Credit ManagementReview

History of Credit in America• 1800s

• Bartering• General store gave first credit

• Monthly, seasonal and yearly credit• Bank loans had very high interest rate

• 1900s• Moved from agricultural to labor based economy

• Weekly paychecks• People bought luxuries

• Credit became a its own business

History of Credit in America• 1970s

• US credit protection laws• Credit abuse / over use became common

• Today• Internet exploded use of credit cards by consumers and

businesses

• Non-banks now issue all purpose credit cards• Stores• Gas stations

Credit use

• Benefits• Convenience• Buy now pay later• Don’t need to carry cash• Emergencies

• Costs• Credit problems• Spending beyond what you can afford• Interest and fees

• Sacrifice other spending

Types of Credit• Personal Loans

• Student loans• Car loans• Debt consolidation• Etc.

• Mortgages• Primary (main home)• Secondary (main home, second home,

motor home)• Refinance – replace primary mortgage to

get a lower interest rate or money forsomething (wedding, college, boat, etc.)

• Lines of credit• Home equity line of credit• Student loan line of credit

Where to get credit

• Financial institutions• Bank, credit unions, saving and loan• Offer personal and business loans and credit cards

• Finance companies• Small companies• Usually charge high interest rates• Accept credit applications turned down

by other financial institutions• Controlled by usury laws (set

maximum interest rates by state)

Types of Loans Review

Purchase

Type of financing you would use

Type of Credit (open or closed-ended)

Secured (Yes/No)

Installment (Yes/No)

House Mortgage Closed Yes Yes

Furniture Personal loan Closed No Yes

New Car Personal loan Closed Yes (usually)

Yes

College tuition

Student loan (personal loan)

Closed No Yes

Holiday shopping

Credit card Open No No

Where to get credit

• Pawn broker• High interest loans backed by collateral• Accept collateral that is easy to resell

• guns, cameras, jewelry, electronics• Property must be bought back from the pawn broker

to be reclaimed

• Private lenders• Friends, family, acquaintances

• Life insurance policy• Borrow against value of policy

Credit cards today

Needed to:• Rent a car• Reserve a hotel room• Buy gasoline at night• Replacing travelers' checks

More competition leads to user rewards• Points (for travel, electronics, etc.)• Cash back

5 C’s of Credit

Lenders use these to decide if you are credit worthy.1. Character: reputation (who your are)2. Capacity: ability to pay (income/salary/paycheck)3. Capital: net worth or what you own 4. Collateral (asset that secures the loan)5. Conditions

• Principal• Interest rate• Length of time

Consumer BankruptcyThe U.S. Constitution affords you “the ability of relieve all or part of your debts when you can no longer meet your obligations to creditors and lenders” (About.com).

When you declare bankruptcy, the court will take possession of your assets (what you own of value) and liquidate it (sell it for cash) in order to pay off you debtors (the people/businesses you owe money to.

• Chapter 7 – Your liquidated assets are used to pay off your debt. Anything debt left unpaid will be discharged, or forgiven, meaning you are no longer responsible for paying it.

• Chapter 13 – The court sets up a repayment schedule to help you repay debts.More information at bankruptcylawyer.net

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