Credit

1. Credit Unit 9 Consumer Education

2. The 3 C’s of Credit Character—reputation to repay debt on time Ex: Loan to a friend and pay back on time Capacity—earning power and ability to pay debt from regular income Ex: $$ you make compared to what you owe Capital—items owned or assets Ex: savings account, car, house, anything of value

3. Types of Credit Revolving-is a reoccurring bill that incurs interest if not paid in full Ex: Credit Cards Single Payment-is a type of credit that does not charge interest if not paid on time. Ex: Heating Bill, all utilities Installment-is a type of credit that requires an amortization tablecalculator-monthly payment Ex: House, Car

4. Credit Card Parts Minimum Payment-the amount you must pay to your credit card each month Interest-is the profit that is earned by banks and credit card companies Credit Line (Limit)-is the maximum amount you can charge to your credit card Finance Charge-the charges you will incur if you do not pay the entire amount off. Annual Fee-the fee charges once a year to have a credit card-not all cards have. APR (Annual Percentage Rate)-is the interest rate you are charged on your credit card

5. Advantages to Credit • Develop a credit history to establish credit scores or ratings • Show capability of making payments • Easier to return items brought on credit • Can dispute purchases easier with credit • Extended warranties • Record of purchases 

6. Disadvantages of Credit • Interest-pay more than minimum • Spends to easily-cash advances • Can be costly with fees • Limit yourself to one card • Credit card debt

7. Parts to a Credit Application Personal info name, address, ph, Employment type, how long at a job, how much you make Residence how long have you lived some where established people are easier to find-shows stability rent or own monthly cost $$$

8. Identity Theft Prevention • Never give out social security number • Use a firewall on computer • Review credit card statements carefully • Order a free credit report • Strengthen passwords-memorize them • Shred mail and documents with personal inforamtion • Watch emails

9. More Parts to a Credit Application Credit References List of people you have owed money to in the past shows how well you have paid your bills Collateral identify items that can be used to borrow money against Bank References any bank you have an account with to check balances (loans, savings, checking, money market accounts)

10. Credit Bureaus collects credit information about individuals-regulated by FTC • 3 main bureaus -Equifax -Experian -Trans Union

11. Credit Reports Personal Information-name, birth date, social security number, address, employment Payment History-date opened, balanced owed, monthly payments, late payments Bank Account History-balances, overdrafts Inquiries-list of entities who have asked for your report Public record information-criminal convictions, bankruptcies, tax liens, foreclosures

12. Credit Score • a rating system that indicates the risk of a consumer not repaying a loan • below 600-are charged with high loan rates • above 700 have low loan rates • 720 is the median score (2005) • above 760 is one of the best ratings • highest score 850

13. Improving Your Credit Score • Pay bills on time-automatic payments • Limit your outstanding debt compared to your credit limits. • Keep cards that have a history or track record. • Limit the number of credit cards your apply for.

14. Types of Credit Cards Prestige/Status- Gold, platinum Brands: Discover, Visa, MC increased line of credit higher benefits annual fees Co-Branded/Reward Card-card network and bank reward for using card Secured Card-must put a deposit down before a card is issued Private label-only used at that store exclusively

15. Credit Laws Equal Credit Opportunity Act-ensures that all consumers are given an equal chance to obtain credit Ex. race, sex, Fair Credit Reporting Act-gave consumers a way to check their credit reports. The credit bureau had to be identified that gave the information. Ex: check for errors Truth in Lending Act-requires creditors to adequately inform consumers about credit terms and costs and to calculate credit in the same manner at the time of the loan or credit

16. More Credit Laws Fair Credit Billing Act-Credit card statements must be accurate with all of the information that is needed Fair Debt Collections Practices-to stop collection agencies from using abusive conduct (such as threatening or harassing practices)-no calls after 9:00 p.m. Electronic Funds Transfer Act-protects you from unauthorized charges to yourATM card if lost. –you must report it.

17. Credit Card Accountability, Responsibility, and Disclosure Retroactive Rate Increases-60 days or more, more notice Fee Restrictions Students needs a co-signer if under 21 End double cycle billing Fairer Payment Allocation 21 days between bills versus 14 days Gift card protection

18. Types of Loans Consumer Mortgage, Vehicle Secured-Unsecured Loans Loan Terminology • Principal • Rates • Term

19. Amortization • Mortgage Amortization Program • Mortgage Amount $100, 000 • Interest Rate: 9 • Number of Years: 30 • Monthly Payments: $804.62