What is the price of
Key Words for the Lesson:
• Consumer credit
• Commercial Credit
• Credit Rating
• Charge Account
• Revolving Account
• Installment Loans
What is Credit???
• Credit: an agreement to get money, goods, or
services now in exchange for a promise to pay in
• Creditor: one who lends money or provides
• Debtor: one who borrows money or uses credit
• (Credit is based on the creditor’s confidence that
the debtor can and will make payments-Credit is
a matter of Trust)
• Interest: fee that creditors charge for using their
• The amount of interest is based on 3 Factors!
1)Interest Rate: percentage of the total amount
2)Length of the Loan: longer the loan the more
3)Amount of the Loan: more the amount the more
interest you pay.
Interest rates vary among lenders. It is very
important that you shop around for the best rate!
Who uses Credit?
• Many, Many people! And probably you!
• Credit has replaced money as many means of
• Consumer Credit: the type of credit used by
people for personal reasons
• Businesses use credit just as people do! They
may need to borrow money to pay salaries, pay
for materials, or other goods.
• Credit used by businesses is: Commercial
Advantages of Credit
• Main advantage is: Convenience!
• Buying on credit allows you to establish a
Credit Rating: a measure of a person’s
ability and willingness to pay debts on
time. (a good rating tells lenders that you
• Credit contributes to the growth of the
economy! You will tend to buy more when
using credit-thus creating more jobs, etc.
Disadvantages of Credit
• Although it is convenient it is very easy to misuse. You
may be tempted to by more that you can not afford, buy
too much, or buy things that you don’t need.
• Items cost more when using credit and not cash because
of interest rates! The more items you buy the longer it
will take to pay off your credit card bills.
• If you fall behind on paying your credit bills- your credit
rating will drop, therefore creating a domino effect! Your
credit rating will drop!
• Always remember-when using credit, it’s not money
you own, it’s money you owe!
• What is the difference between creditor
• What is commercial credit?
• Name the advantages and disadvantages
of using credit?
• Define: Credit, Creditor, Debtor, Interest,
Consumer Credit, Commercial Credit,
Types of Credit
• Loans (Long – term, short-term, Medium –
• **The risk a creditor takes in lending
money or selling on credit is the most
important factor in determining the cost of
• Businesses and Banks lose up to $1.5
Billion a year in credit fraud!!!
Short-Term and Medium-term
• Short-term loan- one year of less
• Medium – term- one to five years
• Most common type of short term and
medium term loan is: Charge Accounts.
• A charge account is generally used by
dealers or stores. They allow the
customer to buy now and pay later! There
are 3 types of charge accounts: Regular,
Revolving, and Budget.
Regular Charge Accounts
• These require that you pay for your
purchases in full within a certain period
(usually 25-30 days).
• If the bill is paid on time, you do not have
any interest, however if it is not, interest is
Revolving Charge Accounts
• A revolving charge account allows you to
borrow or charge up to a certain amount of
money and pay back a part of the total or
the entire balance for each month.
Budget Charge Accounts
• These accounts let you pay for costly
items in equal payments spread out over a
period of time.
• Many are Medium – term loans for up to 5
• Each payment includes part of the total
due on the item plus interest.
• Examples are: large home appliances,
cars, and furniture
• Like charge accounts except they can be
used in many different places.
• Credit card companies earn money from
the interest they charge
• There are 3 types of credit cards: single-
purpose, multipurpose, and travel and
Single purpose cards
• These can only be used to purchase
goods or services at the business that
issued the card.
• The operate like revolving charge
• Each month you receive a statement, you
can pay all or part of the amount owed.
• Example: Lowe’s, BP, Parisians
• These cards are also called bank credit cards
because banks issue them
• They also work like a revolving charge account.
• These cards may be used at many different
stores, restaurants, and other businesses all
over the world
• Examples: VISA, MASTERCARD, &
• These cards usually have an annual fee unlike
the multipurpose cards!
How will credit card
and banks know that they
can trust you?
Answer the following 2
slides on a separate sheet
1. How do you know when you can trust someone?
2. Some adults say that your generation cannot be
trusted, that you've lost the values from past generations.
Do you agree, or disagree?
3. Is it a good idea to risk losing your parents' trust for
4. How important is trust in your relationships with
friends and family? How would these relationships be
affected if you found out someone was lying to you?
5. Once trust has been broken, what can you do to get
it back? Have you ever lost someone's trust? Has
someone lost your trust? Explain.
6. If your friends were here right now, would they say you were
trustworthy? What would your parents say? Are you more
trustworthy with your friends or with your parents? Do you think
your parents should trust you automatically? Why or why not?
7. If you want someone to trust you, who has most of the
responsibility— you or the other person? Why?
8. As a general policy, should we start off trusting people and
only stop trusting if they prove that they're not worthy? Or should
we be cautious and not trust them until they prove themselves
worthy? What are the advantages and disadvantages of each
9. What does being trustworthy have to do with the quality of
10. What are the benefits of being a trustworthy person? How