 Buying on credit = buy goods and services now and pay for them later (usually with interest)  Having credit depends on the suppliers’ confidence in your ability and intention to pay off what you owe in the future  To get a good credit rating:  Buy items on credit and pay off debts at the end of the billing cycle  Will help you get loans for cars, homes, furniture, etc.  Banks want their money back  uneasy to lend money to people who might not repay their loans  Banks use credit bureaus to determine how risky a given loan might be to a loan applicant

 3 Credit reporting agencies:  Equifax  TransUnion  Experian  Record your credit payment history and contains information about your debts  Shows if you have ever applied for a credit card, a personal loan, insurance, or a job  Also may indicate whether you have been denied credit or if you have filed for bankruptcy  Only credit grantors make credit decisions, not credit bureaus

 Compares a person's income to his or her debts  Gives a percentage to show how much of a person's income will go toward paying debts  The debt-to-income ratio (DTI) compares your monthly debt expenses to your monthly gross income  To calculate your DTI:  Add up all the payments made a month (includes monthly credit card payments, car loans, investment loans, student loans AND housing expenses like rent, mortgage, property taxes, homeowners insurance)  Divide monthly dept repayments by your gross income per month ($$ you make before taxes are taken out). Multiply by 100 to get your DTI

 $400 on credit cards, $200 on car loans and $1,400 a month in rent, your total monthly debt commitment is $2,000  Monthly gross income is $5,000/month for a $60,000/year salary  Your debt-to-income ratio is $2,000 divided by $5,000, which works out to.4 or 40%.

 Make payments on time  When late, the lateness affects your score  Your credit score tells the loan supplier what kind of loan- risk you are  The lower the score, the less likely you’ll get approved for a loan  Score range:  Excellent score: 720 & up  Good:  Average:  Poor:  Bad:  Miserable: less than 500

 Annual Fee - A fee charged by the card issuer for being a card holder  Annual Percentage Rate (APR) - The yearly percentage rate of the finance charge, either a fixed or variable rate  Balance Transfer - transferring the whole or partial balance of one credit card to another credit card (done if new card has a lower APR)  Billing Cycle - The days between the last statement and the current statement, range from 20 to 32 days  Cash Advance – Getting cash from the credit card instead of using it to make a purchase

 Finance Charge - The amount of interest charged to an account for the billing cycle  Grace Period - The time allowed to pay your balance without being charged a finance charge. Usually 25 to 30 days.  Interest Rate - The yearly percentage rate of the finance charge, can be a fixed or variable rate  Introductory Rate - A low interest rate offered for a limited time, usually for the first 3 to 6 months on being a cardholder  Late Payment Fee - A fee charged when a payment is overdue  Minimum Monthly Payment - The minimum amount of the balance a cardholder is required to pay to keep the account in good standing.  Over Credit Limit Fee - A fee charged if your balance exceeds your credit limit.  Pre-Approved - A person who has passed the preliminary screening for the credit card. The person will still need to have their credit checked.

 Bankruptcy = the protection of the consumer from the creditors by the courts  Two forms: Chapter 13 & Chapter 7  Chapter 13: ▪ Form of debt consolidation and reorganization  Chapter 7: (most common) ▪ Gives immediate and complete relief of oppressive debts  Disadvantages to filing bankruptcy:  Shows up on your credit rating for 10 years (might not be able to get credit or only at a high interest rate)  Can affect employment