+FUN FACTS
$159 Billion in 2007
10% - Credit Cards
20% - Ask Parents
Owes about $230
1 in 4 youths (16-18) - $1,000
Average Family: $9,000
+Advantages of Credit
Able to buy needed items now
Don’t have to carry cash
Creates a record of purchases
More convenient than writing checks
Consolidates bills into one payment
+Disadvantages of Credit
Interest (higher cost of items)
May require additional fees
Financial difficulties may arise if one loses track of how much has been spent each month
Increased impulse buying may occur
Credit, its availability, and its costs
Borrow money or use
creditBorrower
The person or company who loans money
Creditor
+Kinds of Credit
Open-Ended Credit Can be used over and over again pending customer
agreement
Open 30-Day accounts Travel-entertainment cards (American Express and
Diner’s Club) Widely Accepted nationwide and overseas Have high or no credit limits Provides instant purchasing power
+Kinds of Credit
Revolving Credit Accounts All purpose credit card: Visa, MasterCard, and Discover
Widely accepted nationwide and overseas Provide instant purchasing power
Retail store cards: department stores and gas companies
Only accepted at participating stores Provide instant purchasing power
+Applying for a Credit Card
Costs: Annual Percentage Rate (APR) Grace period (free period) Annual Fees Transaction Fees Balancing computation method for the finance charge
Features: Credit limit How widely the card is accepted What services and features are available
+Kinds of Credit
Open-Ended
Closed-Ended Credit A loan for a specific amount of time that must be repaid, in full,
including all finance charges, by a stated due date. Very expensive items: cars, furniture, and major appliances. Statement includes: Amount loaned, finance charges, payment
amount. Collateral
Service Credit Have a service performed now and pay for it later Examples: Phone, utilities, doctors, and lawyers Terms are set by individual businesses Usually paid in full with no finance charges or a budget plan
+Sources of Credit
Retail Store
Credit Card Companies
Banks and Credit Unions
Finance Companies
Pawnbrokers
Private Lenders
Other Sources of Consumer Credit
+Credit Cards Do’s and Don’ts
Shop around Look at various sources.
Read and understand the contract Read the contract carefully Don’t rush into signing anything Once a contract is signed, get a copy of it. Know the penalties for missed payments
Know your cost Figure out the total price when paying with credit. Make the largest payments possible Know the penalties for missed payments Buy on installment credit only after you have evaluated all other
possibilities. Don’t be misled into thinking small payments will be easy.
+Qualifying for Credit
5 C’s of Credit
Character – Will you repay the debt?
Capacity – Can you repay the debt?
Capital – Is the creditor fully protected if you fail to repay?
Conditions – What general economic conditions can affect your repayment or debt?
Collateral – What assets back up your promise to pay?
Credit Rating and Report
Credit Score Rating
720 – 850 Excellent
680 – 720 Good
640 – 680 Fair
350 – 640 Poor
000 – 349 No Credit
This central site allows you to request a FREE credit report, once every 12 months from each of the nationwide consumer credit reporting companies. Equifax, Experian, and TransUnion.
+Credit Rating and Report
Summary of Information
Public Record Information
Credit Information
Account Detail
Requests for Credit History
Personal Information
+Consumer Protection
Truth in Lending Act (1968)Ensures consumers are fully informed about cost and conditions of borrowing.
Fair Credit Reporting Act (1970)Protects the privacy and accuracy of information in a credit check.
Equal Opportunity Act (1974)Prohibits discrimination in giving credit on the basis of sex, race, color, religion, national origin, marital status, age, or receipt of public assistance.
Fair Credit Billing Act (1974)Sets up a procedure for the quick correction of mistakes that appear on consumer credit accounts.
Fair Debt Collection Practices Act (1977)Prevents abuse by professional debt collectors, and applies to anyone employed to collect debts owed to others; does not apply to banks or other businesses collecting their own accounts.
+CARD ACT
On Feb. 22, 2010, the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) took effect.
It is a comprehensive credit card reform legislation that aims to establish fair practices relating to the extension of credit under an open end consumer credit plan.
New rules credit card companies must follow to ensure CONSUMER PROTECTION.
Provisions include: Interest rates, due dates, misleading terms, set limits, minimum payment explanation