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Unit 6: Debt and Credit Objective: Summarize the impact and risks of credit.

Unit 6: Debt and Credit Objective: Summarize the impact and risks of credit.

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Unit 6: Debt and Credit Objective: Summarize the impact and risks of credit.

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  1. Unit 6: Debt and CreditObjective: Summarize the impact and risks of credit.

  2. Your Credit score is a snapshot of your credit history (profile) at the specific moment your score is given. Your score is based on your credit report, which contains your entire credit history. This document includes the good and bad of your credit –related decisions, the latter of which stay on your credit report for seven years. Having a good credit score is important because the power of a good score is growing in significance; credit checks are now customary when trying to get an apartment or new job.
  3. A: A financial institution may ask for collateral if your credit history is new not good. Collateral: Assets pledged by a borrower to secure a loan or other credit, and subject to seizure in the event of default. Also call security. Default means payment has stopped and the person is behindon their payments.
  4. B: The 5 C’s of Credit Character: the integrity of the borrower. Capacity; the ability to pay back the loan Capital: assets the customer has that show stability and investments show money management skills Collateral: Collateral refers to assets the borrower uses to secure the loan. When a homeowner takes out a home equity loan, that money is secured by the property. Business people may take out loans and use the assets of the business to secure the funds Conditions: outside forces that may be a loan risky. The state of the economy, high unemployment in the area of expertise of the individual, etc.Read more: Name the Five C's of Credit Management | eHow.comhttp://www.ehow.com/list_7308269_name-five-c_s-credit-management.html#ixzz2N4C8i9na
  5. What is equity? http://www.investopedia.com/video/play/what-is-equity/#axzz2N4DeU1Nv
  6. How do protect and manage your credit history Spend only what you make. Don’t sign up for credit cards and wrack up credit card bills. Pay off your credit cards at the end of the month. Use them for true emergencies. Get a good education so you can find a good paying job. Practice safe and healthy habits so you don’t spend money on unnecessary health related expenses or spend money on drugs. Don’t throw away hard earned money on drugs, alcohol, and cigarettes. You would be surprised how quickly the money drains away. Don’t gamble. Buy things on sale, look for bargains. When starting off- look for a used car. Save and put money away to use as a down payment on a first home. Rule of thumb is to have at least 3 months of your house payment in savings in case of a lay off. Be careful buying on line products- make sure it is a protected site so you don’t fall into identity theft. Avoid eating out a lot-cook at home.
  7. How can debt affect your future? I: Mortgage: A loan to finance the purchase of real estate usually with specified payment periods and interest rates. The borrower (mortgagor) gives the lender (mortgagee) a lien on the property as collateral for the loan. If you get into debt, buying property (house, car, condo) may be more difficult. If you own property and get into debt it may be harder to make your monthly mortgage payments and thus lose your property to foreclosure Foreclosure: legal process by which an owner’s right to a property is terminated, usually due to default on payments. Defaulting on a car loan or loan for merchandise is called repossession of property.
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