1. How to Get and Keep Credit
Chapter 26
Take a note sheet on your way in
Complete the bookwork for chapter 26
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2. Applying for Credit
To open a credit or charge account, you will have to fill out an application form.
The form asks for information about:
where you live
where you work
and what other credit you have received
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3. Credit Worthiness Creditors want to make sure you are worth the risk
When you apply for credit, there are five primary considerations that affect a lender's decision to approve or decline your loan application
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4. The Five Cs Capacity - your ability to repay the loan
Character - whether your lender thinks you will repay the loan
Credit History - report that tells whether you pay your bills on time or have failed to pay debts
Capital - what you are worth
Collateral - What you agree to forfeit if you fail to repay your loan
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5. The creditor will take into account all these factors to decide how much you can borrow.
The maximum amount you can spend or charge on a credit account is called your credit limit.
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6. Credit Limit
The maximum amount you can spend or charge on a credit account.
You will not be able to charge more than the limit
If you pay your bills on time, the creditor will often increase your credit limit
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7. Cosigner
A cosigner is someone other than you who signs for a loan. The cosigner agrees to repay the loan if you fail to repay as promised.
Cosigners are jointly liable for loans, which means that the lender can look to them for payment.
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8. When do you need a cosigner?
You are under the age of 18
Individuals under 18 years of age who are granted credit can't legally be held responsible for unpaid debt.
You have no credit history
If you're a first-time borrower, you probably don't have much credit history.
You have a poor credit history
Loan applicants who have failed to make payments as promised in the past aren't reliable.
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9. A cosigner does not relieve you of your responsibility to pay back the loan as promised. If you don't, it will affect your credit rating and that of your cosigner's.
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10. Installment Loans
Down Payment – a portion of the cost that you pay when you purchase a product.
Principal – the amount of money you still owe.
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11. Secured Loan A loan that is backed by collateral is a secured loan
Car loans
Mortgages
Home equity loans
Repossess
If you put up something valuable as collateral on a loan, such as a car, a creditor has the legal right to take back the collateral if you miss a payment.
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12. Unsecured Loan The loan is not backed by collateral
Interest charges are often higher than on a secured loan.
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13. Paying for Credit
Before you take out a loan or apply for a credit card, you should figure out the costs to see if you can afford it.
Different cards have different rates.
Also, look to see what the fees are for various types of transactions.
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14. Annual Percentage Rate (APR)
This percentage rate determines the cost of your credit on a yearly basis.
An APR of 18% means that for each $100 you owe, you pay $18 per year.
This amounts to $1.50 per month ($18/12)
The amount of interest you pay a year depends on the interest rate, the total length of the loan, and the amount of the loan.
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15. A single credit card may have several APRs
One for purchases
One for cash advances
And yet another for balance transfers
The APRs for cash advances and balance transfers often are higher than the APR for purchases
for example, 14% for purchases, 18% for cash advances, and 19% for balance transfers
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16. Tiered APRs
Different rates are applied to different levels of the outstanding balance
For example
16% on balances of $1–$500
7% on balances above $500.
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17. A penalty APR The APR may increase if you are late in making payments.
For example
your card agreement may say, “If your payment arrives more than ten days late two times within a six-month period, the penalty rate will apply.”
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18. If you carry over a part of your balance from month to month, even a small difference in the APR can make a big difference in how much you will pay over a year.
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19. Fixed vs. Variable APR
Some credit cards are “fixed rate”--the APR doesn’t change, or at least doesn’t change often.
Even the APR on a “fixed rate” credit card can change over time. However, the credit card company must tell you before increasing the fixed APR.
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20. Other credit cards are “variable rate”--the APR changes from time to time.
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21. Grace Period
The number of days you have to pay your bill in full without triggering a finance charge.
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22. Finance Charge The dollar amount you pay to use credit.
The amount depends in part on your outstanding balance and the APR.
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23. Minimum Finance Charge
Some credit cards have a minimum finance charge.
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24. Fees Annual fee Cash advance fee Balance transfer fee Late payment fee
Over-the-credit-limit fee
Credit limit increase fee
Other
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25. Keeping Credit
To continue using credit or to get new credit, you need to maintain a good credit rating.
Creditors are happy to extend credit to people with a good rating.
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26. Making the Minimum Payment
Each credit card statement always includes a minimum payment you have to make on a bill.
Many people think that they can get by just making the minimum payment
It would take over 30 years to pay off a credit card debt of $2,500 at 18.9% if you only make the minimum payment.
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27. Overextending Your Credit
The more credit cards you have, the more you might be tempted to make impulse purchases
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28. Credit Problems
Late payments, missed payments, too much credit, and other problems can give you a bad credit rating.
Misusing credit can lead to more immediate problems.
Garnishment of wages - When creditors take all or part of you paycheck if you miss a payment
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29. Chapter 26 Book Work Page 422 Fast Review #’s 1-4
Page 430 Using Business Key Words #’s 1-14
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