The Uses Of Credit

1. The Uses Of Credit

2. Need to Know • Define Credit / Types • Advantages and Disadvantages • The Three C’s

3. 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

4. Borrower / Lender • Borrower – Person taking cash or merchandise - Owes • Lender – Provides cash or merchandise - Gives

5. Create a scenario demonstrating a borrower and a lender.

6. Credit allows for you to pay for… • Emergencies • Expensive Items • Real Estate • Investments

7. Advantages (when used correctly) • Raise standard of living • Convenient • No Cash Necessary • Consolidation

8. Protection Advantages • You may return merchandise for a credit to your account

9. Interest Annual Fees Late Charges Impulse Buying Bad credit can take years to erase from your record Disadvantages

10. Types of Credit • Revolving Credit • Single Payment • Installment

11. 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

12. SINGLE PAYMENT • Bills (Comed, Water, Comcast) • Paid in set time frame • No Interest • Late Fees

13. INSTALLMENT • Car Payment, Mortgage, Rent, QVC • “Loan” Specific Purchase • 2 or more scheduled payments

14. 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

15. Retail Stores Banks and Credit Unions Finance Companies Pawnbrokers Private Lender Gas Companies Sources of Credit

16. 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?

17. The 3C’s of Credit • Character • Capital • Capacity

18. Character • Past History ~ Credit Report ~ How have you handled credit in the past ~ Do you pay bills on time

19. Capital • Collateral ~ Property ~Savings / Checking Account ~ Investments

20. Capacity • Can you pay? • Do you have a job • Other expenses • Dependants

21. 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

22. 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

23. 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.

24. Now write your own!

25. Bell ringer: • How do you establish good credit?

26. 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!

27. What is a credit score? • What does it represent? • What #’s do you think it ranges from?

28. Credit score • A three digit # by FICO designed to predict risk

29. What things can a good credit score help? • Interest charged for major life investments

30. How is your credit score weighted? • Amounts Owed • 30% • Payment history • 35% • Especially RECENT credit payments

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

32. Read “Boost Your Credit Rating” • Individually fill out 10 “things” one needs to remember to boost ones credit score.

33. 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

34. 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

35. Credit Damaged Property Lost Some obligations remain Co-signer must pay Reaffirm Bankruptcy Disadvantages

36. Bankruptcy Advantages • Debts Erased • Exempted assets are retained • Certain incomes are unaffected • The cost is small

37. Borrowing Rights • Fair Credit Billing Act • Equal Opportunity Act • Truth and Lending Act

38. 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

39. Race Age Sex Color Nationality Marital Status Religion Equal Opportunity Act Can’t Be Denied As A Result Of……

40. Truth in Lending Act • Consumer Information Rights • Costs • Conditions

41. What to do if denied • Ask why • Apply for another lender • Improve credit worthiness

42. 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

43. APR (Annual Percentage Rate)

44. 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%)