credit by wanghonghx

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									SPENDING & CREDIT: UNIT 5
 WHAT IS CREDIT:
 Arrangement to receive cash, goods, or services
 now, with an agreement to pay later.

 The loaned amount is called the principal

 Those supplying the loans/credit are called
 lenders/creditors

 Almost everyone will use credit at some point in
 life: Credit Card, Home Loan, Car Loan, College
 Loan,
COST of USING CREDIT
 Using credit can be dangerous:
       Statistics show about 60% carry some sort of
       debt. Meaning they owe money on something.

 You need to make comparisons about creditors and
 lenders.
       - Annual Percentage Rate (APR)
       - Fees/ Penalties
       -Credit Limit
       -Loan Term
       - Grace Periods

 (Read the Fine Print, Creditors can up the fees, rates
 For many reasons with little/no warning)
HOW TO AVOID THE FEES

PAY THE BALANCE IN
FULL BEFORE IT CAN
 ACCRUE INTEREST
 With a credit card, the easiest way to avoid finance charges is
 to pay off your balance in FULL every month

 If you pay off your entire balance each month, it does not
 matter what your APR or interest rate is…because you don’t
 gain any interest!
THE GOOD, THE BAD, & UGLY

   Open Ended Credit:
        - Credit Cards
        - Open Line of Credit form your Bank

   Closed Ended Credit:
        - Home Loan
        -Car Loan
        - College Loan




TAKE A FEW MINUTES TO LIST THE ADVANTAGES AND
DISADVANTAGES TO CREDIT IN YOUR NOTEBOOK
ARE YOU WORTHY???

LENDERS AREN’T GOING TO GIVE YOU CREDIT UNTIL
THEY KNOW YOUR CREDIT WORTHINESS:

-Collateral: Something you have to back up the loan,
   i.e. house, car

-Capital: Other things of value which could be used/sold
   for $ to help pay off loan

-Capacity: Do you have a regular income

-Character: Record of responsibility
CREDIT REPORTS AND SCORES
CREDIT REPORTS:                  CREDIT SCORES:

Just like your school report     Number that reflects credit
card records your success as     worthiness based on the 4 C’s
a student
                                 Creditors/Lenders use the # to see
Your credit report indicates     how risky you are
your success as a borrower               -Apply for Loans
                                         -Rent a Car
But…after school your report             -Buy a Cell Phone
card doesn’t matter.
                                 Your score changes over time
Your Credit Report follows
you around much longer           Scores range from 300-850

Includes open lines of credit,   I consider anything over 700 as
balances, late payments,         good, your book says over 680.
limits,

Stays on record 7-10 years
YOUR CREDIT SCORE
HOW TO GET GOOD         HOW TO GET A BAD SCORE:
SCORES:
                        LATE PAYMENTS
ALWAYS PAY BILLS ON
TIME                    BOUNCING CHECKS

MAKE REGULAR DEPOSITS   HAVING MANY OPEN LINES OF
INTO SAVINGS            CREDIT

BE CHOOSY ABOUT         HAVING HIGH BALANCES
CREDIT CARDS AND
LOANS                   CHANGING CREDITORS OFTEN

DO PUT THINGS ON A      HAVING A BIG DEBT/INCOME
CREDIT CARD AND THEN    RATIO
PAY IT OFF
CREDIT BUREAUS:
CREDIT BUREAUS:         YOUR RIGHTS:

                        You have the right to see
Equifax                 everything on the report

TransUnion              If you find a mistake the
                        Bureaus must fix it immediately
Experian                Unfavorable info comes off after
                        7-10 years
*By law you can get 1
report from each,       If you are turned down for
each year               credit, lender must tell you why

                        Truth in Lending Act-
                        Must give you all rates/charges
                        up front
Debt

   How could debt affect your life?
   Can cause stress and unwanted
    tension in your life
   Can even affect your relationships
   Remember: it’s a lot easier to get into
    debt than to get out of it
Debt Cont’d.

   Don’t hide from your debt, follow
    these steps:
    – Put away the plastic and stop adding to
      your debt
    – Make a commitment to repay all debts
    – Find out exactly how much you owe
    – Create a payment plan that works for you
How to get out of debt…

   Spend less than you earn!
   Stick to budget
   Pay all loans- even if it is minimum
   Prioritize- highest interest rate first
   Look for ways to cut costs
   Contact your creditors
   Seek help from a non-profit credit
    counseling agency
Bankruptcy

   Legal process to get out of debt when
    you can no longer make all your
    required payments
    – Should be your last resort
   Two types:
    – Chapter 7
    – Chapter 13
Chapter 7 Bankruptcy

   Allows you to erase MOST of your debt
   To qualify, you typically must be
    unemployed or have a very low
    income
   Must also undergo financial counseling
    as part of the process
Chapter 13 Bankruptcy

   Allows you to repay many of your
    debts over a period of time, usually no
    more than 5 years
   A court typically oversees the
    repayment plan to make sure that you
    do
Bankruptcy Cont’d.

   Not all debts will be erased
    – Student loans, child support, alimony,
      and any fines for crimes committed
   Much harder to declare chapter 7
   Stays on your record for 10 years
   Very hard to borrow money if you
    have bankruptcy in your record
   Picking through trash to find personal info
    – Tear or shred any papers with your info on it
   If you think someone has your card/info,
    close your accounts immediately/ contact
    your bank or credit card company
   Under the Consumer Credit Protection Act,
    the max amount you must pay is $50 if
    someone uses your card illegally
    – Most credit card companies will not charge you
      at all

								
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