Personal Finance Chapter 18

an arrangement to receive cash, goods, or services now and pay for them in the future/get something now and pay for it later.

Credit

What are some disadvantages of using credit?

Credit does not give you more spending power now, it just ties up your income for the future! It can cost you a lot of money in interest if you can't pay the entire bill when it is due

What is The measure of a person's ability and willingness to make credit payments on time?

Credit rating

What do you look for when choosing your first credit?

Look for no annual fee Start with a low credit limit Make one purchase per month, and then pay it off each month. You may want to work with your bank to get a secured card as your first credit card to build up your credit history Don't apply for several retailer cards

You can buy whatever you want up to a certain limit and pay it back by a specified date or pay interest. Also called revolving credit Examples: Mastercard

Open-End credit(credit card)

Some bad things to use credit for are...

to buy something you can't afford

What's the difference between a credit score and credit report?

Your credit score is based on the information held in your credit report. A credit report is a detailed report of an individual's credit history

What are the 5 C's you should have when applying for a loan?

Character: Will you repay the loan? Capacity: Can you repay the loan? Capital: What are yours assets and net worth? Collateral: What if you don't repay the loan? Conditions: What if your job is not secure?

A one-time loan for a one time purchase Also called installment credit You make equal monthly payments for an extended period of time to pay off the purchase. usually used to buy bigger items(house/vehicle)

Close-End Credit

What questions can you ask to know if you should use credit?

Do you have cash for a down payment (at least 20% of purchase price)? Should/could you use savings instead of credit? Can you afford the item? Could you use the credit in some better way? Could you wait to purchase it? What are the opportunity costs of postponing the purchase? What are the costs of using credit?

Some good things to use credit for are...

Emergencies High priced items(house/car)

What does FICO stand for

Fair Isaac Corporation-company that provides software for calculating credit scores.

What are things to know when thinking about taking out a loan?

How long are you going to be paying it back? How much of a down payment do you have? What interest rate can you get? How much will you owe every month?

What are the advantages of using credit

You get something to enjoy now and you don't have to pay for it until later. Allows you to make hotel reservations, rent a car, shop online Travel is safer Many purchases are protected against fraud or faulty goods

What are signs of debt problems?

You make only the minimum monthly payment on credit cards You struggle to make that monthly minimum payment. Your credit card balance is increasing every month. You miss loan payments or are often late. You use savings to pay for necessities like food and utilities. You borrow money to pay off old debts. You exceed your credit limits. You have been declined because of bad credit.