Chapter 4, Section 3. Creditworthiness Are you trustworthy enough to pay back your loans? Your credit rating is a way of showing just how trustworthy.

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Presentation transcript:

Chapter 4, Section 3

Creditworthiness Are you trustworthy enough to pay back your loans? Your credit rating is a way of showing just how trustworthy you are. Credit Rating Credit Rating – estimates the risk involved in giving a loan to a person or business. Based off of 3 factors: 1. Capacity to pay – How much $$ do you make, and do you do it consistently? 2. Your character – reputation as a reliable/trustworthy person. Education, problems with the law, etc. 3. Collateral – something of value that the bank can take if payment is not received.

Ways to Improve Your Credit Score 1. Pay down, or pay off your credit card. 2. Use your cards lightly, less than 30% of your limit. 3. Check your limits. 4. Check for errors on your credit reports.

Ways to Hurt Your Credit Score 1. Maxing out the card. 2. Skipping a payment. 3. Lose a house to foreclosure. 4. File for bankruptcy.

Types of Loans 1. Secured – loan that is backed by collateral. 2. Unsecured – loan guaranteed only by a promise to repay it.

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