what do you know about credit? credit. “but roger, everyone spends more that he earns. that’s...

What do you know about credit?

Credit

“But Roger, everyone spends more that he earns. That’s what Canada is for.”

Credit Cards

■ Would you get a credit card?■ How would you use a credit

card/what would you use it for?

Credit

Buy now...

pay later!■ Impulse buying■ Instant gratification

What is Credit

■ The privilege of using someone else’s money to purchase an item or service now and then paying for it later

■ Creditor: the person or business that sells on credit or grants a loan

■ Debtor: the person or business that buys on credit or obtains a loan.

Credit

■ Advantages• saving money• credit rating• monthly

statement• instant

enjoyment• convenience• emergency

needs

■ Disadvantages• credit costs

• impulse buying• overbuying• financial

difficulties

Types of Credit

■ Credit cards■ Instalments; store credit (The Brick

“Don’t pay for a Year” Event)■ Loans

○ term (fixed set of time) – car loan/lease○ demand – requires collateral○ mortgage○ line of credit○ school loan

Student Loans-OSAP

Ontario Student Assistance Program (OSAP)

■ Government funding for college/university

■ Comes in form of a grant (don’t have to pay back) or a loan (do have to pay back)

OSAP

■ Eligibility:○ Canadian citizen○ Considers: marital status, school

attending, program, your family’s potential to contribute

■ Ave 4 year degree debt = ~$21,000■ Ave 2 year diploma debt = ~$12,000

OSAP

■ Post-graduation, you get 6 months where you don’t need to pay the loan back and are not charged interest

Average time to pay off your OSAP debt:

9.5 years

30% off Tuition

■ Ontario govnt currently running a promotion for 30% off your tuition!!!

■ Eligibility:○ Canadian citizen/resident○ Full-time student○ Left high school <4yrs○ Undergraduate degree○ Parents make less than $160K

Why Be a Lender?1. Why do banks and stores offer

credit?○ to increase sales○ to attract customers

2. How do lenders make money by offering credit?

○ potentially collect interest charges (make money)

Applying for Credit

■ Why would you apply for credit card?○ access funds in an emergency○ security when traveling○ to create a credit history○ establish a credit rating

Credit Rating

What does this mean?■ Information is collected on both individuals

and businesses for a period of seven years

■ Keep track of defaults (debt that has gone unpaid for so long that the creditors wonder if they money will ever be paid back)

■ Indicates the level of risk that a consumer, business, or government will pose if credit is granted by a business

■ Bad credit rating can get you denied for a car loan or a landlord may refuse to rent to you

Why is it important?

How Do I Establish a Credit Rating?

■ Students:1. Getting and keeping a job

2. Buying something on credit (with credit card)

and paying it off before interest is charged

(magazine)

3. Having someone, such as a family member

or close friend with a good credit rating, co-

sign a loan

Applying for Credit

■ 3 C’s of Credit○ Character○ Capacity○ Capital

Character

■ Individual financial personality○ Regular employment (how long)○ Willing to accept responsibility for

debt (pay bills on time)○ Has a bank account○ Reliable in job ○ Present address (how long)○ Good credit report

Capacity

■ Ability to repay debt on time○ Income level –steady job○ Children○ Other debts, monthly payments

■ Car loan■ Mortgage/rent■ Other credit cards■ Other household bills (Hydro, phone)

Capital/Collateral

■ Financial value or worth of the person –assets used to repay debt○ The total value of possessions e.g.,

houses, cars. savings, investments, etc. that could be sold

Credit Cards

Video: Credit Card Animation

1. With a credit card I don’t have to delay getting what I want.

2. I don’t have to ask myself the question “Do I really need or want this” or

“Do I have enough money to buy this?”

3. I can buy whatever I want when I want!

Credit Cards

■ How does interest work?■ When does it come into play?■ What is the actual cost of an

item purchased using a credit card?

Video: Credit Cards Debt Explained

Credit Card Debt

Scenario:● $2000 outstanding on credit card● 2.5% minimum payment required (or

$10.00, whichever is greater)● Option 1 – pay the minimum each month ● Option 2 – pay the minimum + $50.00● Option 3 – pay a fixed amount of $200.00

Rule of 20-10

Tells you how much credit (debt) you can afford

● Do not borrow more than 20% of your annual net income (not including your mortgage)

● Payments on these loans should not equal

more than 10% of your monthly net income