those views come about? Why was money so important to her? How do you think this could have been avoided? Or how has it been in your own homes?

Credit “Buy now, Pay later” Purchase Items at present time & pay for it in the future The repayment usually includes interest Purchase items that couldn’t be purchased otherwise Credit is the ability to borrow money with the agreement to pay it back later. The repayment usually includes interest. The purpose of credit is to allow buyers to purchase items at the present time and pay for them in the future. Use of credit allows consumers to buy products that they otherwise could not purchase.

Credit Discussion: Activity With a partner, discuss the following questions. How do people use credit? What are the positives and negatives of credit? Benefits of Credit: Convenience and Rewards Increased Spending Power Records and Protection

Types of Credit Open (Revolving) Closed (Installment) Service A personal loan is granted based on your creditworthiness. A secured loan is a debt agreement in which the borrower pledges property of value as security for the loan. Bank credit cards are a type of revolving credit – set a credit limit and make periodic payments. Store accounts can be revolving credit accounts, or they can be installment plans Service: Receive services and pay for them later Ex: electricity, water, sewer, other utilities Odd: Doctors, dentists – you may not think of it as credit but you are receiving services now and paying for them later Open (Revolving) – charge to the account as often as desired, up to a certain dollar limit. Payments are made each month, an ongoing balance can be maintained, but a minimum monthly payment is usually required. Ex: Credit Cards Closed Accounts – an amount is set for the purchase, payments are made and the balance is paid off in a set period of time. Ex: Store accounts (furniture, appliances), Car Loans, Mortgages (not home equity lines of credit) Utilities are service credit.

Open Credit Revolving Amount is charged to account as often as desired (to a certain dollar amount). Payments are made each month Ongoing balance can be maintained Minimum monthly payment required Ex: Credit Cards

Closed Credit Installment Amount is set for purchase Payments are made and balance is paid off in a certain amount of time Ex: Store accounts (furniture/appliances) Car loans, mortgages

Service Receive service, pay for them later Utilities Ex: Electricity, water, sewer, etc. Other Ex: Doctor or dentist Receiving service and paying later

Activity 2: How Open Credit Works Credit Card Calculator: Credit Payoff Calculator Activity 2: How Open Credit Works CC Balance $2,000 CC Annual Percentage Rate 11.25% Monthly Payment How many months will it take to pay off? Money you paid just in interest $20 $30 $100 $150 $200

Types of Credit: Activity 3 Enrique is thinking about buying an Ipad. He will need to borrow money to make the purchase. He can arrange the financing ahead of time, or he can use the installment sales plan at the store. Complete Activity 3 in your Guided Notes Packet

3 C’s of Credit Credit Worthiness Measure of your reliability to repay a loan. A lender judge creditworthiness based on 3 factors: Character Capacity Capital

3 C’s Of Credit Character Capacity Will you repay debt? Credit history- Do you have a history of paying back debt? Capacity Can you repay debt? Do you have the Income to pay?

Capital Is the creditor (lender) fully protected if you fail to repay? Assets (own)- Liabilities (owe)= payment of debt

Credit History A record of your past borrowing and repayments. If you paid your bills on time in the past, lenders will be more likely to lend you money in the future.

Collateral Collateral loans are used when the lender wants some assurance that they won’t lose all their money. If you pledge an asset as collateral, they can take the asset, sell it, and get their money back. What assets back up your promises to pay? Car House Jewelry http://banking.about.com/od/businessbanking/a/collateralloans.htm

Cosign Another person will sign the loan with you . By them signing the loan, they are agreeing to pay if you are unable to. ** Usually this is a way younger people can get loans. The lender will feel safer in lending you the money.

Credit Application – Activity 4 Reference the sample credit application to answer questions: What information do they want from you? Why do they need this information?

Requirements What is needed in order to open a credit card? What do credit card companies look at before giving you a credit card? Credit Score Usually the lower your score, the higher the interest rate Income Income-to-debt ratio Employment history Credit Card Requirements Credit Score A credit card is issued when an applicant shows he is creditworthy. A piece of information used by the credit card company to make the determination is the credit report of the applicant. The report provides the company with a credit history, the current debts owed and a credit score for the applicant. Each credit card company has specific requirements when it comes to a minimum acceptable credit score. However, even if an applicant is issued a credit card and has a low-credit score, he may be required to pay a high-interest rate. Income How much an applicant earns is reviewed before a credit card is issued. Several forms of income are considered, such as working income, child support or alimony. The income amount is used to determine the applicant's income-to-debt ratio. If the ratio is high, the credit card company generally denies the applicant for a credit card. Keeping the ratio low helps increase the likelihood the application is approved. Employment A strong employment history is a requirement when applying for a credit card. When the applicant shows he has worked for the same employer for over a year, it increases his credit worthiness with the company. Also, if changing jobs, it is important to stay within the same line of work to have a strong employment history. Any gaps in employment, such as a lay-off, must be explained by the applicant and may affect the credit card company's decision to issue a card. Read more: http://www.ehow.com/list_6768495_requirements-open-credit-card.html#ixzz2kR24TeCy

Credit Debt- A Students Story Credit Card Debt Credit Debt- A Students Story (3:30 minutes) https://www.youtube.com/watch?v=wfuY_LfUZ78 3:24 min https://www.youtube.com/watch?v=PL_F-AjUvjw 3:16 min

Credit Rating A measure of your creditworthiness. A judgment about whether or not you have the ability and willingness to pay your bills on time. Lenders will decide to give you a loan usually based on your FICO Score

FICO Score Computerized scoring system. Score will be between 300 and 850, with 850 being the highest. The score is based on the following: Payment history current debt length of credit history new accounts and inquiries types of credit used

How do you establish credit? Open a checking and savings account Get a small loan in your name (auto loan) Open up a credit card with a small balance ($500). Use it for gas and pay it off on time every month! Maintain a low balance on credit cards and pay it off every month! DO NOT BOUNCE CHECKS!

3 Credit Bureau's Experian Equifax Trans Union The Fair Credit Reporting Act states that a person can obtain a free copy of their credit report once a year. Equifax Equifax is the oldest credit reporting agency in the United States. Founded in 1899, the Atlanta-based global company of approximately 7,000 employees provides a wide range of credit and financial services to consumers and businesses. It is a publicly traded company on the New York Stock Exchange under the ticker symbol EFX. Equifax, like all three credit reporting companies, sells consumer credit information to banks, employers, creditors and other business that use the information to evaluate job, credit, rental, insurance and other types of applications. Equifax's practices of collecting personal information not related to finances led to the congressional hearings and the passage of the FCRA in 1970 and subsequent amendments to the legislation. Consumers can dispute information on Equifax reports on the company's online dispute website. Experian Experian is a multinational credit services and marketing company based in Dublin, Ireland, with over 15,000 employees worldwide. Experian North America is based in Costa Mesa, California, and manages the credit reporting services for American consumers and businesses. However, the company's National Consumer Assistance Center in Allen, Texas, handles credit report disputes. Customers can file disputes about information on Experian reports on the company's website. Experian also owns FreeCreditReport.com, a for-profit credit reporting service marketed to consumers. Criticism of the company from the media and consumers focuses on the fact that it sells credit reports that can be obtained for free by law under the FCRA. Experian is a publicly trade company on the London Stock Exchange under the symbol EXPN. TransUnion Chicago-based TransUnion LLC is the smallest credit reporting agency. Ownership in the global firm is nearly evenly split between the private-equity firm Madison Dearborn Partners LLC and the members of the Pritzker family. The private equity firm has controlling interest in the company with a 51 percent stake. Over 4,000 people work for TransUnion. The company provides credit reporting services to consumers similar to other leading credit reporting agencies. TransUnion Direct provides resident screening services for rental properties, including credit history reports and criminal background checks. Consumers can dispute erroneous information in TransUnion reports online. Read more: http://www.ehow.com/list_7496939_main-credit-reporting-companies.html#ixzz2kRjr025z Under the Fair Credit Reporting Act, an individual is entitled to a copy of his credit report at no charge annually. Designed to encourage individuals to make certain that the information in the credit reports is accurate, the FCRA allows an individual to check a credit report to make certain that the information about bill payment history or bankruptcy filings is accurate. After all, having the wrong information in a credit report can affect everything from future employment to whether or not you can get a bank loan. Read more: http://www.ehow.com/how_7393271_obtain-annual-copy-credit-report.html#ixzz2kRk1G5D4

What determines my credit score? Payment History 35% Amounts Owed 30% Length of Credit History 15% Types of Credit in Use 10% New Credit 10% Other Factors How long at current residence How long on current job

Grace Period The time between the billing date and the payments due date when NO interest is charged. For most credit cards, the grace period is 15 days. If you do not pay your bill within the grace period time frame, interest will be charged.

Credit Limit Maximum amount you are allowed to charge. If you go over your limit, you will have to pay a penalty that can be as much as $30 or more for each charge made beyond your limit. NEVER EXCEED YOUR LIMIT! You should never have more than half of your limit charged on your credit card! This decreases your credit score.

Finance Charge Total cost a borrower must pay for a loan, including all interest and fees. Annual Percentage Rate (APR) The finance charge calculated as a percentage of the amount borrowed.

What can hurt your credit score? Bouncing checks Not making payment on time Having too many credit cards Having a high balance (over 50% of your credit limit).

Dangers Overspending Identity Theft High Interest Rates Ruining Credit Record Tying up Future Income Buying items using credit can tie up future income if the debt is paid over several months or years. To reduce and avoid costs, keep the number of credit cards and accounts you have to a minimum. Comparison shop for loans and other types of credit. Use credit to take advantage of sales. Use credit cards that have rebate or reward programs.

Identity Theft Involves using someone else’s identity to get cash or buy products using credit cards, or to access financial accounts that belong to the victim.

How do they become you? All criminals need your social security number, your driver’s license, or even your credit card number to open charge accounts in your name. They don’t even have to give a real address, a P.O. Box will work!

How to Protect Yourself? Guard personal documents NEVER give out your SSN to ANYONE unless absolutely necessary Keep personal documents in a safe place Keep track of your bills and what you are spending

What to do if your identity is stolen Report the theft to the three major credit bureaus. They will put a fraud alert on your account. Report theft to law enforcement Contact your bank or other organizations you have credit accounts with Call the FTC

60 Minutes Identity Theft