Lending Institutions Banks Mortgage Companies Finance Companies Credit Unions Insurance Companies Brokerage Companies U. S. Government Check Advance Companies
Consumer Credit Credit someone will lend you money and give you time to pay it back Interest money paid for the use of borrowing the money Credit Card plastic card identifying the holder as a participant in a credit plan
Consumer Credit Credit Limit--the maximum amount you may charge Grace Period--a period of time after the due date not subject to late charges Late Charge--payment for not paying the balance owed before the due date
Credit Card Tidbits average customer takes more than 15 months to pay for the charges Sixty (60%) percent of all families make credit card purchases Worldwide, more than 90 million MasterCard, 41 million Discover, and 142 million Visa cards are issued
Fair Credit and Charge Card Disclosure Act in 1988 1. Annual Percentage Rate (APR) 2. How monthly fees are calculated 3. Cost of all fees such as membership, transaction, cash advance and others 4. Grace period
Benefits of using Credit Earlier Consumption; use of goods while paying for them Convenience Use for emergencies Establishment of a good credit history Consolidation of debts Identification
Costs of using Credit Costs more if unpaid balance is not paid monthly Ties up future income Tempts one to overspend Reduces comparison shopping if you only shop in stores extending credit Decreases future buying power
Five C s of Credit Capacity Your ability to pay back a loan Collateral Your assets used as a guide to determine your ability to repay the debt Character Your reputation as a reliable and trustworthy person
Five Cs….continued Capital – the money you personally have invested in the business or value of items you own. Conditions – purpose of the loan, along with local economic climate and conditions.
Types of Credit Consumer – real estate loans, installment loans, term loans, credit cards. Commercial – real estate loans to purchase a business, operating line of credit, business loan Government – Bonds issued by the federal or state government to generate incomeinterest paid to investors.
Types of Credit Cards Travel and Entertainment Cards Bank Cards Company and Retail Store Cards
Travel and Entertainment Cards Travel and entertainment cards such as American Express or Diners Club. They have no predetermined spending limits and must be paid in full each month.
Bank Cards MasterCard, Visa, Discover, Optima, GM and Ford cards which are sponsored by individual banks. The bank defines spending limit sometimes called credit lines and each offers different terms and conditions. Banks offer a choice of payment methods, either pay the balance in full with no interest or pay a minimum part or some part of the balance with a finance charge.
Company/Retail Store Cards Sears J.C. Penney Shell or Mobil
Terms Annual Rate--A flat, yearly charge similar to a membership fee, usually $25 to $50. Annual Percentage Rate (APR)--measure of the cost of credit expressed as a yearly rate Finance Charge--The dollar amount you pay to use credit, includes interest costs and all charges associated with the transaction. Grace Period--number of days you have before a credit card company starts charging interest on new purchases
Evaluating Credit Look at Interest Rate Finance Charge Calculations All fees on card Credit Limit Can card be used in variety of places Annual Fees Review Contract
Questions to Ask When Selecting a Credit Card What credit limit do you set for each card each month? Where will you use your card? Which type of credit card(s) is appropriate? Will you pay off the balance each month? Will you carry a balance? Is there a grace period?
Credit User Responsibilities Assess your financial situation and determine how much you can repay monthly. Understand the contract's costs and conditions so that you know the total cost of credit purchases. Keep copies of credit transactions and compare with your monthly statement. Remove carbons from credit card receipts and destroy them.
Credit User Responsibilities (Con t) Do not give your credit card numbers to anyone you do not know and trust. Pay your bill on time. Inform the creditor of any billing errors promptly. Notify the creditor if you cannot make your payments. Make a list of all credit card account numbers and the issuer's telephone number to use if your card(s) are lost or stolen.