1. Credit
Chapter 10

2. 10.1 What is Credit?
Credit - the ability to borrow money in return for a promise of future repayment.
Never borrow more money than you can easily repay!
Using credit
for owning a home (called a mortgage) is almost essential.
For education
For health

3. When to Borrow
Some people do not use credit wisely. They borrow for what they want. Then, when they really need to use credit, they are unable to get a loan.
Or, they take on more debt then they are able to repay.

4. Before you borrow, ask yourself
Is it important that I buy now?
Do I have to borrow?
Can I afford the payments?
Will I be able to buy other products I want more if I borrow now?
The interest you will pay on the purchase could be used to buy other things you want. Is it worth the sacrifice?

5. 10.2 How to Qualify for Credit
Credit Worthiness - a measure of your reliability to repay a loan.
The 3 C’s for Credit
Character – your sense of financial responsibility
Capacity – ability to repay
Capital – value of what you own

6. Credit history – record of your borrowing & repayments.
Paying bills on time is the most important factor.
Work steadiness.
Mobility.
Attendance.
Savings.
Co-sign – agree to repay the loan if the you don’t.

7. Your Credit Rating Credit rating Payment history Current debt
Length of credit history
New accounts & inquiries
Kind of credit you use

8. Credit Bureaus – collect credit information & sells to lenders.
The three largest
TransUnion
Equifax
Experian

9. 10.3 Sources of Consumer Credit
Two forms: loans and credit card accounts
Loans
Secured – backed by something of value, “collateral”
Unsecured
Banking Institutions as sources of loans
Finance companies
Life insurance companies
Credit card cash advances
Pawnbrokers
Rent-to-Own Companies

10. Regular charge accounts – must be paid in full each month, no interest
Credit Cards
Regular charge accounts – must be paid in full each month, no interest
Revolving charge accounts – balance may be carried over month to month with minimum payment, pay interest
Grace period – the time between the billing date and the payment due date when no interest is charged
Credit Card costs
Annual Fees
Interest
Credit limits
Penalties

11. Control credit card costs
Use a loan as an alternative
Don’t just pay the minimum payment
Choose the least expensive card – annual fees, percentage rates

12. 10.4 Credit Rights and Responsibilities
Truth in Lending – 1968
all banks must calculate credit costs the same way
must provide finance charge & annual percentage rate
Equality in Lending – may not discriminate based on:
Sex
Color
Race
Religion
marital status
age

13. Rights (cont)
Protect Your Credit History – you have access to your credit history & may amend mistakes to it
Resolve Billing and Product Quality Problems – may withhold payment if you believe there is a mistake
Protection from Abusive Collection Practices

14. Responsibility Act Responsibly Know your debt capacity Self-control
Pay more than the minimum
Avoid too many credit cards
Pay cash
Keep records

15. 10.5 Maintaining a Good Credit Rating
Do not miss a payment
Save regularly
Married couple – establish some credit separately
Common Mistakes
Pay on time
Don’t skip a payment – call institution immediately for unusual circumstances

16. Read what you sign
Acceleration clause – entire debt is due if you miss a payment
Balloon Payments – final payment much larger than the scheduled payments
Bankruptcy – when you cannot pay debts & must surrender property.
The court sells the property to pay the debts.
Carried in credit history for 10 years.
True-Name Fraud – stolen identity to open charge accounts
The business is responsible to pay the charges.

17. Protect Yourself from Fraud
Never give your SS# unless absolutely necessary.
Keep your records in a safe.
Keep track of your bills.