1. CREDIT
Chapter

2. CREDIT Advantages/Disadvantages
purchasing power
standard of living
provides emergency funds
budgeting
receipts
safety
Can cost more
Reduces comparison shopping
Ties up future income
Can lead to overspending

3. Preventing Credit Card Fraud
Carry only the cards you need
Keep a list of # in safe place
Notify creditors if lost or stolen
Keep copy of receipts to compare to bill
Notify creditor is discrepancy appears
Sign new cards
Destroy (cut) expired cards
Don’t give numbers over phone
Keep card in view at all times

4. Sources of Credit Merchants - retail stores Banks and Credit Unions
Loans, Credit Vs. Debit
Finance Companies
Small Loans, High Rates
Pawnshops
Private Lenders - family, friends
Unlicensed Lenders
Loan Sharks (lowest rate 120% - ILLEGAL!

5. Kinds of Credit Open-Ended Credit (Credit Cards)
Open 30-day accounts
Must pay full balance each month (diners club/amex)
Revolving credit accounts
Pay in full or min. payment
Closed-End Credit (Specified Amount)
Installment loans
Service Credit (Service Given - Pay Later)
Layaway Plans (Down Payment -weekly/mthly)

6. 3 C’s of Credit
Character - will you repay how much you owe, if you pay on time financial responsibility. (Credit history)
Capacity - can you repay do you have $ left over after fixed expenses? Income/expenses (time at current job/house)
Capital - value of what you own savings, investments, property. Assets (collateral)

7. Credit Records/Reports/Bureaus
A co. That gathers and sells credit information is called a consumer reporting agency (CRA) or credit bureaus.
Computerized.
Name, address, ss#, income, public records, current accounts, loans, bounced checks, payment patterns, sued, etc.
Trans union, Equifax, and Experian
Who sees your report?
Creditors considering granting you credit, employers for employment, insurers, court orders.
Information stays on your report for 7 years!

8. Credit Ratings Excellent Good Fair Poor
Always pays bills on or before due date.
Better if married, owns home, +5 yr. job.
Good
Pays bills on due date or within 10 day grace period
Fair
Pays bills in grace period, occasionally longer
Sometimes assessed late charges
Poor
Misses payments, reminders needed.
Threats to collection agency
Credit Ratings

9. Your Credit Rights Fair Credit Reporting Act.
Promotes the accuracy and privacy of information in consumer credit reports.
If denied credit you can get a free report.
Right to present your side of the story in a brief 100 word statement.
Equal Credit Opportunity Act.
Lenders can’t discriminate on the basis of sex, marital status, race, religion, age (18), etc.
Truth and Lending Law & Consumer Credit Protection Act
Know how being charged (APR, Annual Fee, etc.)

10. Avoiding Unnecessary Credit Costs
Accept only the amount of credit that you need.
Keep cards to a minimum.
Pay cash for small purchases.
Shop for loans.
Use credit to beat inflation.
Time purchases carefully - know your billing dates.
Take advantage of rebate programs.

11. Creditors Calculate Finance Charges by:
Adjusted Balance Method
pay finance charge only on unpaid amount
$300 - you pay $250 (finance charge on)
Previous Balance Method
Most expensive way. Pay finance charge on the whole month. (allows no deductions on payments made)
Average Daily Balance
Adding all daily balances and dividing by the number of days in the cycle (25-30)
$300 - you pay 250 got there on the 15th - $50 left
300*15 50*15 divided by # of days

12. How to Select a Credit Card
Distribute Handout
Study for short quiz tomorrow

13. LOANS Secured loan - assets offered as collateral to guarantee payment
Unsecured loan - no specific assets are pledged by the credit user as security. Co-signers must pay!

14. BANKRUPTCY Involuntary - Debtor is declared bankrupt by a court
Take assets and distribute (proportional share)
Voluntary - a person asks to be declared insolvent (bankrupt) ON FILE FOR YEARS!!!!!!

15. BANKRUPTCY Advantages Disadvantages Debts are erased.
Exemptions are allowed.
Certain income is unaffected.
The cost is small.
Disadvantages
Credit is damaged.
Property is lost.
Some obligations. remain (Taxes, Child support, alimony).
Cosigners must pay.

16. TYPES
Chapter 11 - for businesses can retain control or court appoints a trustee
Chapter 7 (straight) - Liquidation, assets sold to get cash to pay off debts. Must give up all property except for exempted items.
Chapter 13 - Court enforced plan to repay (3 yrs.) - keep all property
Reaffirmation - an agreement to repay after bankruptcy proceedings are completed

17. TERMS
Reaffirmation - Agreement to repay some debts after bankruptcy proceeding are completed
Exempted items - property the law allows a debtor to keep or protect in declaring bankruptcy
Discharge - the balance of debts no longer owed after bankruptcy