1. Credit Understanding Credit

2. Credit Credit: the supplying of money, goods, or services at present in exchange for the promise of future payment Creditor: the business or organization that extends credit

3. Credit Principal: the original amount borrowed Ex: you borrow $5,000, You pay a total of $5,754 when payments are done $5,000 is your principal, $754 is your interest

4. Credit Types of credit: Cash credit: if you take out a loan and receive cash/check Sales credit: you buy something now and wish to pay for it later Secured credit: is backed by a pledge of property

5. Credit Collateral: the property that is pledged to guarantee repayment of a loan Collateral reduces the lender’s risk, the lender has a security interest This means that they can take your property if you fail to repay the loan

6. Credit Closed-end credit: is a one-time extension of credit for a specific amount and time period. The total interest paid is known at the beginning of the loan Ex: car loan

7. Credit Open-ended credit: cardholders makes monthly payment on all or part of an account balance Also known as a line of credit Ex: credit cards, equity loans The interest paid is determined by the length of time and amount of your balance

8. Credit Installment loans: a set portion of the loan amount that the borrower must pay at regular scheduled intervals. Ex: furniture store allows you to purchase a item and pay for it in four easy payments

9. Credit Pros and cons of credit Advantages: 1. Temporary expansion of income, especially helpful with unexpected expenses 2. Convenience: You can carry less cash, shop online,

10. Credit 3. Financial responsibility: good credit provides proof to others of financial responsibility Costs of credit: 1. Interest and fees, also known as finance charges

11. Credit 2. Increased cost of merchandise, retailers may increase their prices to help pays the must pay banks to collect their credit sales 3. Opportunity cost: in the long run it reduces your purchasing power.

12. Credit Other credit concerns: 1. Security: risk of being lost, stolen, or used fraudulently 2. Impulse buying: May cause you to buy on the spur of the moment without considering the purchasing decision

13. Credit 3. Overspending: Can make purchases seem free, will lead into financial trouble down the road What are some guidelines that should be put into place?

14. Credit Three C’s of credit: 1. Character: refers to a person’s reputation concerning repaying debt on time 2. Capacity: refers to a persons earning power and their ability to pay debt from a regular income

15. Credit 3. Capital: refers to items owned or assets available to the creditor if necessary Credit history: a pattern of past behavior in regard to repaying debt. Equal Credit Opportunity Act: ensures that all consumers are given equal chance to obtain credit

16. Credit Credit Bureau: known as credit reporting agency's. They collect information about credit worthiness of consumers. They get info from stores, banks, and from public record Equifax, Experian, and Trans Union are three national credit agencies

17. Credit When credit bureaus and agencies compile info it is put into a Credit report: a record of particular consumer’s transactions and payment patterns It includes the number of credit cards open, balances, monthly payment amounts, and late payments

18. Credit If you get approved for a loan and the interest rate paid is determined by your Credit rating: an evaluation of a consumers credit history Your rating leads to a numerical score known as your

19. Credit Credit score: a numerical rating based on credit report information These scores range from 300 to 850 Fair Credit reporting Act: assures consumers rights to access his or her credit file and dispute incorrect information

20. Credit Establishing credit: 1. Open a checking and savings account, make regular deposits, and avoid overdrawn checks 2. Put utility bills in your name and pay bills promptly 3. Apply for a credit card and use the card. Pay the bill on time.

21. Credit Another way to establish credit is to have a cosigner Cosigner: a person with a good credit history who also signs the application Secured credit card: one that requires you to keep a savings account as security

22. Credit Types of cards 1. Private Label: can only be used at a single retailer ex: JC Penny 2. General purpose: known as bank cards or major credit card. Can be used across the country and ATM’S

23. Credit Revolving credit: card holder has several options of payment 1. Pay in full. 2. Pay minimum 3. Pay amount in between Interest accrues in balance is not paid in full

24. Credit Credit card variations: 1. Status cards; gold or platinum cards usually have an increased line of credit and benefits. May have higher annual fee 2. Co-branded cards: carry the name of both the card network and company. Shell/Visa United/Visa

25. Credit Affinity cards: carries the name of a non-profit or charitable organization. These groups will receive a small percentage of every dollar charged Smart cards: have computer chips which store information

26. Credit Things to compare between cards will include: Annual fee, APR (annual percentage rate) Fixed or variable rate If you are offered an introductory or teaser rate look at the terms after the rate expires

27. Credit Grace period: a period of time during which the balance may be paid in full to avoid finance charges Typically grace periods run 20 to 25 days Also compare minimum payments, fees for late payments, cash advances, annual fees

28. Credit Credit Limit: the maximum amount of credit that the creditor will extend to the borrower. Do not be fooled by incentives and special offers Truth and Lending Act: Lenders must adequately inform consumers about credit terms and costs

29. Credit Use credit wisely, Remember to 1. Set limits for yourself 2. Pay the full balance when possible 3. Pay bills on time to avoid late charges or interest rate hikes 4. $1,000 will take you over 20 years to pay off if you pay minimum payments

30. Credit Fair Credit Act: outlines procedures for settling credit card disputes You must contact them within 60 days of finding an error in writing They must respond in 30 days; 90 days to resolve

31. Credit Types of loans: Mortgages: are closed-end installment loans Home serves as security for the loan. Loans can range from 15 to 50 years Equity: the difference between what you owe on a home and its market value

32. Credit Home equity loan: loan that uses the equity in your home as security. Can be used for a number of purposes Other loans include, vehicle loans, education or student loans, personal line of credit

33. Credit Consumer Finance Company: are business that specialize in making small and personal loans The typical borrower is usually a greater credit risk, because of the risk the lenders fees and interest rates are usually much higher than a bank

34. Credit Insurance policies can be a source of a loan, as can Payday loans Payday loans: short term, high interest rate loans, typically must be paid back in a two week to one month period Interest rates can run as high as 500%

35. Credit Concepts and terms to know: Loan shark: unlicensed lender who operates illegally and charges excessive interest Down payment: a portion of the purchase price paid at the time of purchase Ex: $2,000 down on a $15,000 auto purchase

36. Credit Balloon Payments: a final payment that is much larger than the other installment payments Acceleration clause: gives the seller the right to declare the entire balance due if the buyer misses even one installment payment

37. Credit Add-on clause: allows additional purchases to be added on to an installment contract Right of rescission: If you are pledging your home as security, you have the right to cancel the loan within 3 business days Cancellation must be in writing

38. Credit Delinquent: over due payments Default: failure to fulfill the obligations of a loan, more aggressive action will be taken to collect the debt Repossession: Taking away property due to failure to make payments Services can also be shut-off Ex: electric or water

39. Credit Collection agency: business that collects unpaid debt for others. They receive a portion of what they collect Collection agencies reflect very poorly on your credit ratings Lien: a claim upon property to satisfy a debt

40. Credit Garnishment: the legal withholding of a specified sum from a persons wages in order to collect debt Credit counseling: programs to help train people to learn to live with-in their means Debt consolidation loan:combines all existing debt into a new loan with more manageable payments

41. Credit Bankruptcy: legal relief from repaying certain debt Chapter 7 May lose property, creditors is receive the money from sales Chapter 13 debtor keeps property, submit plan approved by courts