1. Credit

2. Bell Ringer 1.Is a credit card good or bad? 2.What would be considered good credit? 3.On average how many credit cards does the average household have? 4.How do credit cards make money?

3. Video Who are credit card companies best and worst customers? Should people use credit cards as an emergency fund? Why or why not. 0% interest Late fees

4. Chapter 4 - Credit

5. Credit and Installment Debt Terms Credit - is receiving funds either directly or indirectly to buy goods and services today with the promise to pay for them in the future Principal - The amount that was originally borrowed Interest - the amount that the borrower must pay for the use of someone else’s funds.

6. Credit and Installment Debt Terms Installment Debt - One of the most common types of debt, this loan requires equal payments over time Period - the term used for the length of time of the loan Durable Goods - goods that last longer than 3 years and are often purchased using credit  What are some examples of durable goods?

7. Consumer Installment Debt in U.S. http://glencoe.com/sites/common_assets/socialstudies/in_motion_08/ett/Figure4-1.swf

8. Consumer Installment Debt in U.S

9. Types of Credit CharacteristicsClose-end CreditOpen-end credit (revolving credit) DefinitionA one-time loanCredit is extended in advance Purpose of the loanSpecified in application May be used for a variety of purposes PaymentsSpecified number of equal payments Vary depending upon amount charged Loan amountAgreed upon during the application process May be increased for responsible consumers ExamplesMortgage, Automobile Loan Credit Card

10. Mortgages Mortgage - installment debt on real property such as houses, buildings or land.  Largest form of installment debt in the country

11. Pay Now or Pay Later! $1,000 Installment Loan at 9% Interest Term of Loan24 Month36 Months Monthly Payments$45.69$31.80 Total Interest$96.56$144.80 Total Payments$1096.56$1,144.80

12. Why People Use Credit - Advantages “Buy now, pay later”  Using credit allows the borrower to enjoy consumption now rather than later  Items that are too expensive would often take too long to save for Builds/establishes your credit history & credit score Convenient Useful for emergencies Often required to hold a reservation Easy form of debt consolidation Protection against rip-offs and fraud

13. Credit - Disadvantages Missed payments hurt your score Opening too many cards hurts your score Late Fees, Finance charges Going over credit limit Interest is costly Tempting to overspend Privacy is an increasing concern Personally responsible for lost/stolen cards Identity theft easier Can lose financial freedom from overspending

14. Checklist for Buying on Credit The following questions should help you in determining whether to use credit or not.  Do I really require this item? Can I postpone purchasing this item until later?  If I pay cash, what will I be giving up that I could buy with these funds?  If I borrow or use credit, will the satisfaction I get from the item I buy be greater than the interest I must pay?  Have I done comparison shopping for credit?  Can I afford to use credit now?

15. Credit scores A FICO (Fair Isaac Company) score is an evaluation of a person’s ability to repay debt  It is a number between 300 and 850 A higher number is a better credit score  Indicator of a person’s ability to pay back a loan A lower score may increase the interest rates a consumer pays or they may not receive credit  The creditor has a greater risk that the individual may not pay back the money they loaned

16. Credit Scores Credit cards may influence each component of how an individual’s credit score is calculated

17. Credit scores Low credit scores will cost individuals more money long-term.  This table is based upon a thirty-year fixed mortgage rate on a $300,000 loan. FICO ScoreInterest RateMonthly Payment 30 Year Amount 7605.9%$1,787$643,320 6507.2%$2,047$736,920 5909.3%$2,500$900,000

18. Credit Scores, cont. Check your credit score & credit report once a year – but not more than once in 12 months! If your credit is checked more than once every 12 mos, each inquiry after that starts to hurt your score 3 credit reporting agencies are: Equifax, Experian, and TransUnion