CREDIT

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CREDIT Powered By Docstoc
					CREDIT   &   MONEY
          Introduction
          Big news in 2009:
   • Barack Obama’s inauguration
• Sarah Palin quit as Alaska governor
• Deaths of Michael Jackson, Senator
             Ted Kennedy
       • Credit crisis continues



                                        2
POP QUIZ!

            3
   Question 1

   Correct Answer: B

       Credit is the
ability to borrow money.




                           4
            Question 2

            Correct Answer: B

Credit is the opportunity to borrow money,
           and debt is the money
       you have actually borrowed.




                                             5
Question 3

Correct Answer: D

 For any reason!




                    6
  Question 4

Correct Answer: False




                        7
  Question 5


Correct Answer: False




                        8
 Question 6


Correct Answer: D

 All of the above




                    9
 Question 7


Correct Answer: A

Overuse or abuse
 of credit cards




                    10
Question 8

Correct Answer: B

  18 years old.




                    11
Question 9
Correct Answer: E




                    12
  How do credit cards work?

• You ―pay‖ with your card, but the credit
  card company is actually charged.

• At the end of the month, the credit card
  company sends you a bill for everything that
  you bought.

• The credit card company offers you a
  minimum payment (a lot less than the full
  amount), but…
                                              13
   BEWARE THE
MINIMUM PAYMENT

                  14
    Minimum Payments and
           Interest

• If you always pay your full            Goodbye
                                          , debt?
balance, you only owe
the value of what you
bought. No interest!

• If you pay less than your total bill, you
  pay interest (maybe 15% per year).
    • It goes up if you miss a payment
                                                    15
    A quick example

You buy $1000 worth of products
 from January 1st to January 31st…
 If you pay your whole $1000 bill, that’s all you
                          owe.
     But your bill says that you can pay a $25
                        minimum!

     You decide to pay $25.

 What do you owe now?
                                                    16
$1000 - $25 = $975?
Nope! You owe $987.19
   (that’s $975 + 1.25% x 975)

                    Sure, it’s only $12.19 extra,
                    but it adds up every month.
                    And what if you want to buy
                    something else next
                    month? You still have a
                    huge balance to pay.
                                              17
      Review: Definitions

Credit: The ability to borrow money

Credit card: A card that lets you charge
   the bank for your purchases and pay for
   them later

Debt: Anything owed

Interest: A payment added to the amount
    owed as a fee for borrowing money
                                             18
 Advanced Definitions:
    What is APR?

APR = Annual Percentage Rate
 • Includes interest and other fees

 • Standard for all credit card companies

 • Can be changed at any time by the
   credit card company!
                                        19
Late Fees and Other Penalties


 Q: What’s worse than paying
    the minimum balance?

 A: Making a payment late.

                               20
Late Fees and Other Penalties

•Interest rates go up
   •Even 20% higher!

•Late fees are charged

•Credit rating goes down

                            21
                Credit Rating

• What: A measure of your spending and
  repaying habits
• When: From the first time you borrow
  money
     • Credit cards
     • Student loans
• Where: Everywhere you owe debts!
• Why: For employers, landlords, lenders, etc.
  to check that you’ll pay back on time
                                                 22
    What can change your
        credit rating?
• Credit card payment history,
  including late payments
• Not paying other debts like
  rent and doctors’ bills.
• Bouncing checks
• Bankruptcy


                                 23
Credit Scores




                24
            Identity Theft

• When someone uses your personal
  information — like your name, your
  Social Security number, or your credit
  card number — to commit fraud.

• Inaccurate information on your
  record as a result could affect your
  ability to get credit, insurance, or
  even a job!                              25
How can your credit affect
       your life?




                             26
What are the good reasons
  to use credit cards?




                            27
• Safety - $50 limit on liability.

• Convenience – automatic payments, track
  monthly spending, Internet purchases such
  as plane tickets, etc.




                                          28
• Special consumer protections.


• Credit cards can provide you leverage
  with a merchant.




                                          29
 Why is good credit important?
• Renting an apartment or getting a job.

• Your history of payments, employment
  and salary makes you a good
  candidate for a home loan or a car
  lease.

• Better interest rates.

• Better loan terms.
                                           30
• Different credit cards
  offer different
  ―rewards‖, such as air
  mileage, cash back
  and other discounts.

• Is it worth it?




                       31
What are the downsides
   of using credit?




                         32
• If your payment
  record is poor, your
  credit rating will
  suffer.

• A poor credit
  rating means
  credit will cost you
  more - you’ll pay
  higher interest.



                         33
• Or you may be denied credit or a loan
  entirely.




                                          34
• Money troubles can be embarrassing.




                                        35
REAL LIFE SCENARIO:
What if you bought ...




                         36
• Flat Screen
  TV for
  $1,000




                37
• You use your credit card to buy it and you
  make monthly payments of $25?

• Assume you never miss a payment and
  the annual percentage rate on your card
  is 15%.




                                               38
 What will the TV end up costing
               you?
                  &
How long will it take to pay for it?



                                       39
• It will take you FIFTY SIX MONTHS (almost 5
  years) to pay for it!!
• Your total cost will be $1,394.97
• That means that you will have paid $394 in
  interest to the credit card company.




                                                40
• Now, instead of a 15% rate, assume that,
  because you missed your first payment,
  your interest rate increases to a rate of
  24%.
• Also assume that you pay the monthly
  payment of $25 per month.
• It will take you 82 MONTHS (almost 7
  YEARS).
• Total payment: $2,032! (More than
  double the cost!)


                                              41
• By the time you pay it off, the TV you
  purchased will be outdated!




                                           42
Your choices:
• pay $1,000 cash - total

• pay $1,394.97 over 56
  months (almost 5 years)

• pay $2,032 over 82
  months (almost 7 years)



                            43
When you pay interest to the credit card
company, you are paying for nothing. You
do not get anything in return for these
payments.




                                           44
If you take the $1,000 you save as a result of
   paying cash, and invest it together with
      $1,000 every year until you are 60:

You’ll have saved approximately $450,000!




                                                 45
                         Recap
• Credit is important because:
   – It will allow you to obtain loans to purchase a car or a
     home; and
   – Some employers may require you to have good credit
     before offering you a job.
• Credit abuse is:
   – When you borrow more money than you are able to
     repay.
• Problems arising from credit abuse:
   – Bad credit reports
   – Bad credit ratings
   – Higher interest rates on credit cards and other loans
                                                                46
                    Tips
•   Limit the number of credit cards to 2.
•   Cancel any unused credit cards.
•   Find out what your credit score is.
•   Establish good credit.
•   Spend only what you can afford to repay
    each month by budgeting and
    purchasing only essential items.


                                              47
             Credit Report
• You may obtain your free credit report at:
  – www.AnnualCreditReport.com
  – (877) 322-8228
  – Annual Credit Report Request Service
    P.O. Box 105281
    Atlanta, GA 30348-5281
• Your credit score is compiled from three
  credit reporting agencies: Equifax,
  TransUnion, and Experian.


                                               48
    Credit Bureaus
Credit Reporting Agencies
              Equifax
          PO Box 740241
        Atlanta, GA 30374
           800.685.1111
        www.equifax.com

             Experian
           PO Box 2104
         Allen, TX 75013
          888.EXPERIAN
        www.experian.com

            TransUnion
       Post Office Box 2000
        Chester, PA 19022
           800.916.8800
       www.transunion.com
                              49

				
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posted:12/2/2011
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