1. Credit What YOU need to know!

2. What is Credit? Credit is borrowing money now to make an immediate purchase and promising to repay it later.

3. Credit Terms Lender: one who lends the money Borrower: one who receives the loaned money Credit Rating: an evaluation of the likelihood the borrower will default on the loan. Default: not being able to pay for the loan.

4. Credit Terms Credit Rating is based on: -past credit experiences -current financial situation -job history ***once you ruin your credit rating it is VERY difficult to fix it****

5. Credit Terms Collateral: property or another valuable item that a borrower pledges as security for a loan. If a borrower defaults on the loan, the lender can seize (take) the collateral. If you don’t make your car payment they take your car!

6. Sources of Credit Banks Credit Unions Financial Corporations Most Common Source: Credit Cards

7. When you get a credit card… You will be given a credit limit (a maximum amount of money you can charge) You need to know the APR (Annual Percentage Rate). This is the interest rate the credit card charges. Current Average APR: 15.11%

8. When you get a credit card… To avoid interest charges, you MUST pay the ENTIRE balance EACH month! NEVER just pay the MINIMUM balance!

9. Example You charge a new computer and TV at Best Buy for $2000. Your Best Buy credit card’s APR is 27.99%. –Store credit cards ALWAYS have a MUCH higher interest rate!! If you only pay the minimum payment: $80 (4% of $2000), it will take you 11 ½ YEARS to pay it off and you will have paid $2,469.29 in interest Your original $2000 purchase really cost you $4469.29!

10. Credit…Pros and Cons Pros: You can purchase something immediately Using a credit card wisely can teach you discipline, responsibility and other life skills It can be used in an EMERGENCY!

11. Credit…Pros and Cons Cons: VERY easy to fall into debt! Debt can lead to bankruptcy If you file for bankruptcy, it stays on your credit rating for 7-10 years. During that time, it is extremely difficult to get a loan.

12. How to build a good credit history… Apply for 1 credit card with a low APR (if possible) Charge SMALL items that you NEED each month Pay off the ENTIRE balance EACH month NEVER pay just the MINIMUM balance