Credit Borrowing Money Credit is Using money now
Credit / Borrowing Money
Credit is… • Using money now and promising to pay for it later • Individual lenders set the interest rate for different types of loans or credit cards 2/18/2021 Free template from www. brainybetty. com 2
Credit is made up of… • The PRINCIPLE – the amount borrowed • And the INTEREST – the extra amount paid to the lender as a fee for borrowing it 2/18/2021 Free template from www. brainybetty. com 3
Forms of credit… • Loans from banks, savings & loans, credit unions or finance companies • Cards like visa, mastercard • “rent to own” places 2/18/2021 Free template from www. brainybetty. com 4
Good uses of credit… • Buying DURABLE goods (things that last at least 3 years) such as houses, cars, starting a business, large appliances, etc. • Things you are paying off in full within 30 days • Things that will last longer than the payments 2/18/2021 Free template from www. brainybetty. com 5
Poor uses of credit • Short life items – pizza, entertainment, frivolous items • Using 1 credit card to pay another • Impulse purchases • Puchases that will not last as long as the payments 2/18/2021 Free template from www. brainybetty. com 6
Loans from commercial banks… • Usually called INSTALLMENT LOANS – you pay the same amount every month • House loans are called MORTGAGES • Rates vary from 5% (houses) to 25% (credit cards and personal loans) 2/18/2021 Free template from www. brainybetty. com 7
Other loans • Finance companies – can have high interest rates (15% 45%) aiming at people with poor credit or who might not qualify at a bank 2/18/2021 • Payday loans – VERY high interest rates (20% - and up!) for people in immediate need, may have poor credit Free template from www. brainybetty. com 8
Credit card vs charge card • Credit (like visa, mastercard, discover) are used in many places and are issued by banks • Charge cards are one store use (GAP, Belks, JCPenney) and are issued by that store 2/18/2021 Free template from www. brainybetty. com 9
Credit card vs Debit card 2/18/2021 ADVANTAGES DISADVANTAGES CREDIT CARDS -CAN BUY NOW -CAN HELP BUILD A GOOD CREDIT SCORE -MUST PAY INTEREST -FRAUD & ID THEFT RISK DEBIT CARDS -NO BORROWED MONEY -EASY & CONVENIENT -MUST KEEP TRACK OF SPENDING -LIMITED BY AMOUNT IN ACCOUNT Free template from www. brainybetty. com 10
Payment methods: • Total amount billed must be paid each month or the card cannot be used – American Express • Revolving – must pay a minimum of the balance, may continue to use card up to credit limit 2/18/2021 Free template from www. brainybetty. com 11
Things to look out for… • Spending up to your credit limit can increase the interest rate even if payments are made on time • Certain cards indicate credit problems • Secured cards must be paid for before they can be used • Using one card to pay another damages your credit rating 2/18/2021 Free template from www. brainybetty. com 12
Credit score/rating? ? ? • Given a # between 300 and 850 based on credit used and payment history • What is mine? – www. annualcreditreport. com • Entitled to one free credit report each year • Agencies: TRW, Equifax 2/18/2021 Free template from www. brainybetty. com 13
Why should you know your score? • Can spot problems such as incorrect info or identity theft • Know whether you qualify for loans or not • Know if you need to improve your scores 2/18/2021 Free template from www. brainybetty. com 14
What is a credit check? • When an agency looks at: – Your payment history (including checking account management) – Your ability to pay the loan – Your character (have you moved a lot, left bills unpaid, changed jobs a lot) – What you have as collateral* for the loan • *collateral – property used to secure the loan if you don’t pay it back 2/18/2021 Free template from www. brainybetty. com 15
Credit check results… • A good score = an unsecured loan – no collateral necessary, you’re a good risk! (harder than secured to get) • A lower score = a secured loan – you must provide collateral for the loan in case you don’t repay it 2/18/2021 Free template from www. brainybetty. com 16
Laws… • Truth in lending laws – you must be provided with a credit report if you are turned down for credit • Equal Credit Opportunity Act – loans cannot be based on race, religion, etc. • Usury Law – states can set a maximum interest rate on loans • Bankruptcy – must give up what is owned, payments over many years to pay debt, stays on credit rating for 10 years. Use only as a last resort! 2/18/2021 Free template from www. brainybetty. com 17
Beware! • Ads for companies who can ‘repair’ your credit • Lenders that don’t want to tell you the interest rate • “payable on demand” loans • Too many consolidation loans • Bounced checks • Sometimes – owner financing 2/18/2021 Free template from www. brainybetty. com 18
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