Credit – A Promise to Pay (PowerPoint) by xusuqin


									A pig bought on credit is forever grunting. - Spanish Proverb
     Define the term credit
     Explain the Advantages and Disadvantages of
      using credit
     Name places where you can get credit
     List and explain the main types of charge
     Identify different types of credit cards
   Credit
   Creditor               Charge Account
   Debtor                 Revolving Account
   Interest               Installment Loans
   Consumer Credit        Multi-Purpose Card
   Commercial Credit
   An agreement to get money, goods, or
    services now in exchange for a promise to pay
    in the future.
   Creditor lends the money, Debtor borrows
    the money
   Interest is the money charged for using the
    borrow money

   For people used for         For business used on
    personal reasons             purchases for the business
     Student Loan                Raw Materials
     Buy a Car                   Machinery
     Out to Eat                  Salaries
     Shopping for clothes        Buildings and Land
                                Often times the cost can be
                                 passed along to the
                                 consumers with higher

   Convenience - Don’t have      Overspending – It is
    to Carry Cash                  tempting to buy things you
                                   can’t afford
   Buy now, Pay later –
    Temporary expansion of
    income                        Cost and Debt – The
                                   interest is compounded
   Emergencies                    and can drive up cost
   Consumers can use their account to buy now
    and pay later. This is a common type of
    short-term credit.
   Regular Charge
     You pay in full usually 25 to 30 days
   Revolving Charge
     Allows you to borrow up to a certain amount and
     make a minimum payment each month
   Budget Charge
     Allow you to pay for costly items in equal
     payments spread-out over a period of time
   Like charge accounts but some can be used in
    different places.
   Buy now, Pay later
   Single Purpose
     Can only be used to buy goods or services at the
      business that issued the card
   Multipurpose
     Work like revolving charge accounts and may be
      used at different stores. Mastercard & Visa
   Travel and Entertainment Cards
     Work like a regular charge (paid in full) for travel,
      business, or entertainment. American Express
   Single Payment Loan
     Debtor pays this back in one payment, including
   Installment Loan
     Loan repaid in regular payments over a period of
   Mortgage Loan
     This is an installment loan only written for a long
     period, such as 15 to 30 years. (Buying a Home)
   Consumer Finance Companies
     Are in the business of a making small or personal
     loans. Often customers have poor credit history,
     low income, or minimal assets
   Payday Loans
     A small, short-term, high-interest rate loan
   Pawnshop Loan
     You pawn an item for cash and then have certain
     period of time to buy it back with interest
No man's credit is ever as good as his money
     Name the 3 C’s of Credit
     Explain the costs involved in using credit
     Describe how to maintain a good credit rating
   Credit Limit        Annual Percentage
   Cosigner             Rate
   Down Payment        Finance Charge
   Principal           Variable Rate
   Secured Loan        Cash Advance
   Unsecured Loan      Grace Period
   Character
     Refers to a person’s reputation in paying debt
      back on time.
     They might ask for credit references.
     What are some examples?
   Capacity
     Refers to a person’s earning power and ability to
     pay debts from regular income.
   What are some examples?
   Capital
     Refers to items owned or assets.
     If you lost your job how would you pay back the
     What are some examples?
   Employment                 Collateral

   Residence                  Bank References

   Home Ownership

   Monthly Housing Costs

   Credit References
   Credit Rating / Score
     A numerical rating based on credit report
   Credit Report
     A record of a particular consumer’s transactions
     and payment patterns
                                           Excellent 850 - 730
                                              Great 729 - 700
                                              Good 699 - 670
                                           Average 669 - 585
                                               Bad 584 - 300
   The Creditor will evaluate your 3 C’s and
    decide how much you can borrow.

   Credit Limit
     The maximum amount you can spend on credit.
   If you have no, little, or a poor credit history
    you can still get a loan if someone will cosign.
   Cosigner
     A person responsible for the loan if you don’t
     make the payments.
   Generally they have a good credit rating.
DOWN PAYMENT                      PRINCIPAL

   A portion of the total cost      The amount of money you
    that you pay when you             borrow and have to pay
    purchase a product.               interest on.

   $20,000 Car

   Might require $5,000 as a        You borrow $15,000 as the
    Down Payment                      principal and pay interest
                                      over a 3-5 year period.

   Backed by collateral      No collateral required
   Annual Percentage Rate (APR)
     A percentage rate that determines the cost of
     your credit on a YEARLY basis
   Finance Charge
     Total amount a loan costs you stated in dollars
     and cents.
   Variable Rate
     This means the interest rate (APR) can change
     with the banking systems interest rates
   Grace Period
     The amount of time you get to pay off a debt
     without having to pay interest charges

   Cash Advance
     Borrowing money on a credit card rather than
      using it to make a purchase
     High Interest Rates!!!
   Annual Fees
     Some cards charge a yearly fee for using the card.
   Introductory Rate
     Generally a very low rate to get you started that
     will change over time. (0% for the first year)
   Rewards
     Companies will offer cash back, airline mileage,
If I owe you a dollar, I have a problem. If I owe you 1 million dollars, you
have a problem.
     Name and explain the federal laws that protect
     Describe credit problems
 Truth-in-Lending Law       Collection Agent
 Usury Law                  Fair Debt Collection
 Fair Credit Reporting       Practice Act
  Act                        Credit Counseling
 Fair Credit Billing Act    Consolidation Loans
 Equal Credit               Bankruptcy
  Opportunity Act
   Usury Law
     A law restricting the amount of interest that can
     be charged – varies from state to state

   Truth in Lending Law
     Requires creditors to inform consumers about the
     costs and terms of credit
   Fair Credit Reporting Act
     Right to Know
     Right to be Notified if someone is investigating
     Right to Privacy

   Fair Credit Billing Act
     Used to correct inaccuracies on your credit report
   Only three reasons to deny
     Low income
     Large current debt
     Poor record of making payments

   NOT based on Gender, Age, Ethnicity, or
   Collection Agent
     Person or Business that has the job of collecting
     overdue bills
   Fair Debt Collection Practices Act
     Collection agents must identify themselves
     Can’t tell others about debt
     Can’t contact you at work
     Can’t state the amount of debt on a postcard
   Credit Counseling
     Help you budget, contact creditors to arrange
     payment plans, or help find additional income

   Consolidation Loan
     Combines all of your debt into one loan with lower
   The legal process in which you’re relieved of
    your debts, but creditors can take some or all
    of your assets.

   A court-appointed trustee comes up with a
    plan to repay the debt on an installment basis

   Stays on Credit History for seven to ten years.
CHAPTER 7                         CHAPTER 13

   Liquidation of Assets            Adjustment of Debt

   Most unsecured debt is           3-5 years to get caught up
    eliminated                        on debts

   Start over with poor credit      One monthly payment to
    rating                            bankruptcy trustee

                                     Might keep property /
                                      some assets

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