1. Obtaining Credit

2. Focus Questions
When figuring the cost of credit, what four factors need to be considered?
How do credit card contracts differ from loan contracts?
What are four laws that protect the consumer in credit transactions?

3. Understanding Credit
Principal
Time
Interest Rates

4. Principal
In a savings account, the amount of money you deposit in your account is known as the principal and you earn interest on the principal

5. When you get a loan, the amount that you originally borrow or still owe is called the principal but this time you pay interest on the principal

6. Time
When the repayment time is longer, your monthly payments are lower. However, taking longer to repay means that the total cost of your will be higher

7. Interest Rates
Example On a thirty year home loan of $200,000, if the interest rate goes from 6 percent to 8 percent, the total cost for interest will increase by $96,634

8. Fees and Other Charges
Finance changes are the costs you pay for credit Interest is one finance charge When you apply for a loan, there are fees to cover the costs of credit reports and appraisals

9. An appraisal is a professional estimate of the market value of property. An origination fee is a fee for starting the paperwork on a loan. When you use a cash advance on a credit card, you will be charged a fee as well as when you make a late payment.

10. Computing the Cost of Credit
Multiply the amount of your monthly payment times the number of months you will be paying off the loan.
Add the down payment, if any.
Subtract the price of the item if you had paid cash, or subtract the amount of cash you receive if you are getting a loan. The difference is the cost of using credit.

11. Example
You are buying a car for $5,500. You make a down payment of $500 and borrow the rest. The loan requires you pay $225 a month for 24 months. $225 times 24 months = $5,400 Plus down payment Total amount paid $5,900 Less Price of car - 5,500 Cost of credit = $ 400

12. Understanding Contracts
Some loan contracts have a grace period an amount of time after the due date when a payment can be made without penalty

13. Comparison of Loan contracts and Credit Card Agreements
Most auto and cash loan contracts include:
Total amount loaned
Amount of down payment (or trade in)
Interest rate you will pay
Special charges you will pay
Total amount you will pay
Total amount and due date of each payment

14. Most credit card agreements include: https://applynow. chase
Most credit card agreements include: CBV&page_type=appterms

15. Qualifying for Credit Lenders analyze risk by analyzing your
Character your willingness to pay your bills on time
Capacity your ability to pay your bills
Capital is represented by things of value that you own, such as your car

16. Net Worth
Assets money or anything else of value that a person owns Liabilities money or other debts that a person owes Net worth the difference in value between total assets and total liabilities

17. Credit Bureaus
An agency that keeps records of the credit activity of individuals
Three major credit bureaus
Equifax
Experian
Transunion

18. Your Credit Information
The credit bureaus obtain their consumer credit information from creditors such as banks, credit card companies, and other lenders Whenever you apply for credit, the lender will check your credit report and your credit score.

19. Credit Score
A three digit number based on the information in your credit information. FICO score is the most widely used It takes into consideration like whether you pay your bills on time, how much debt you have, and how long you've had established credit.

20. The score is meant for a quick way for creditors to determine whether you are a good risk. FICO Score

21. Checking Your Credit Report
The Fair Credit Reporting Act requires each bureau to provide consumers with one free credit report every twelve months, upon request. Credit scores are not free Go to AnnualCreditReport.com to request your reports

22. Components of a Credit Score
Length of credit history
Payment history
Amounts owed
New credit
Types of credit used

23. Consumer Protection Laws
Equal Credit Opportunity Act
Truth in Lending Act
Fair Credit Reporting Act
Fair Debt Collection Practices Act

24. Equal Credit Opportunity Act
Prohibits discrimination against a person applying for credit because of age, sex, marital status, religion, race, national origin, or the receipt of public assistance. If you are denied credit, you must be notified in writing.

25. Truth in Lending Act
requires creditors to state, in writing, the APR and other finance charges This requirement applies to Banks, S&Ls, all credit card issuers, credit unions, consumer finance companies, and many other lenders. It allows you to compare the credit plans of different lenders.

26. Fair Credit Reporting Act
Gives you the right to see your credit report and correct errors
If you are denied credit, you must be told the name and address of the credit bureau that gave the report.
If you find untrue statements in your credit record, give a corrected statement (in writing) to the credit bureau and ask them to check it out.

27. Fair Debt Collection Practice
Prevents debt collectors from using harassment and even threats to collect the money owed. These practices are illegal.

28. Building A Good Credit Record
Open a bank account
Open a store charge account
Avoid credit cards with high fees
Take out a small loan

29. Assessment
In order to compute the cost of credit, what four things do you need to know?
Is it a good idea to spread out credit payments for as long as possible?
Compare the cost of a $9,000 car loan at 8 percent interest over three year, four year, and five year periods
What are the "three C's of credit"? How do lenders use them?

30. Assessment
5. How many free credit reports can you obtain in twelve months? 6. On large loans that are repaid over a long time, even small differences in the interest rate make a big difference in the cost. Why? 7. When you are getting a loan, why is it important to know the cost of credit?