Credit

1. Credit You're in Charge

2. What is Credit ??? • Credit is an arrangement to Receive cash, goods, or services now and pay for them in the future!

3. Consumer Credit • Used for personal needs. • Increases the amount of money you have now • Decreases the amount of money you have in the future • Risk • Return • Dangerous • Major force in the US. Economy!

4. Advantages • Enjoy Now with little or no immediate financial burden • You can combine several purchases to make one payment • Travel with out cash • What about the debit card?

5. Why use Credit • For Convenience • Emergencies • Identification • Travel • Reservations • To protect your personal finances! • To enjoy the good life

6. Disadvantages • There will always be the temptation to spend beyond your means! • Falling behind in your payments will affect your credit rating and you in the future. • You could lose your income or property

7. Credit • Using a credit card does not increase your purchasing power • It does not mean you have more money. • Misusing Credit is Dangerous!

8. Credit misused is Dangerous! What are your Opportunity Cost? Think!

9. Types of Credit • Closed End Credit • Open – End Credit

10. Closed – End Credit • This is credit the is a one time loan that will be paid off over a specified period of time in payments of equal amounts. It involves a definite amount of Money • Mortgage • Car Payment • Installment Loan

11. Open End Credit • Limits the amount of total $ borrowed • Line of Credit • Credit Cards You can use it for just about anything you wish as long as you do not go over your line of credit

12. Sources of Consumer Credit • Commercial Banks • Consumer Finance Companies • Credit Unions • Life Insurance Companies • Savings and Loan Associations

13. Credit Cards • Very popular • The average credit card holder has 10 Cards. • Convenience user – pays off card each month. • Borrower – does not carry a balance each month and carries a balance. • Grace period – a certain time period offered by the card company where there are no finances added to your account balance.

14. Finance Charge • The total dollar amount pay to use credit. • The cost of using the card companies money

15. Debit Card • This is a card that allows you to electronically subtract money from your own savings or checking account to conduct a transaction. • You use your money! • Smart Card Carries a computer chip with much more info. • Travel & Entertainment Card must be paid in full the next month. – American Express

16. Debit VS. Credit Debit Credit Card Not your money Finance Charges Allows you more financial flexibility Interest is expensive • Your Money • No finance charges • Directly taken from your account

17. What % of net income should I allow for debt payments? • 20 % Max

18. Annual Percentage Rate • What it will cost you to use their money • The finance charge is calculated using the APR • How much above and beyond the actual cost of the product • http://www.youtube.com/watch?v=g6_YvIhPKMk

19. The cost of paying a minimum balance • $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

20. Example one • You buy $500.00 in new books on your master card. • 19.8% Apr • Min. Monthly payment $21.67 • 30 months • 21.67 X 30 = 650.10 • 650.10 – 500 = 150.10

21. Example 2 Month one Month 2 $ 9999. Balance Min pay $142. 17% 9999 – 147 = 9857 Add finance charge (interest) New balance $ 9998. • $10,000 Balance • Min pay $142. • 17% • 10000 – 147 = 9858 • Add finance charge • New balance $ 9999.

22. As time goes by 1 year At this rate 36 years to pay off Total $ payments $61,060.00 All for the use of $10,000 http://www.youtube.com/watch?v=Vz05A6cP6Iw&feature=related • You paid $1846 • Your Credit Card debt went down from • 10,000 to 9995 • Five Dollars

23. Simple Interest • Principal X Interest Rate X The Amount of Time = Simple Interest.

24. Why would a lender encourage you to make a minimum payment each month?

25. Applying for a loan The Five C’s of Credit • Character • Capacity • Capitol • Collateral • Credit History

26. Character • Will you repay your loan • The creditor wants to know if you are trustworthy.

27. Capacity • Your ability to pay off your new loan • How much do you earn? • What is your current debt?

28. Capitol • What is your worth • Assets? • Liabilities?

29. Collateral • How can you secure the loan? • Savings, home, furniture, car?

30. Credit History • Timely Payments • Bankruptcy?

31. The Credit Bureau • An agency that collect data on how promptly people and businesses pay their bills • The Big Three • Experian • Trans Union • Equifax The information they collect on you affects your credit score.

32. Credit Score Range • Between 700 and 850 – Very good or excellent credit score. • Between 680 and 699 – Good credit score. • Between 620 and 679 – Average or OK score. • Between 580 and 619 – Low credit score. • Between 500 and 579 – Poor credit score. • Between 300 and 499 – Bad credit score.

33. Bad Information? • 7 to 10 years old - No • Unless applying for a loan over $75,000 or • Life Insurance over $150,000

34. What's on your file • Employer, wages and position • Previous address • Previous employer • Spouse’s name, soc. Sec. employer, and income • Own or rent • NSF Checks

35. Dispute a billing error • Notify your creditor in writing. • Give them as much data as you can to support your dispute. • Pay the portion that is not in question

36. Warning Signs • Only paying the minimum • The minimum is tough to pay • Monthly balance of Credit Card goes up monthly • Missed payments, or late • Use of savings for the basics – food, clothes, rent • Past due Notices • Borrow $ to pay old debt • Exceed Credit limits • Denied Credit

37. Bankruptcy Chapter 7 Chapter 13