Upload
gwendoline-jordan
View
221
Download
0
Tags:
Embed Size (px)
Citation preview
USING CREDIT
Managing Money & Credit:A Lifelong Skill
What is Credit?
“Buy now, pay later” Supplying of money,
goods, or services at present time in exchange for the promise of future payment
Why Credit is Important FICO or credit score: Credit Card Issuers &
Lenders Determine Annual
Percentage Rate (APR)
Auto Insurers Determine Premium
Employers Are you a worthy hire?
Landlords Are you a reliable tenant?
The Four Cs of Credit Character: The way you
handle money and have repaid debt in the past.
Capacity: Your ability to pay the debt after considering other monthly expenses.
Capital: The value of your assets or what you own.
Collateral: Typically used in home or auto loans. This is what they can take from you if you don’t pay!
Advantages: Able to buy needed items now Don’t have to carry cash Creates a record of purchases More convenient than writing checks Consolidates bills into one payment
Disadvantages:
Interest (higher cost of items) May require additional fees Financial difficulties may arise if one loses track of
how much has been spent each month Increased impulse buying may occur
Your Responsibilities
Borrow only what you can repay Read & understand the credit contract Pay debts promptly Notify creditor if you cannot meet payments Report lost or stolen credit cards promptly Never give your card number over the phone
unless you initiated the call or are certain of the caller’s identity
Your Rights
Truth in Lending Act (1968)
Insures consumers are fully informed about cost & conditions of borrowing
Fair Credit Reporting Act (1970)
Protects the privacy & accuracy of information in a credit check
Credit Cards – The Perceived Great Equalizer
Credit lets you buy more than you can afford. Credit and credit cards Current World Problem
Needs are essentials Food Shelter Clothing Reliable transportation
Wants are extras Eating out Big, expensive house Shop till you drop Brand new or an expensive
car
Who Uses Credit Cards? U.S. population = 298 million
Use credit cards = 150 million
Pay off monthly = 50 million
Carry a balance = 100 million
2/3 of credit card users don’t pay off their balance
$9,300 = average debt per household
America’s Love of Credit 1.6 million
bankruptcies were filed in 2004
Americans are declaring bankruptcy at 10x the rate they were during the depression
Use Credit Wisely
You should use credit to buy: House Car Education (student loan)
and you’ll avoid trouble
Only Buy What You Can Afford
Pay off monthly balances Avoid interest Avoid late fees
Know your budget Know yourself
Are you an impulse buyer?
Pay More than the Minimum If you have a credit
card balance: Make a plan to pay as
much as you can every month
Start with the credit card with the highest interest rate
Pay off the credit cards as quickly as you can
Limit the Number of Cards
Americans have an average of 8 credit cards
Always Pay on Time Avoid late fees Keep your money in
your pocket Maintain a good credit
score Late payments have the
biggest negative impact. Easiest way to make
money is to save money.
Choose a Low Rate 0% is lowest
But there is often a catch
Rates can range from 0-41%.
If you pay your card off every month, the rate won’t matter.
Building a Credit History Establish a steady work record Pay all bills promptly Open a checking account & don’t bounce checks Open a savings account & make regular deposits Apply for a local store credit card & make regular
monthly payments Apply for a small loan using your savings account
as collateral Get a co-signer on a loan & pay back the loan as
agreed
Types of Credit Cards
Gasoline Credit Cards
1. One of the easiest to get
2. Provides credit for gas, oil & other products
3. Must pay interest on unpaid balance
Travel and Entertainment
1. Diners Club, American Express
2. Yearly membership fee, usually higher than annual fee for bank cards
3. Expected to pay balances in full each month
4. Can be used throughout the world on airline tickets, renting a car, hotel, etc
Types of Credit Cards
Retail Credit Card1. Department store or chain of
stores
2. No annual fee
3. May receive special offers
4. No annual fee
5. Finance charge on any unpaid balance
Bank Cards1. Issued by banks2. Can be used at hotels,
restaurants, department stores, theaters, almost anywhere!
3. May have an annual fee (especially to get mileage)
4. Must pay interest on unpaid amount