The Uses Of Credit

Need to Know

Define Credit / Types Advantages and Disadvantages The Three C’s

Credit? What is it?

Money borrowed to buy something now, with the agreement to pay for it later

– IOU

= Give up ability to spend later

Borrower / Lender Borrower – Person taking cash or

merchandise- Owes

– Lender – Provides cash or merchandise- Gives

Create a scenario demonstrating a borrower and a lender.

Credit allows for you to pay for…

EmergenciesExpensive ItemsReal Estate

– Investments

Advantages (when used correctly)

Raise standard of livingConvenientNo Cash NecessaryConsolidation

Protection Advantages

You may return merchandise for a credit to your account

Disadvantages

InterestAnnual FeesLate Charges

Impulse BuyingBad credit can

take years to erase from your record

Types of Credit

Revolving Credit

Single Payment

Installment

REVOLVING CREDIT

Visa, Mastercard, Discover, Department Stores, Gas Cards, Retail Stores, Financial Institutions

Credit Limit Monthly Payments A minimum amount must be paid monthly,

but not the whole amount on the card

SINGLE PAYMENT

Bills (Comed, Water, Comcast) Paid in set time frame No Interest Late Fees

INSTALLMENT

Car Payment, Mortgage, Rent, QVC

“Loan” Specific Purchase2 or more scheduled payments

In your group

On the stack of post-it’s draw examples of items you would use revolving, installment, and single payment items and post them on the correct piece of paper

Sources of Credit

Retail Stores Banks and Credit

Unions Finance Companies

Pawnbrokers

Private Lender

Gas Companies

So now that we have gone over the types of credit-let’s talk about how you get approved for credit

What do you think credit approval is based on?

The 3 C’s of Credit

Character

Capital

Capacity

Character

Past History ~ Credit Report

~ How have you handled credit in the past

~ Do you pay bills on time

Capital

Collateral~ Property

~Savings / Checking Account

~ Investments

Capacity

Can you pay? Do you have a job

Other expenses

Dependants

Create a scenario’s

Someone who would get approved for a credit card, using the three c’s

Someone who would not get approved for a credit card using the three c’s

Would get approved

Joanne is a recent graduate of Urbana High School, she worked hard in school and paid cash for her own car. She has had one credit card that her parent was a co-signer on. She has always paid off the full credit card amount each month. She does not have a full time job while going to Parkland, but she does work on the weekends at Steak n’ Shake

Would not get approved

Joanne really wanted a lap top, so she opened her first credit card. She got the application in the mail and did not read the fine print. She did not have a job or the patience to save for the laptop. She also does not have a job. Once she got the laptop, she fell behind and missed a few payments.

Now write your own!

Bell ringer:

How do you establish good credit?

Establishing Good Credit

Have some form of income

Have a bank account and don’t overdraft!

Pay bills on time always paying AT LEAST the minimum

Don’t over extent on credit and use cards wisely!

What is a credit score?

What does it represent? What #’s do you think it ranges from?

Credit score

A three digit # by FICO designed to predict risk

What things can a good credit score help?

Interest charged for major life investments

How is your credit score weighted?

Amounts Owed– 30%

Payment history – 35%– Especially RECENT credit payments

http://money.howstuffworks.com/personal-finance/debt-management/credit-score.htm

Read “Boost Your Credit Rating”

Individually fill out 10 “things” one needs to remember to boost ones credit score.

Who’s Counting????

Credit Bureaus Keep Records Sell Information

~ Lenders report information~ Agencies give data in return~ over 1,200 Credit Bureaus in the nation~ BIG 3

The BIG 3 Credit Score Bureau’s

Equifax – www.equifax.com~ 1-800-685-1111

Experian – www.experian.com~ 1-888-397-3742

Trans Union – www.tuc.com~ 1-800-888-4213

Bankruptcy Disadvantages

Credit Damaged

Property Lost

Some obligations remain

Co-signer must pay

Reaffirm

Bankruptcy Advantages

Debts Erased Exempted assets are retained Certain incomes are unaffected The cost is small

Borrowing Rights

Fair Credit Billing Act

Equal Opportunity Act

Truth and Lending Act

Fair Credit Billing Act

Corrections must be made quickly Borrowers are able to challenge statements Written complaints must be made within 60

days of statement Creditor must acknowledge within 30 days Correct within 2 billing periods

Equal Opportunity Act

Race Age Sex Color

Nationality Marital Status Religion

Can’t Be Denied As A Result Of……

Truth in Lending Act

Consumer Information Rights– Costs– Conditions

What to do if denied

Ask why

Apply for another lender

Improve credit worthiness

Lost Or Stolen Cards Report it right away

Not liable for anything after the card is reported

You have two days to report it for 0 liability

APR (Annual Percentage Rate)

20 / 10 Rule

Rule # 1~ Your total borrowing should not be more than

20% of your yearly income.

~ Monthly payments shouldn’t exceed 10% of your monthly net income.- (Housing payments should not be included in the 10%)