1. Banking, Borrowing & Credit More On Managing Your Income

2. Banking Checking Account – bank account against which a depositor can write checks –Safe because a check can be cashed only by a person/business to which the check is made payable Check – order written by a depositor directing the bank to pay out money Debit Card – similar to check in how it works but looks like a credit card

3. Banking Bank Statement – bank report that shows the status of the depositors account Check Register – the portion of a checkbook where you can record the checks you have written Canceled Check – check that has been paid by a bank. It is proof of payment.

4. Banking Bounced Check – check that is written with insufficient funds in your account (NSF) Deposit Slip – a record of the money put into your account

5. Banking Savings Account– bank account that pays interest to customers in return for the use of customers money Interest– amount lenders pay for use of customers money Compound Interest– paying interest on the interest

6. Banking Certificate of Deposit (CD)– a savings instrument that is an agreement between a bank and a customer –Bank agrees to pay back the money you invest with them plus a specific rate of interest on a certain due date. –Pays higher interest than a savings account –Usually sold in 1000s

7. Borrowing & Credit American motto: Buy now, pay later The average credit card debt is $10,000 A good credit rating is one of the most valuable financial tools you have.

8. Borrowing & Credit Establishing Credit –2 types of credit: Closed-ended credit –One time loan made for the purchase of a costly item (automobile, appliance) –Have a specific number of payments and period of time it will be paid Open-ended credit –Loan made on continuous basis for purchases up to specific dollar limit (credit cards) –Borrowing & overspending is very possible

9. Borrowing & Credit STEP 1: Know how creditors determine whether you are a good credit risk –Creditors- people who lend money How likely are you to pay off credit in full? What is your past credit history? How many missed bill payments have you had? How long have you been employed? Do you move a lot?

10. Borrowing & Credit Credit Capacity - the amount of debt that you can afford to repay each month –Lenders will look at your income level and expenses to ultimately determine your credit capacity –Income+Collateral-Expenses = Capacity Credit History - Record of how youve borrowed and repaid debts

11. Borrowing & Credit Who are your lenders? –Businesses When you buy on credit, businesses expect you to pay for the item later. –Banks Similar concept, but more strict than other institutions *Lending money* is the main way banks make money Usually have the lowest interest rates –Consumer Finance Companies Often lend to people with poor credit Smaller amounts of money and charge higher interest rates

12. Borrowing & Credit 2 Types of Credit Cards –Single-purpose Used at just one location Gas station card, Maceys card, etc. –Multi-purpose Used for variety of reasons & in many places MC, Visa, AmEx, etc.

13. Borrowing & Credit When you use your card… –Banks join the Mastercard or Visa system to issue cards and earn money. You buy something Business accepts card as payment The business pays the bank a fee for each charge you make You pay the bank interest on charges that are not fully paid each month

14. Borrowing & Credit Buying on Credit is costly! Interest Rate –Depends on amount borrowed length of time it is borrowed rate of interest charged

15. Borrowing & Credit Truth in Lending Act –Requires creditors to explain in writing finance charges & APR before agreement –Fed. Law does NOT set interest rates or credit charges but does require disclosure Finance Charge - total dollar amount paid to use credit (includes interest charges and service charges) APR - annual percentage rate is % cost of credit on a yearly basis.

16. Borrowing & Credit Credit Rights –Fair Credit Reporting Act Requires a credit agency to show you your credit file once per year for free –Free Credit Report.com commercials –Equal Credit Opportunity Act Requires a lender to notify you within 30 days after you have submitted a completed loan application –Truth In Lending Act Limits your liability for lost or stolen credit cards to $50/card if you notify the lender immediately after the loss