What do you know about credit? Credit

“But Roger, everyone spends more that he earns. That’s what Canada is for.”

Credit Cards ■ Would you get a credit card? ■ How would you use a credit card/what would you use it for?

Credit Buy now... pay later! ■ Impulse buying ■ Instant gratification

What is Credit ■ The privilege of using someone else’s money to purchase an item or service now and then paying for it later ■ Creditor: the person or business that sells on credit or grants a loan ■ Debtor: the person or business that buys on credit or obtains a loan.

Credit ■ Advantages saving money credit rating monthly statement instant enjoyment convenience emergency needs ■ Disadvantages credit costs impulse buying overbuying financial difficulties

Types of Credit ■ Credit cards ■ Instalments; store credit ( The Brick “Don’t pay for a Year” Event ) “Don’t pay for a Year” ■ Loans ○ term (fixed set of time) – car loan/lease ○ demand – requires collateral ○ mortgage ○ line of credit ○ school loan

Student Loans-OSAP Ontario Student Assistance Program (OSAP) ■Government funding for college/university ■Comes in form of a grant (don’t have to pay back) or a loan (do have to pay back)

OSAP ■Eligibility: ○Canadian citizen ○Considers: marital status, school attending, program, your family’s potential to contribute ■Ave 4 year degree debt = ~$21,000 ■Ave 2 year diploma debt = ~$12,000

OSAP ■Post-graduation, you get 6 months where you don’t need to pay the loan back and are not charged interest Average time to pay off your OSAP debt: 9.5 years

30% off Tuition ■Ontario govnt currently running a promotion for 30% off your tuition!!! ■Eligibility: ○Canadian citizen/resident ○Full-time student ○Left high school <4yrs ○Undergraduate degree ○Parents make less than $160K

Why Be a Lender? 1. Why do banks and stores offer credit? ○ to increase sales ○ to attract customers 1. How do lenders make money by offering credit? ○ potentially collect interest charges (make money)

Applying for Credit ■ Why would you apply for credit card? ○ access funds in an emergency ○ security when traveling ○ to create a credit history ○ establish a credit rating

Credit Rating What does this mean? ■ Information is collected on both individuals and businesses for a period of seven years ■ Keep track of defaults (debt that has gone unpaid for so long that the creditors wonder if they money will ever be paid back)

■ Indicates the level of risk that a consumer, business, or government will pose if credit is granted by a business ■ Bad credit rating can get you denied for a car loan or a landlord may refuse to rent to you Why is it important?

How Do I Establish a Credit Rating? ■ Students: 1. Getting and keeping a job 2. Buying something on credit (with credit card) and paying it off before interest is charged (magazine) 3. Having someone, such as a family member or close friend with a good credit rating, co- sign a loan

Applying for Credit ■ 3 C’s of Credit ○ Character ○ Capacity ○ Capital

Character ■ Individual financial personality ○ Regular employment (how long) ○ Willing to accept responsibility for debt (pay bills on time) ○ Has a bank account ○ Reliable in job ○ Present address (how long) ○ Good credit report

Capacity ■ Ability to repay debt on time ○ Income level –steady job ○ Children ○ Other debts, monthly payments ■ Car loan ■ Mortgage/rent ■ Other credit cards ■ Other household bills (Hydro, phone)

Capital/Collateral ■ Financial value or worth of the person –assets used to repay debt ○ The total value of possessions e.g., houses, cars. savings, investments, etc. that could be sold

Credit Cards Video: Credit Card AnimationCredit Card Animation 1.With a credit card I don’t have to delay getting what I want. 1.I don’t have to ask myself the question “Do I really need or want this” or “Do I have enough money to buy this?” 3.I can buy whatever I want when I want!

Credit Cards ■ How does interest work? ■ When does it come into play? ■ What is the actual cost of an item purchased using a credit card? Video: Credit Cards Debt ExplainedCredit Cards Debt Explained

Credit Card Debt Scenario: ● $2000 outstanding on credit card ● 2.5% minimum payment required (or $10.00, whichever is greater) ● Option 1 – pay the minimum each month ● Option 2 – pay the minimum + $50.00 ● Option 3 – pay a fixed amount of $200.00

Rule of Tells you how much credit (debt) you can afford ● Do not borrow more than 20% of your annual net income (not including your mortgage) ● Payments on these loans should not equal more than 10% of your monthly net income