The Uses Of Credit

Need to Know Define Credit / Types Advantages and Disadvantages The Three C’s

Credit? What is it? Money borrowed to buy something now, with the agreement to pay for it later – IOU = Give up ability to spend later

Borrower / Lender Borrower – Person taking cash or merchandise - Owes – Lender – Provides cash or merchandise - Gives

Create a scenario demonstrating a borrower and a lender.

Credit allows for you to pay for… Emergencies Expensive Items Real Estate – Investments

Advantages (when used correctly) Raise standard of living Convenient No Cash Necessary Consolidation

Protection Advantages You may return merchandise for a credit to your account

Disadvantages Interest Annual Fees Late Charges Impulse Buying Bad credit can take years to erase from your record

Types of Credit Revolving Credit Single Payment Installment

REVOLVING CREDIT Visa, Mastercard, Discover, Department Stores, Gas Cards, Retail Stores, Financial Institutions Credit Limit Monthly Payments A minimum amount must be paid monthly, but not the whole amount on the card

SINGLE PAYMENT Bills (Comed, Water, Comcast) Paid in set time frame No Interest Late Fees

INSTALLMENT Car Payment, Mortgage, Rent, QVC “Loan” Specific Purchase 2 or more scheduled payments

In your group On the stack of post-it’s draw examples of items you would use revolving, installment, and single payment items and post them on the correct piece of paper

Sources of Credit Retail Stores Banks and Credit Unions Finance Companies Pawnbrokers Private Lender Gas Companies

So now that we have gone over the types of credit-let’s talk about how you get approved for credit What do you think credit approval is based on?

The 3 C ’s of Credit Character Capital Capacity

Character Past History ~ Credit Report ~ How have you handled credit in the past ~ Do you pay bills on time

Capital Collateral ~ Property ~Savings / Checking Account ~ Investments

Capacity Can you pay? Do you have a job Other expenses Dependants

Create a scenario’s Someone who would get approved for a credit card, using the three c’s Someone who would not get approved for a credit card using the three c’s

Would get approved Joanne is a recent graduate of Urbana High School, she worked hard in school and paid cash for her own car. She has had one credit card that her parent was a co-signer on. She has always paid off the full credit card amount each month. She does not have a full time job while going to Parkland, but she does work on the weekends at Steak n’ Shake

Would not get approved Joanne really wanted a lap top, so she opened her first credit card. She got the application in the mail and did not read the fine print. She did not have a job or the patience to save for the laptop. She also does not have a job. Once she got the laptop, she fell behind and missed a few payments.

Now write your own!

Bell ringer: How do you establish good credit?

Establishing Good Credit Have some form of income Have a bank account and don’t overdraft! Pay bills on time always paying AT LEAST the minimum Don’t over extent on credit and use cards wisely!

What is a credit score? What does it represent? What #’s do you think it ranges from?

Credit score A three digit # by FICO designed to predict risk

What things can a good credit score help? Interest charged for major life investments

How is your credit score weighted? Amounts Owed – 30% Payment history – 35% – Especially RECENT credit payments

finance/debt-management/credit-score.htm

Read “Boost Your Credit Rating” Individually fill out 10 “things” one needs to remember to boost ones credit score.

Who’s Counting???? Credit Bureaus Keep Records Sell Information ~ Lenders report information ~ Agencies give data in return ~ over 1,200 Credit Bureaus in the nation ~ BIG 3

The BIG 3 Credit Score Bureau’s Equifax – ~ Experian – ~ Trans Union – ~

Bankruptcy Disadvantages Credit Damaged Property Lost Some obligations remain Co-signer must pay Reaffirm

Bankruptcy Advantages Debts Erased Exempted assets are retained Certain incomes are unaffected The cost is small

Borrowing Rights Fair Credit Billing Act Equal Opportunity Act Truth and Lending Act

Fair Credit Billing Act Corrections must be made quickly Borrowers are able to challenge statements Written complaints must be made within 60 days of statement Creditor must acknowledge within 30 days Correct within 2 billing periods

Equal Opportunity Act Race Age Sex Color Nationality Marital Status Religion Can’t Be Denied As A Result Of……

Truth in Lending Act Consumer Information Rights – Costs – Conditions

What to do if denied Ask why Apply for another lender Improve credit worthiness

Lost Or Stolen Cards Report it right away Not liable for anything after the card is reported You have two days to report it for 0 liability

APR (Annual Percentage Rate)

20 / 10 Rule Rule # 1 ~ Your total borrowing should not be more than 20% of your yearly income. ~ Monthly payments shouldn’t exceed 10% of your monthly net income. - (Housing payments should not be included in the 10%)