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Credit Wisdom. Managing Money & Credit: A Lifelong Skill. Credit. Credit an agreement to obtain money, goods, or services now in exchange for a promise to pay in the future. Using Credit Wisely. Character : The way you handle money and have repaid debt in the past.
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Credit Credit an agreement to obtain money, goods, or services now in exchange for a promise to pay in the future
Using Credit Wisely • 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.
The Three 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.
Why Credit is Important • FICO or credit score: • Credit Card Issuers & Lenders • Determine APR • Auto Insurers • Determine Premium • Employers • Are you a worthy hire? • Landlords • Are you a reliable tenant?
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
America’s Love of Credit • 609.8 million Credit Cards in US • Average Credit Card $15,956 per household • 1.4 million bankruptcies in 2011
Advantages Credit Card • Credit is convenient. • You can shop and travel without carrying cash. • You can buy items right away without saving. • Credit is useful in an emergency. • Credit can help you keep track of spending. • Credit contributes to economic growth.
Disadvantages of Credit Cards • Credit can be easy to misuse. • Items cost more when you use credit. • Using credit means you have committed some of your future income to your debt. • You cannot use credit after you reach your credit limit. • Late or missed payments lower your credit rating.
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?
What to Consider… • There are five main factors to consider when selecting a credit card: • Interest rate • Extra fees • Whether the interest rate will change • Whether a cosigner is needed • Whether there is a grace period
The Cost of Credit To gauge the cost of credit, first look at the annual percentage rate (APR). annual percentage rate (APR) the cost of credit on a yearly basis
The Cost of Credit A credit card might offer a low introductory APR but change to a much higher rate after a few months.
The Cost of Credit Credit card companies will usually charge a fee for a cash advance. cash advance a loan given in cash by a credit card company in anticipation of the borrower’s being able to repay it
The Cost of Credit Credit card companies will usually charge a fee for late or missed payments. Another fee is charged if the card holder is over the credit limit.
Other Considerations You may need a cosigner when you apply for credit. cosigner someone who agrees to be responsible for a debt if the main applicant does not repay it
Other Considerations You should consider whether there is a grace period for payments on your credit card. grace period an amount of time allowed to repay a debt without having to pay interest charges
Applying for a Credit Card A credit card application asks for information about your address, your job, what other credit you have, and details about your income and savings.
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.
Installment Loans • secured loan • a loan that is backed by collateral • unsecured loan • a loan that is not backed by collateral A mortgage is an example of a secured loan. A credit card debt is an example of an unsecured loan.
What Can You Do to Increase Score? • Pay Bills On Time
Choose a Low Rate • 0% is lowest • But remember the catch • 15.75% average fixed rate. • If you pay your card off every month, the rate won’t matter.
What Not to Use Credit For: Pay Day Loans
Payday Loans / Check Cashing Stay Away! What is it? • Cash Loan • Extremely High Interest • Short-term (14 – 45 days)
How Do They Work? • You postdate a check • They give you a loan • Loan last for 2 weeks • They charge you a fee for borrowing the money—equivalent APR can be over 300%.
Risks of Payday Loans • Not a long-term cash solution • Borrowers get trapped in a payday loan cycle of debt • Take out loan after loan
Group Project • Identity Theft • Credit Laws • Credit Reports • Debt & Bankruptcy • Shopping for Credit
