1. HOW TO GET AND KEEP CREDIT
CHAPTER 26
HOW TO GET AND KEEP CREDIT

2. NATURE OF CREDIT Picking a credit card
Main factor should be cost of card
But also look at:
Who accepts card?
Can you get cash advance?
What “perks” or benefits are there to the card?
Free miles, cash back, rebates on purchases, etc.

3. APPLYING FOR CREDIT Fill out credit application Where you live
Where you work and for how long
Other credit you have
Amount in checking and savings accounts

4. FIVE C’s OF YOUR CREDITWORTHINESS
Capacity – your ability to repay a loan
Character – your likeliness to repay a loan
Credit History – the way you have repaid in the past
Use a credit bureau
Credit bureau is a company that reports:
Pay bills on time
Miss payments
How much debt you have

5. FIVE C’s OF YOUR CREDITWORTHINESS
Capital – do you have money to repay the loan
Collateral – what will you give up if you do not repay the loan

6. WORTHINESS
Credit limit – how much each lender will allow you to charge with them
If you show you are responsible, many lenders will increase your credit limit
Cosigners – someone who will pay the loan if you fail to do so
Can use this person as way to establish credit

7. STOP SLIDE

8. LOANS Credit cards are short term loans
Use to pay for smaller items or ones you can repay quickly
Higher interest rates than loans from banks
Use bank loans for larger or more expensive items

9. TYPES OF LOANS Installment loans Cash loans
Make down payment (which is part of the total cost of the item)
Rest is owed in equal payments over time
Interest is charged based on principal (which is amount you borrowed)
Cash loans
Borrow from bank or credit card (cash advance) and pay back over time in installments
Interest rates vary widely, so check before you get one

10. LOANS Secured loan – a loan backed by collateral
Lower interest rate than unsecured
Unsecured loan – a loan backed only by your promise to repay
Higher interest rate than secured
More risk to creditor

11. COSTS OF CREDIT Annual Percentage Rate (APR)
Cost of borrowing money if you were to borrow it for the full year
Finance Charges – total it costs you to borrow the money
Includes fees charged for loan, interest, etc.
Creditor has to issue this by law

12. COSTS OF CREDIT Changes in interest rates can hurt you
Variable rate loans change the interest rate as the interest rate banks pay goes up
Your loan can become more expensive
Be careful about introductory offers
Know the real cost of credit
Fixed rate loans never change, regardless of what the interest rates are doing
Which is better?

13. COSTS OF CREDIT Fees – charged for credit services
Application fee
Credit check fee
Cash advance fee
Late/missed payment fee
Grace period – amount of time you have to pay off loan before the interest charges are added
If pay off during this time, you pay NO interest

14. STOP SLIDE

15. KEEPING CREDIT Start with smaller loans and small credit
Build responsibility early so you can get more credit later
Work hard to maintain your credit rating

16. CREDIT BURDEN
You should use no more than 20% of your income for credit
Making minimum payment
Will take over 30 years to pay off a $2,500 loan on a credit card if only make minimum payment. Will have paid over $7,500 in interest.
Pay off debts earlier, and as early as possible

17. OVEREXTENDING
When credit limit is reached, tempting to just use another card
Credit should only be used responsibly
If not, eventually you will owe all your money in credit

18. CREDIT PROBLEMS Credit problems can arise if you get too in debt
Missing payments or having payment due letters sent to your house will hurt credit rating
Some creditors can take money from your paycheck before you get it (garnishment)
Some creditors can take back the collateral you pledged for the loan (repossess)

19. HOW TO GET CREDIT Start small
Cell phone in your own name (non-prepaid)
Get single purpose credit card and use it, but pay it off every month
Get a secured credit card (pre-paid)
Get cable in your own name
Have cosigner for a loan
Borrow money from bank if possible (small amount) and repay it with interest
Sometimes you have to pay to establish credit

20. STOP SLIDE