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 creditfor owning a home (called a mortgage) is almost essential.For educationFor health
3 When to BorrowSome 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 CreditCharacter – your sense of financial responsibilityCapacity – ability to repayCapital – 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 historyNew accounts & inquiriesKind of credit you use
8 Credit Bureaus – collect credit information & sells to lenders. The three largestTransUnionEquifaxExperian
9 10.3 Sources of Consumer Credit Two forms: loans and credit card accountsLoansSecured – backed by something of value, “collateral”UnsecuredBanking Institutions as sources of loansFinance companiesLife insurance companiesCredit card cash advancesPawnbrokersRent-to-Own Companies
10 Regular charge accounts – must be paid in full each month, no interest Credit CardsRegular charge accounts – must be paid in full each month, no interestRevolving charge accounts – balance may be carried over month to month with minimum payment, pay interestGrace period – the time between the billing date and the payment due date when no interest is chargedCredit Card costsAnnual FeesInterestCredit limitsPenalties
11 Control credit card costs Use a loan as an alternativeDon’t just pay the minimum paymentChoose the least expensive card – annual fees, percentage rates
12 10.4 Credit Rights and Responsibilities Truth in Lending – 1968all banks must calculate credit costs the same waymust provide finance charge & annual percentage rateEquality in Lending – may not discriminate based on:SexColorRaceReligionmarital statusage
13 Rights (cont)Protect Your Credit History – you have access to your credit history & may amend mistakes to itResolve Billing and Product Quality Problems – may withhold payment if you believe there is a mistakeProtection from Abusive Collection Practices
14 Responsibility Act Responsibly Know your debt capacity Self-control Pay more than the minimumAvoid too many credit cardsPay cashKeep records
15 10.5 Maintaining a Good Credit Rating Do not miss a paymentSave regularlyMarried couple – establish some credit separatelyCommon MistakesPay on timeDon’t skip a payment – call institution immediately for unusual circumstances
16 Read what you signAcceleration clause – entire debt is due if you miss a paymentBalloon Payments – final payment much larger than the scheduled paymentsBankruptcy – 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 accountsThe 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.