PRINCIPLES OF BUSINESS
APRIL 16 & 17, 2012
HOW TO GET AND KEEP CREDIT
Journal: What is the last thing your family bought with
credit and why?
Objective: (11) Student understands the fundamental
principles of money.
TEKS: (f) summarize the purposes and importance of
2E Use technology to learn/review
3E Share in cooperative groups
4D Use pre-reading material
5B Use new vocabulary
Applying for Credit
• Fill application
Where you live, work, income, savings,
references, and other credit.
• When accepted for credit, you sign a security
agreement that explains the loan details.
• Your signature states that you agree and will
follow all rules and terms.
Your Credit Worthiness: The Five C’s
Creditors want to find out if you are worth taking
the risk of lending you $$$. They consider the
1. Capacity to pay. If you have a job, how much you
make, and how long you’ve been employed
determine your capacity.
2. Character. Check credit references. Check
3. Credit History. Credit bureau, an agency that
collects information about your credit history.
Cont.’d: The Five C’s
4. Captial. Your Capital is how much you have
beyond what you owe. Cash, savings,
investments, and possessions. They want to
know if you can pay back if you lose job.
5. Collateral. Consists of property or valuables.
Security for a loan. If you fail/default on loan,
the creditor can take whatever you put up as
security, such as home, car, or boat.
Creditors will take into account several factors
to determine how much they can lend
• Maximum amount you can spend or charge
on credit account is CREDIT LIMIT.
Note: you are not allowed to pass credit limits.
If you pay on time, creditors often raise your
limit on credit.
• Cosigners – is responsible for a loan if you don’t
make payments or fail to meet your credit
Credit cards and charge accounts are usually
convenient ways to use for inexpensive
purchases. For expensive items such as, furniture,
cars, homes, and appliances are long term loans.
What cost less to borrow? Are interests rates
different between both types of credit?
• Down payment – a portion of the total cost that
you pay when purchasing a product or service.
• Principal – the amount of money you owe and
on which the interest is based.
Example of car: $5000 sales price
What is the principal?
Secure and Unsecured Loans
If a loan is backed by collateral, it is a secured
loan. If not, it is a unsecured loan.
Paying for Credit
• Annual Percentage Rate (APR) – Percentage rate
determines the cost of your credit on a yearly
Finance Charges – the total amount it costs you to
finance the loan stated in dollars and cents. This
will include interest and any other charges.
• Variable Rate – rate changes as interest rates in
the banking system change. (i.e. Mortgage Loans
and fixed rates remain the same).
Cont.’d: Paying for Credit
• Cash advance- you borrow money on a credit
card rather than use it to make a purchase.
Grace Period – is amount of time you get to pay
off a debt without having to pay interest
charges. Pay in full, this is where credit cost
To continue using credit or to get new credit,
you need to maintain a GOOD CREDIT RATING.
Your CREDIT BURDEN
Experts in finance say that you shouldn’t use
more than 20% of income for credit payments.
Total Income – Total credit Payments = 80 %
20% + more in payments = Life Quality
• Minimum Payments
always pay more than minimum payment and pay as
soon as possible
• Overextending Your Credit
reaching credit limits and using other accounts to pay
minimum payments (SCARY + HELP)
Some credit contracts allow creditors to take all or part
of your paycheck if you miss payment is Garnishment
of Wages. Collateral is risk of repossession if you don’t
pay back. The creditor then is capable of selling the
collateral to someone else to obtain the money you
once owed them.
Unfortunately, a majority of young people are
in debt. There are plenty of professionals out
there with books and advice on debt
management. Use the internet to research
information on web sites that provide
consumer credit information. Select five sites
you think are the best and explain why they
are useful through a Power Point presentation
of your findings. Save to (H) & (I) drives.
April 18, 2012
With a partner, choose a high-priced item such as a car, computer system,
or entertainment center for your home that would probably be purchased
on credit. Both of you should investigate the terms of credit from a
different credit sources, such as commercial banks, credit unions, in-store
financing, and/or credit cards.
• Consider the following:
• Is credit available from the seller?
• Is a down payment required?
• What is the APR?
• What would the monthly payment be?
Make a presentation on Power Pt. with your partner of information from
research gathered. Explain what is the best option financially.