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Credit Management

Credit Management. Review. History of Credit in America. 1800s Bartering General store gave first credit Monthly, seasonal and yearly credit Bank loans had very high interest rate 1900s Moved from agricultural to labor based economy Weekly paychecks People bought luxuries

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Credit Management

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  1. Credit Management Review

  2. History of Credit in America • 1800s • Bartering • General store gave first credit • Monthly, seasonal and yearly credit • Bank loans had very high interest rate • 1900s • Moved from agricultural to labor based economy • Weekly paychecks • People bought luxuries • Credit became a its own business

  3. History of Credit in America • 1970s • US credit protection laws • Credit abuse / over use became common • Today • Internet exploded use of credit cards by consumers and businesses • Non-banks now issue all purpose credit cards • Stores • Gas stations

  4. Credit cards today • Needed to: • Rent a car • Reserve a hotel room • Buy gasoline at night • Replacing travelers' checks • More competition leads to user rewards • Points • Cash back

  5. Credit use • Benefits • Convenience • Buy now pay later • Don’t need to carry cash • Emergencies • Costs • Credit problems • Spending beyond what you can afford • Interest and fees • Sacrifice other spending

  6. Where to get credit • Financial institutions • Bank, credit unions, saving and loan • Offer personal and business loans and credit cards • Finance companies • Small companies • Usually charge high interest rates • Accept credit applications turned down by other financial institutions • Controlled by usury laws (set maximum interest rates by state)

  7. Where to get credit • Pawn broker • High interest loans backed by collateral • Accept collateral that is easy to resell • guns, cameras, jewelry, electronics • Property must be bought back from the pawn broker to be reclaimed • Private lenders • Friends, family, acquaintances • Life insurance policy • Borrow against value of policy

  8. 5 C’s of Credit • Character • Capacity • Capital • Conditions • Collateral

  9. Review Questions • Write a short definition for each of the 5 C’s of Credit • Identify which type of credit someone would most likely use for purchases. • Mortgage • Furniture for a new house • Car • College tuition

  10. Review • Write a short definition for each of the 5 C’s of Credit • Identify which type of credit someone would most likely use for purchases. • Mortgage • Furniture for a new house • Car • College tuition

  11. Review • Write a short definition for each of the 5 C’s of Credit • Identify which type of credit someone would most likely use for purchases. Is it Opened- or Closed-Ended, Secured or Unsecured? • Mortgage • Furniture for a new house • Car • College tuition

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